10-Q 1 d29447_10-q.htm 10-Q HTML



U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)
x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

      For the fiscal quarter ended                 March 31, 2012                 

o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

               For the transition period from                              to

VYCOR MEDICAL, INC.

(Exact name of small business issuer as specified in its charter)

                             
  Delaware           333-149782           20-3369218  
  (State of Incorporation)           (Commission File Number)           (IRS Employer Identification No.)  

6401 Congress Ave., Suite 140, Boca Raton, FL 33487
(Address of principal executive offices) (Zip code)

Issuer's telephone number: (561) 558-2000

Securities registered under Section 12(g) of the Exchange Act:

Common Stock par value $0.0001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

                 
        Large accelerated filer o     Accelerated filer o  
  Non-accelerated filer o (Do not check if a smaller reporting company)     Smaller reporting company x  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

There were 842,027,670 shares outstanding of registrant's common stock, par value $0.0001 per share, as of May 4, 2012.

Transitional Small Business Disclosure Format (check one): Yes o No x


TABLE OF CONTENTS

                       
  PART I  
  Item 1.     Financial Statements           3  
        Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011     3  
        Unaudited Consolidated Statements of Operations for the three months ended March 31, 2012 and March 31, 2011     4  
        Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2012
and 2011
    5  
        Notes to Unaudited Consolidated Financial Statements     6  
  Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operation     18  
  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     28  
  Item 4.     Controls and Procedures           28  
  PART II  
  Item 1.     Legal Proceedings           29  
  Item 1A.     Risk Factors           29  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     29  
  Item 3.     Defaults Upon Senior Securities           29  
  Item 4.     (Removed and Reserved)           29  
  Item 5.     Other Information           30  
  Item 6.     Exhibits           30  
                       
  SIGNATURES           30  

2


PART I

ITEM 1. FINANCIAL STATEMENTS

VYCOR MEDICAL, INC.
Consolidated Balance Sheets

                 
        March 31,
2012
(unaudited)
    December 31,
2011
 
  ASSETS               
                 
  Current Assets               
  Cash   $ 405,991   $ 950,841  
  Accounts receivable, net     314,651     313,679  
  Inventory     311,972     184,070  
  Prepaid expenses and other current assets     537,730     881,005  
  Total Current Assets     1,570,344     2,329,595  
                 
  Fixed assets, net      989,230     671,291  
                 
  Intangible and Other assets:               
  Trademarks     251,157     130,000  
  Patents, net of accumulated amortization     542,177     379,579  
  Website, net of accumulated amortization     4,372     4,906  
  Security deposits     56,269     56,269  
        853,975     570,754  
                 
  TOTAL ASSETS    $ 3,413,549   $ 3,571,640  
                 
  LIABILITIES AND STOCKHOLDERS' EQUITY              
                 
  Current Liabilities               
  Accounts payable   $ 192,658   $ 176,181  
  Accrued interest     88,651     56,993  
  Accrued liabilities     865,746     754,895  
  Other current liabilities     239,855     72,122  
  Notes payable - current     1,643,229     1,636,125  
  TOTAL CURRENT AND TOTAL LIABILITIES      3,030,139     2,696,316  
                 
  STOCKHOLDERS' EQUITY              
  Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 55.8 and 62.8 issued and outstanding as at March 31, 2012 and December 31, 2011 respectively   $ 1   $ 1  
  Common Stock, $0.0001 par value, 1,500,000,000 shares authorized, 837,972,113 and 807,205,445 shares issued and outstanding at March 31, 2012 and December 31, 2011 respectively     83,797     80,721  
  Additional Paid-in Capital     12,735,413     12,432,114  
  Accumulated Deficit     (12,445,134 )   (11,661,704 )
  Accumulated Other Comprehensive Income     9,333     24,192  
                 
        383,410     875,324  
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 3,413,549   $ 3,571,640  

See accompanying notes to financial statements

3


VYCOR MEDICAL, INC.
Consolidated Statement of Operations
(unaudited)

                       
        For the three months ended
March 31, 2011,
 
        2012           2011  
                    (restated)  
                       
  Revenue   $ 432,601         $ 145,122  
                       
  Cost of Goods Sold     79,422           22,373  
                       
  Gross Profit     353,179           122,749  
                       
  Operating expenses:                    
  Research and development     24,687           23,852  
  Depreciation and Amortization     81,576           49,405  
  General and administrative     1,054,973           961,271  
  Negative Goodwill on Acquisition of Subsidiary     (66,394 )         -  
  Costs related to Acquisition of Subsidiary     18,285           -  
        1,113,127           1,034,528  
  Total Operating expenses                    
                       
  Operating loss     (759,948 )         (911,779 )
                       
  Other income (expense)                    
  Other income (expense)     8,118           -  
  Interest expense     (31,600 )         (23,921 )
  Total Other expense     (23,482 )         (23,921 )
                       
                       
  Net Loss Before Taxes     (783,430 )         (935,700 )
                       
  Taxes                 -  
                       
  Net Loss     (783,430 )       $ (935,700 )
                       
  Loss Per Share                    
  Basic and diluted   $ (0.001 )       $ (0.001 )
                       
  Weighted Average Number of Shares Outstanding     833,132,613           726,735,567  

See accompanying notes to financial statements

4


VYCOR MEDICAL, INC.
Consolidated Statement of Cash Flows
(unaudited)

   For the three months ended
March 31, 2011
   2012  2011
         (restated) 
Cash flows from operating activities:          
Net loss  $(783,430)  $(935,700)
Adjustments to reconcile net loss to cash used in operating activities:          
Amortization of intangible assets   25,402    14,047 
Depreciation of fixed assets   57,910    39,087 
Share based compensation   149,342    208,219 
Shares based interest expense   —      325 
Net loss as adjusted for non-cash items   (550,776)   (674,022)
           
Changes in assets and liabilities:          
Accounts receivable   (440)   (7,728)
Inventory   (127,741)   (2,263)
Prepaid expenses   143,226    (20,087)
Security deposit   —      (1,100)
Accounts payable   16,061    95,814 
Accrued interest   31,658    22,986 
Accrued liabilities   103,281    (18,002)
Other current liabilities   (516)   42,053 
           
Cash used in operating activities   (385,247)   (562,349)
Cash flows used in investing activities:          
Purchase of fixed assets   (8,047)   —   
Purchase of website   —      (1,208)
Acquisition of subsidiary   (153,601)   —   
Acquisition of patents   3,690    (7,828)
Cash used in investing activities   (157,958)   (9,036)
Cash flows from financing activities:          
Net proceeds from issuance of Common stock   —      144,000 
Net proceeds from issuance of Notes Payable   3,842    504,000 
Repayment of Notes Payable   (9,103)   (5,249)
Cash provided (used) by financing activities   (5,261)   642,751 
Effect of exchange rate changes on cash   3,616    (10,103)
Net (decrease) increase in cash   (544,850)   61,263 
Cash at beginning of period   950,841    127,081 
Cash at end of period  $405,991   $188,344 
           
Supplemental Disclosures of Cash Flow information:          
Interest paid:  $197   $—   
Taxes paid  $—      $542 
Non-Cash Transactions:          
Warrants, options and common stock issued for acquisition of subsidiary  $287,000   $—   
Deferred consideration payable  $155,330   $—   
Warrants, options and common stock issued for debt financing  $—     $4,143 

5


VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
(unaudited)

1.  BASIS OF PRESENTATION

The condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the accompanying unaudited condensed financial statements have been prepared by Vycor Medical, Inc. (together with its consolidated subsidiaries, the "Company" or "Vycor") in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to the quarterly report on Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2012. Certain prior period amounts have been reclassified to conform to the current presentation.

2.  FORMATION AND BUSINESS OF THE COMPANY

Business Description

Vycor Medical, LLC was formed on June 17, 2005 as a New York Limited Liability Company. The Company changed its name to Vycor Medical, Inc. and converted to a Delaware Corporation on August 14, 2007 and issued 16,048 shares of common stock in exchange for each of the 1,122 partnership units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the earliest period presented. Accordingly, all references to number of shares prior to the date of conversion are based upon the common stock equivalent of the partnership units outstanding on such dates.

The Company designs, develops and markets neurological medical devices and therapies through two operating divisions: Vycor Medical and NovaVision. Vycor Medical focuses on brain and cervical surgical access systems for sale to hospitals and medical professionals; NovaVision focuses on neuro-stimulation therapies and diagnostic devices for the treatment and screening of vision field loss.

3.   GOING CONCERN

The Company's financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $783,431 for the three months ended March 31, 2012, and the Company expects to continue to incur substantial additional losses in the future, including significant development, marketing, manufacturing and distribution costs. The Company has generated negative cash flows from operations since inception. As of March 31, 2012 the Company had a stockholders' equity of $383,410 and cash equivalents of $405,991. The Company believes it will not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The 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.

4. BUSINESS ACQUISITION

On January 4, 2012, the Company completed its acquisition (the "Acquisition") of all of the shares of Sight Sight Limited ("Sight Science") in the UK, a company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological visual loss. The total consideration to the Sight Science shareholders was £384,768 (US$597,660); comprising: £200,000 (US$ 310,660) cash, of which £100,000 (US$155,330) was paid at the Closing and an additional £100,000 (US$155,330) cash to be paid to the Sight Science shareholders on the one-year anniversary of the

6


Closing; an aggregate of 14,350,000 restricted shares of the Company, which are the subject of lock-up agreements between the Parties and which at Closing were valued at £184,768 (US$287,000).

As required under Financial Accounting Standards Board Accounting Standards Codification ("ASC") 805, Business Combinations, the Company commissioned an independent appraisal of the assets acquired which was finalized in March 2012. The Company determined the fair value of the assets acquired pursuant to the acquisition method as defined in ASC 805 and ASC 350, Intangibles-Goodwill and Other. Included in this valuation were assumptions concerning the cost of equity determined via the build-up method, the cost of debt and the weighted average cost of capital. Cash flows as included in the valuation were projected based on historical operations as well as management's projections for future results based on these historical amounts. The trademark and patent valuations were based upon the Relief-from Royalty Method on an after tax basis. The value of the Internally Developed Software was based upon the Multi-period Excess Earnings Method utilizing, among other factors, a discount rate based on the Weighted Average Cost of Capital.

The assets of Sight Science were entered into the Company's consolidated accounts on the basis of this valuation. As a result, the Company generated negative goodwill on acquisition of $66,394 which has been taken to the Consolidated Statement of Operations for the three months ended March 31, 2012.

The expenses of the transaction, which primarily comprised legal fees and audit fees in connection with the Form 8-K/A filed on March 21, 2012 and the ASC 805 valuation amounted to $18,285.

The following table represents the final purchase price allocation to the estimated fair value of the assets and liabilities assumed:

           
  As of January 4, 2012     Amount  
           
  Trademarks and Tradenames   $ 121,157  
  Patents     180,183  
  Internally Developed Software     363,472  
  Other Net Assets     (758 )
        664,054  
  Negative Goodwill on acquisition     (66,394 )
  Purchase Price   $ 597,660  

Principles of Consolidation

Assuming the acquisition discussed above had occurred on January 1, 2011, for the three months ended March 31, 2011, pro forma unaudited revenues, net loss and net loss per share for the Company would have been $164,797, $(958,406) and $(0.001), respectively.

The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

Deferred Consideration

As stated above, £100,000 of the cash consideration is deferred until January 4, 2013. This is recorded in Other Current Liabilities and at March 31, 2012 amounted to $159,870.

5.   ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation), NovaVision AG (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. The operations of Sight Science have been consolidated since January 4, 2012 the date of the completion of he acquisition of all the shares of Sight Science. All material inter-company accounts, transactions, and profits have been eliminated in consolidation.

Research and Development

The Company expenses all research and development costs as incurred. For the three months ended March 31, 2012 and 2011 the amounts charged to research and development expenses were $24,687 and $23,852, respectively.

7


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 of the estimated life of five years. The Company acquired internally developed software valued at $540,000 as part of the acquisition of the assets of NovaVision, Inc. on November 30, 2010 and $363,472 as part of the acquisition of the assets of Sight Science Limited on January 4, 2012. For the three months ended March 31, 2012 and 2011 there was no capitalization of software development costs.

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, amortization of intangible assets, and the fair values of options and warrants included in the determination of debt discounts and share based compensation.

Fair Values of Assets and Liabilities

We value financial instruments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets or liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

There are three general valuation techniques that may be used to measure fair value, as described below:

a)    Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;

b)    Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and

c)    Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.

Financial assets and liabilities are valued using either level 1 inputs based on unadjusted quoted market prices within active markets or using level 2 inputs based primarily on quoted prices for similar assets or liabilities in active or inactive markets.  For certain long-term debt, fair value is based on present value techniques using inputs principally derived or corroborated from market data. Using level 3 inputs uses management's assessment about the assumptions market participants would utilize in pricing the asset or liability. In the Company's case this entailed assumptions used in pricing models for attached warrant calculations. Valuation techniques utilized to determine fair value are consistently applied.

The Company has no items that are subject to these standards as of March 31, 2012.

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:

8


                             
        March 31,           March 31,        
        2012           2011        
  Stock options outstanding     833,333           833,333        
  Warrants to purchase common stock     262,096,921           131,665,306        
  Debentures convertible into common stock     55,308,960           47,414,223        
  Preferred shares convertible into common stock     123,999,992           -        
  Total     442,239,206           179,912,862        

Recent Accounting Pronouncements

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 such 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.

6.   NOTES PAYABLE

As of March 31, 2012 and December 31, 2011 Notes Payable consists of:

 

                       
              March 31, 2012     December 31, 2011  
  On December 29, 2009 and February 3, 2010, the Company issued convertible debentures in the amount of $371,362 and $70,000, respectively, payable to Fountainhead Capital Management ("Fountainhead"), the beneficial owner of more than 50% of the Company's common stock. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. These debentures were originally due August 31, 2010. On May 14, 2010, the due date for satisfaction was extended to March 30, 2011, on March 28, 2011 the due date was further extended to August 31, 2011 and on June 6, 2011 the due date was further extended to December 31, 2012.           441,362     441,362  
                       
  On September 30, 2010 and October 14, 2010, the Company issued convertible debentures payable to Fountainhead in the amount of $85,000 and $90,000, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0175 per share, subject to adjustment and does not require bifurcation. The debentures were originally due August 31, 2011, however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012.           175,000     175,000  
                       
  On October 26, 2010 and November 15, 2010, the Company issued debentures payable to Fountainhead in the amount of $77,500 and $322,500, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The debentures were originally due August 31, 2011, however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012.           400,000     400,000  
                       

9


                       
              March 31, 2012     December 31, 2011  
  On November 15, 2010, the Company issued a convertible debenture in the amount of $350,000 payable to Peter Zachariou, a Director of the Company. This debenture accrues interest rate of 6% per annum, is due on December 31, 2012, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per share, subject to adjustment and does not require bifurcation. On December 20, 2010, the Company repaid $50,000 of this debenture and removed the convertible rights. On June 6, 2011 the due date for satisfaction was extended to December 31, 2012.           300,000     300,000  
                       
  On March 25, 2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. ("EuroAmerican"). The term note bears interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the Company's common stock at an exercise price of $0.03 per share for a period of three (3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares of common stock of the Company at the conversion price of $0.03 per share, subject to adjustment and does not require bifurcation. On October 25, 2011 the due date for this note was further extended to December 10, 2011 and on March 27, 2011 the due date was further extended to June 30, 2012           300,000     300,000  
                       
  Unsecured, non-interest bearing loan from the chief executive of NovaVision AG, advanced a total of to NovaVision AG, which is being repaid in monthly installments. As of March 31, 2012 and December 31, 2011 the remaining balance was €8,250.           11,004     10,660  
                       
  Insurance policy finance agreements           15,863     9,103  
                       
  Total Notes Payable:         $ 1,643,229   $ 1,636,125  

The following is a schedule of future minimum loan payments:

                       
  Twelve months ending December 31,           Amount        
  2012           1,643,229        
  Total         $ 1,643,229        

As of March 31, 2012, $1,316,362 of Company's notes payable are secured by a first security interest in all of the assets of the Company. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of each of the convertible debt instruments set out above, the fair value of the stock was either the same or less than the conversion price, and so there was no value attributable to any beneficial conversion feature.

7.   SEGMENT REPORTING, GEOGRAPHICAL INFORMATION

(a) Business segments

The Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses on neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss. Sight Science is consolidated as part of NovaVision from January 4, 2012, the date of the completion of the acquisition. Set out below are the revenues, gross profits and total assets for each segment.

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        Three Months Ended March 31,  
        2012     2011 (restated)  
  Revenue:              
  Vycor Medical   $ 321,781   $ 99,842  
  NovaVision     110,820     45,280  
  Total Revenue   $ 432,601   $ 145,122  
  Gross Profit:              
  Vycor Medical   $ 260,588   $ 92,724  
  NovaVision     92,591     30,025  
  Total Gross Profit   $ 353,179   $ 122,749  

                 
        March 31,
2012
    December 31,
2011
 
  Total Assets:              
  Vycor Medical   $ 1,542,520   $ 2,068,084  
  NovaVision     1,871,029     1,503,556  
  Total Assets   $ 3,413,549   $ 3,571,640  

(b) Geographic information

The Company operates in two geographic segments, the United States and Europe. Sight Science is consolidated as part of Europe from January 4, 2012, the date of the completion of the acquisition. Set out below are the revenues, gross profits and total assets for each segment.

                 
        Three Months Ended March 31,,  
        2012     2011 (restated)  
  Revenue:              
  United States   $ 362,248   $ 104,009  
  Europe     70,353     41,113  
  Total Revenue   $ 432,601   $ 145,122  
                 
  Gross Profit:              
  United States   $ 290,769   $ 93,892  
  Europe     62,410     28,867  
  Total Gross Profit   $ 353,179   $ 122,749  

                 
        March 31,
2012
    December 31,
2011
 
  Total Assets:              
  United States   $ 3,303,762   $ 3,470,693  
  Europe     109,787     100,947  
  Total Assets   $ 3,413,549   $ 3,571,640  

8.  PROPERTY AND EQUIPMENT

As of March 31, 2012 and December 31, 2011, Property and Equipment and the estimated lives used in the computation of depreciation is as follows:

                       
              March 31,     December 31,  
        Estimated Useful Lives     2012     2011  
                       
  Machinery and equipment     3 years   $ 121,588   $ 106,368  
  Purchased Software     3 years     17,833     15,607  
  Molds and Tooling     5 years     234,230     234,230  
  Furniture and fixtures     7 years     21,701     21,130  

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              March 31,     December 31,  
        Estimated Useful Lives     2012     2011  
  Therapy Devices     3 years     65,542     59,065  
  Internally Developed Software     5 years     923,399     559,304  
              1,384,293     995,704  
                       
  Less: Accumulated depreciation and amortization           (395,063 )   (324,413 )
                       
  Property and Equipment, net         $ 989,230   $ 671,291  

Depreciation expense for the three month periods ended March 31, 2012 and 2011 was $54,048 and $39,087 respectively.

9.   INTANGIBLE ASSETS

As of March 31, 2012 and December 31, 2011, Intangible Assets consists of:

                 
        March 31,     December 31,  
        2012     2011  
  Amortized intangible assets: Patent (8 years useful life)              
  Gross carrying Amount   $ 668,640   $ 492,147  
  Accumulated Amortization     (126,463 )   (112,568 )
      $ 542,177   $ 379,579  
                 
  Intangible assets not subject to amortization              
  Trademarks   $ 251,157   $ 130,000  

Amortization expense for the three month periods ended March 31, 2012 and 2011 was $25,401 and $21,539, respectively.

10.   EQUITY 

Certain Equity Transactions

On January 4, 2012, an aggregate of 14,350,000 restricted shares of the Company were issued to Prof. Sahraie and the University of Aberdeen, relating to the acquisition of all of the shares of Sight Science, Ltd. ("Sight Science") by NovaVision.

During January to March 2012, or effective March 31, 2012, the Company issued 222,222 shares of Common Stock (valued at $5,000) to each of Steven Girgenti and Dr Oscar Bronsther in consideration for services provided to the Board of Directors, and 138,890 shares of Common Stock (valued at $3,125) to each of Alvaro Pascuale-Leone, Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

During January to March 2012, the Company issued a total of 15,555,554 shares of Common Stock in respect of conversion of Series C Preferred Stock.

11.   SHARE-BASED 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" (formerly referred to as SFAS No. 123(R)). 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.

Stock Option Plan

The Company adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan (the "Plan") as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company.   The board of directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code.  Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock

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on the grant date.  The options granted to participants owning more than 10% of the Company's outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date.  The options expire on the date determined by the board of directors, but may not extend more than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Company's outstanding voting stock expire five years from the grant date. The vesting period for employees is generally over three years.  The vesting Period for non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.

Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis.  No employee stock options were granted for the three month periods ended March 31, 2012 and 2011.

Initial grants of options to purchase 500,000 shares were issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Company's Chief Executive Officer and Heather N. Vinas, the Company's President at an exercise price of $0.135 per share.  The options vested 33-1/3% on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Following Heather Vinas' resignation as President of the Company in May 2010, 166,667 unvested options were cancelled. For the three months ended March 31, 2012 and 2011, the Company recognized share-based compensation of $0 and $29,796, respectively.

Stock appreciation rights may be granted either on a stand alone basis or in conjunction with all or part of any other stock options granted under the plan.  As of March 31, 2012 there were no awards of any stock appreciation rights.

The Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the "measurement date" using an option pricing model. The "measurement date" for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.

The details of the outstanding rights, options and warrants and value of such rights, options and warrants are as follows: 

                       
  STOCK WARRANTS:       Number of shares            Weighted average exercise price
per share
 
  Outstanding at December 31, 2010     116,604,776         $ 0.019  
  Granted     148,176,421           0.025  
  Exercised     (402,965 )         0.001  
  Cancelled or expired     (2,281,311 )         0.163  
  Outstanding at December 31, 2011     262,096,921         $ 0.021  
  Granted     -           -  
  Exercised     -           -  
  Cancelled or expired     -           -  
  Outstanding at March 31, 2012     262,096,921         $ 0.021  
                       
  STOCK OPTIONS:       Number of shares            Weighted average exercise price
per share
 
  Outstanding at December 31, 2010     833,333         $ 0.14  
  Granted     -           -  
  Exercised     -           -  
  Cancelled or expired     -           -  
  Outstanding at December 31, 2011     833,333         $ 0.14  
  Granted     -           -  
  Exercised     -           -  

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  STOCK OPTIONS:       Number of shares            Weighted average exercise price
per share
 
  Cancelled or expired     -           -  
  Outstanding at March 31, 2012     833,333         $ 0.14  

As of March 31, 2012, the weighted-average remaining contractual life of outstanding warrants and options is 2.68 and 7.88 years, respectively. 

Non-Employee Stock Compensation

Under the terms of a consulting agreement dated February 2010, the Company issued fully vested warrants to Fountainhead to purchase up to 39,063,670 shares of the Company's common stock at $0.0125 per share. The warrants are valid from February 10, 2010 for a period of five years. The fair value of these warrants was estimated using the Black-Scholes option pricing model and is being amortized over the two-year life of the consultancy agreement. For the three months ended March 31, 2012, $20,397 was recognized as share-based compensation in connection with this agreement.

During the three months ended March 31, 2012, the Company issued an aggregate of 222,222 shares of common stock, valued at $5,000, to each of Steven Girgenti and Oscar Bronsther for services rendered to the board of directors. For the three months ended March 31, 2012, a total of $10,000 was recognized as share-based compensation for the issuance of these shares.

During the three months ended March 31, 2012, the Company issued an aggregate of 138,890 shares of common stock, valued at $3,125, to each of Alvaro Pascuale-Leone, Jason Barton and Jose Romano for services rendered to the Scientific Advisory Board of NovaVision. For the three months ended March 31, 2012, an aggregate of $9,375 was recognized as share-based compensation for the issuance of these shares.

Under the terms of a one-year consultancy agreement with Mr. Jerrald Ginder dated March 2011, as amended June 2011, the company issued an aggregate of 20,666,667 restricted shares of common stock of the Company. The stock was valued by the Company at $420,000 and is being amortized over the life of the agreement as share-based compensation expense. For three months ended March 31, 2012, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $109,570.

In June 2011, the Company entered into a one-year Consulting Agreement with GreenBridge Capital Partners, IV, LLC, to provide consulting and advisory services to the Company. Under the terms of this agreement, GreenBridge is to receive up to 15,500,000 shares of the Company's common stock. The stock has been valued by the Company at $348,750 and is being amortized over the life of the agreement as share-based compensation expense, in accordance with the performance under that agreement. As at December 31, 2011, $113,344 had been recognized and for the three months ended March 31, 2012, $0 was recognized as share-based compensation in connection with this agreement. Further information on this agreement is provided in Note 14.

Aggregate stock-based compensation expense charged to operations on employee options and on stock and warrants granted to the above non-employees for the three months ended March 31, 2012 is $149,342. As of March 31, 2012, there was approximately $235,406 of total unrecognized compensation costs related to warrant and stock awards and non-vested options, which are expected to be recognized over a weighted average period of approximately 0.18 years.

Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.  The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock is determined by the then-prevailing private placement purchase price. Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Constant Maturity rate.

The following assumptions were used in calculations of the Black-Scholes option pricing model for options and warrants expensed in the three months ended March 31, 2012 and 2011:

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        Three months ended March 31,  
        2012     2011  
  Risk-free interest rates      2.39 %     1.26-2.39 %  
  Expected life      3 years     3 years  
  Expected dividends     0%     0%  
  Expected volatility      96%     96%  
  Vycor Common Stock fair value     $0.0125-$0.0225     $0.0125-$0.020  

  

12. INCOME TAXES  

The Company has incurred net operating losses since inception. The Company has not reflected any tax benefit related to such net operating losses in the financial statements.  Prior to August 15, 2007 the Company was a limited liability company and losses were passed through to the individual members, therefore the Company only has potential tax benefits from the date it became a 'C' corporation.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.

The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, management has determined that a 100% valuation allowance is appropriate at March 31, 2012 and December 31, 2011. The Company's gross deferred tax assets and valuation allowance at March 31, 2012 and December 31, 2011are as follows:

                       
        March 31, 2012           December 31, 2011  
  Gross deferred tax assets     2,200,000           2,100,000  
  Valuation allowance     (2,200,000 )         (2,100,000 )
  Net deferred tax asset                

As of March 31, 2012 and December 31, 2011, the Company has U.S. federal net operating loss carryforwards of approximately $6,500,000 and $6,000,000, respectively.  The federal net operating loss carryforwards expire in the tax years 2027 through 2031.

Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company's net operating loss carryforwards and research and development credits may be subject to the above limitations.

At March 31, 2012 and December 31, 2011the Company has available for carryforward German net operating losses of approximately $470,000 and $420,000 respectively, to be applied against future German taxable income which may be subject to certain restrictions and limitations. Such carryforwards are subject to certain restrictions and limitations in the event of changes in the NovaVision AG's ownership.

13.   COMMITMENTS AND CONTINGENCIES

Lease

The Company leases approximately 10,000 sq. ft located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease is 5 years and 6 months months terminating July, 2017.

Kenneth Coviello retention bonus

Under the terms of the 2009 Recapitalization Agreement, certain accrued salaries totaling $70,643 were converted into a contingent retention bonus payable either on the closing of a Company fundraising of more than $1.5 million or on the sale

15


of the Company (or substantially all of its assets) at a value above $3 million. The Company and Mr. Coviello are in discussions with regard to the timing of payment, but the company accrued for this in full during 2011.

Contingent Vendor Settlement Provision

During the fourth quarter of 2011 the Company became aware of a matter with a distributor of NovaVision products in Germany relating to the distribution of products prior to the Company's acquisition of NovaVision. The Company is in discussions with the vendor regarding the terms of a future commercial and settlement agreement, and provided an accrual during the year ended December 31, 2011 in the amount of €37,000, net ($48,810) representing the maximum settlement amount.

14. CONSULTING AND OTHER AGREEMENTS

The Company has entered into no new consulting or other agreements during the three months ended March 31, 2012. The following agreements remained in force during the period

Consulting Agreement with Jerrald Ginder

In March 2011, as amended June 2011, the Company entered into a one-year consultancy agreement with Mr. Jerrald Ginder, a sales executive of Stryker Corporation, effective April 1, 2011. Mr. Ginder has extensive experience in sales and marketing and the development of medical device products, and has contacts which will be of use to the Company. Under the terms of the agreement, which the Company has the right to terminate with 30 days notice, Mr. Ginder received 20,666,667 restricted shares of common stock of the Company. The stock has been valued by the Company at $420,000 and is being amortized over the life of the agreement as share-based compensation expense.

Consulting Agreement with Fountainhead Capital Management Limited ("Fountainhead")

In February 2010 the Company entered into a Consulting Agreement with Fountainhead, which was the subject of a Supplement Agreement in May, 2011 to recognize Fountainhead's expanded responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Agreement and Supplement, the Company will pay to Fountainhead a monthly retainer of $37,500 ($8,500 under the Original Agreement and $29,000 under the Supplement). This monthly retainer shall be accrued and paid out to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.125per share for the Original Agreement and $0.0225 per share for the Supplement; or (ii) in cash following the closing of a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011. Notwithstanding, Fountainhead has the option to receive up to $5,000 of monthly retainer in cash each month, commencing April 1, 2011. The term of the Consulting Agreement is to May 5, 2013.

Consulting Agreement with GreenBridge Capital Partners, IV, LLC

On June 3, 2011,the Company entered into a Consulting Agreement ("Consulting Agreement") with GreenBridge Capital Partners, IV, LLC, a Delaware limited liability company ("GreenBridge"), to provide consulting and advisory services to the Company. Under the terms of this agreement GreenBridge is to receive up to 15,500,000 shares of the Company's Common Stock.  Said shares are subject to a Company repurchase option, which may be exercised within specified time periods at the Company's sole discretion.

On August 18, 2011, the Company agreed to amend the Consulting Agreement to modify the dates for exercise of the Company's repurchase option related to the shares delivered to Greenbridge pursuant to the terms of the Agreement.  Specifically, the parties agreed that, of the 15,500,000 shares delivered to GreenBridge, the Company would have the option to repurchase 5,166,666 of the shares prior to November 30, 2011 and an additional 5,166,667 shares prior to February 28, 2012.  The remaining 5,000,000 shares are not subject to a repurchase option. The shares which are the subject of the repurchase option are to be held in escrow by a third party.  In all other respects, the original Consulting Agreement remains in full force and effect as written. The Consulting Agreement was subsequently amended on several occasions and as of the date hereof the option to repurchase 5,166,666 of the shares is exercisable by the Company prior to June 15, 2012 and an additional 5,166,667 shares prior to June 30, 2012.

On May 11, 2012 the Company gave notice to Greenbridge and the Escrow holder that it was exercising its option to repurchase 10,333,333 at $0.0001 per share. The Company further believes that Greenbridge has not adequately performed its services under the Consulting Agreement, and is therefore considering its position with regard to recovery of the 5,166,666 shares no longer the subject of the repurchase option.

Agreement with Partizipant, LLC

On July 31, 2011, the Company entered into an Agreement (the "Agreement") with Partizipant, LLC, a Delaware limited liability company ("Partizipant"), to provide a broad range of investor relations and public relations services as more particularly described in the Agreement, a copy of which is attached as Exhibit 10.1 to the Company's Current report on Form 8-K filed on August 4, 2011. Pursuant to the Agreement, the Company agreed to pay Partizipant a one-time payment of $300,000. The Company believes that Partizipant has not adequately performed its services under the Agreement and is therefore considering its position with regard to the recovery of certain of these funds.

16


15. RELATED PARTY TRANSACTIONS

There were no related party transactions during the three months ended March 31, 2012 other than the payment or accrual of fees under the Fountainhead Consulting Agreements described in Note 14 above.

16. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10Q.

Share Issuance

During April and May 2012, the Company issued 138,890 shares of Common Stock (valued at $3,125)

to each of Alvaro Pascuale-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board, and 222,222 shares (valued at $5,000) to Steve Girgenti in respect of his role as a board member of Vycor.

Conversion of Preferred Shares

During April and May 2012, the Company issued a total of 2,222,222 shares of Common Stock in respect of conversion of Series C Preferred Stock.

Consulting Agreement with GreenBridge Capital Partners, IV, LLC

On April 14 the Consulting Agreement was amended to extend the time period under which the Company has the option to repurchase 5,166,666 of the shares to June 15, 2012 and a further 5,166,667 of the shares to June 30, 2012. On May 11, 2012 the Company gave notice to Greenbridge that it was exercising its option to repurchase 10,333,333 at $0.0001 per share. The Company further believes that Greenbridge has not adequately performed its services under the Consulting Agreement, and is therefore considering its position with regard to recovery of the 5,166,666 shares no longer the subject of the repurchase option.

Brunella Jacs, LLC Consulting Agreement

On April 23, 2012, the Company entered into a Consulting Agreement with Brunella Jacs, LLC ("Brunella") wherein the Company agreed to deliver to Brunella 1,333,333 shares of Company Common Stock ($30,000 value at $0.225 per share) for certain consulting services.

Agreement with Partizipant, LLC

In July, 2011 the Company entered into an Agreement with Partizipant to provide a broad range of investor relations and public relations services. Pursuant to the Agreement, the Company agreed to pay Partizipant a one-time payment of $300,000. The Company believes that Partizipant has not adequately performed its services under the Agreement and as of May 2012 is therefore considering its position with regard to the recovery of certain of these funds.

17


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

This Interim Report on Form 10-Q contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PLSRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") regarding Vycor Medical, Inc. (the "Company" or "Vycor," also referred to as "us", "we" or "our"). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plans," "potential," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" or the negative of these words or other variations on these words or comparable terminology. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Business," as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.

1. Organizational History

We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as "Vycor Medical LLC". On August 14, 2007, we converted into a Delaware corporation and changed our name to "Vycor Medical, Inc." ("Vycor" or the "Company"). On November 29, 2010, Vycor, through its wholly-owned subsidiary NovaVision Acquisition, Inc., completed the acquisition of substantially all of the assets of the former NovaVision, Inc., a company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological visual loss. Subsequent to the purchase, NovaVision Acquisition, Inc. changed its name to NovaVision, Inc. ("NovaVision"). On January 4, 2012 Vycor, through its wholly-owned subsidiary NovaVision, completed the acquisition of all the shares of Sight Science Limited ("Sight Science").

2. Overview of Business

Vycor operates two distinct business units within the medical device industry: Vycor Medical (which operates as a division of the Company) and NovaVision. Vycor Medical is a medical device company that designs, develops and markets medical devices for use in neurosurgery. NovaVision (which incorporates Sight Science) develops non-invasive, computer-based visual neuro-stimulation therapy for patients suffering from vision field deficits resulting from neurological trauma such as stroke and traumatic brain injuries, as well as screening and diagnostic products. In addition to our existing products and products in development, we actively seek acquisition, joint ventures and in-licensing opportunities in the medical device and therapy fields which we believe are complementary and will add shareholder value.

Vycor Medical

Introduction

Vycor Medical is a medical device company that designs, develops and markets medical devices for use in neurosurgery. Vycor Medical is ISO 13485:2003 compliant, has U.S. FDA 510(k) clearance for brain and spine surgeries, CE Marking for Europe and Canadian HPB licensing for sale in Canada of its brain access system. Vycor Medical's first product, the ViewSite

18


Brain Access System (VBAS), is a next generation access system which was commercially launched in November 2008. The VBAS addresses a market that has not changed materially in over 50 years in contrast to development in most other neuro-surgical technologies.

The second product in Vycor Medical's pipeline is the Cervical Access System (VCAS), which requires further prototyping and successful market testing prior to commercialization launch. Like the VBAS, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.

Vycor Medical has received FDA 510(k) clearance for its products, with which we are authorized to take market our products in the U.S. without further approvals.

Vycor Medical's Products


Viewsite Brain Access System (VBAS)

To access a surgical site in the brain, the surgeon needs to remove part of the skull (crainiotomy) and then part (retract) the soft brain tissue to access the target site. The current standard of care utilizes a metal blade retractor to force the tissue apart; to maintain the opening the blades are attached to a head frame and tension is applied to the tissue

The VBAS series is used by neurosurgeons to access the surgical site in the brain. This is done by inserting the VBAS into the brain tissue and then removing the VBAS introducer, leaving the remaining hollow working channel in place to provide the surgeon with access to the precise location desired for surgery.

The VBAS is available in multiple sizes and is a single-use product. The series consists of twelve disposable products, offered in four different port diameters of 17mm and 21mm, 12mm and 28 mm and a choice of three lengths for each of 3, 5, and 7cm. We intend to add additional models in the future.

We believe our Brain Access System offers several advantages over the brain retractor systems, commonly known as ribbon or blade retractors that are metallic. When designing the products, we felt that if we could incorporate certain features into our products, the surgeon reaction and acceptance would be favorable. We attempted to incorporate the following features:

           
     
      Gently separate delicate tissue by utilizing a tapered forward edge;  
      Minimize venous pressure caused by pulling tissue in one direction in the brain;  
      To allow direct surgical visualization of the brain tissue via optically transparent construction;  
      Reduce "target shift" to allow the surgeon to reach the site accurately;  
      Minimize healthy tissue damage while reaching the target site;  
      Allow for accurate neuronavigational image guidance systems ("IGS") performance;  
      Integrate in due course with the leading surgical IGS systems such as Medtronic® and BrainLab®, Stryker and GE;  
      Improve surgical outcomes (reducing potential surgeon and hospital liability), for example, decreased insertion tissue trauma, less need for readjustment during surgery and minimum interface surface pressures;  
      Reduce damage to healthy brain tissue potentially leading to shorter post-op recovery and reduced hospital stay  

VBAS products have the potential to significantly reduce brain tissue trauma resulting from the currently used retractors when accessing deep brain targets. First, the unique design of the product can minimize the size of the brain entry access necessary for surgical procedures, and in turn the amount of brain tissue exposed. For instance, a brain procedure involving the removal of a 7cm cystic astrocyctoma would result in an access site (corticotomy) of approximately 20mm. However, the same procedure that was performed utilizing the Company's VBAS product required a corticotomy of only 2mm.

Because our products are relatively new to the market, there is no guarantee that any of the above mentioned features would prove effective and be useful to the end user.

IGS Opportunity for the Brain Access System

The VBAS product has the potential to improve accuracy in targeting the surgical site when used with Image Guidance Systems (IGS), by addressing two substantial IGS-related problems of target shifting and the lack of real-time retractor positioning data during procedures:

•     Target Shifting

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The normal surgical procedure utilizing standard retractors in brain surgery require pulling away the healthy tissue to expose the targeted region of the brain located underneath. However, in many cases, the amount of pulling required causes the targeted area to shift away from what is shown on the IGS system. This target shifting then requires the surgeon to cause possible additional trauma to healthy tissue and spend additional time as the shifted target area is located and the retractor is repositioned. The VBAS system is designed to minimize or eliminate target shift, as the elliptical shape of the product distributes relatively uniform pressure on the surrounding brain tissue.

•     Real-Time Retractor Positioning Data

Current retractor technology (commonly known as ribbon or blade retractors) does not integrate well with IGS systems. During insertion and retraction, the surgeon typically does not have real-time data to allow visualization of retractor insertion on the IGS monitor. The VBAS product line has the potential to adapt to IGS systems, such that the use of a Brain Access System unit will allow the surgeon to see on the surgical monitor, in real-time, exactly where the retractor is in relation to critical brain structures and underlying pathologies. With the IGS enabled unit, the tip of the introducer is literally the "pointer" on the IGS system.

Vycor Medical Product Pipeline

Brain Access and Related Products

The Company's future plans include developing additional Brain Access Systems that are designed for the requirements of specific surgical applications like aneurisms, tumors and endoscopic work and identifying other products that can be used in conjunction with our VBAS product.

Cervical Access Products

The Company will continue its preliminary work to design Cervical Access System products which would be used by the surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck). While the Company has filed certain intellectual property applications with respect to this technology, such development is in an early stage.

Sales and Marketing

Domestic Sales Strategy

VBAS was launched in November 2008 with a strategy of driving sales through leading neurosurgeons. In this regard, the Company has adopted a dual strategy of targeting both the leading neurosurgeons and the leading neurosurgery hospitals. The Company believes that out of the 4,500 neurosurgeons in the US approximately 1,500 focus predominantly on craniotomies or cranial procedures that could potentially benefit from the VBAS product.

We are currently using independent distributors who have existing relationships with neurosurgeons and target hospitals to drive our sales. The Company's distributors have approximately 50 sales representatives who cover approximately 75% of the U.S. population.

International Sales

The Company utilizes select medical device distributors with experience in neurosurgical devices in select countries. In Europe, the company has agreements with distributors for Spain, Italy, Belgium, Scandinavia, Switzerland and the U.K. who are all focused in neurosurgery. In China, Vycor Medical has an exclusive distribution agreement for VBAS, which received SFDA approval in December 2011 when the first shipments were made. Vycor also has regulatory approval in Japan and Australia with distribution agreements in place or being put into place, and has filed for regulatory approval in Russia and Korea.

Reference Hospitals Program

The Company has developed a Reference Hospital Program to identify centers of excellence and to provide neurosurgeons with evidence of support for our products.

VBAS Market and the Hospital Adoption Process

The market for VBAS in the US is relatively concentrated, with approximately 1,500 neurosurgeons focusing on the relevant procedures. Teaching hospitals not only carry out more relevant procedures but also provide a natural way to drive adoption through the conversion of new surgeons. We focus our efforts initially on surgeons as the principle proponent within the hospital. Vycor has found that the learning curve is only 1-2 cases for surgeons, who like the simplicity of design and ease of use after trialing the product. Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation product. The focus for Hospital Administration is the potential hard and soft cost savings and benefits

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of VBAS versus the cost compared to existing practice. We use clinical studies, papers and other peer reviews evidencing the clinical benefits of the products as well as surgery time in the operating room.

Experience has been that the approval process can take up to six months for each hospital, and in some cases may even be longer. However, this time reduces as more leading hospitals become approved and as more clinical paper/studies and other peer reviews are published. Management is assembling a body of clinical evidence to speed up the adoption process.

Peer Review and Other Clinical Studies

The publication of clinical papers in neurosurgery journals by surgeon-users of VBAS regarding their experiences with the products (peer review papers), and the publication of other clinical data, is important for the Company as it continues to evidence the clinical superiority of VBAS. During 2011 the following papers were published:

"Usage of a Minimally Invasive Tubular Retraction System for Deep-Seated Tumors in Pediatric Patients" in Journal of Neurosurgery in May 2011: Pediatrics. Co-authors Pablo Recinos, M.D., of the Cleveland Clinic and George Jallo, M.D., of Johns Hopkins University conclude that while access to deep-seated, intra-axial tumors is challenging, the ViewSite™ tubular retractor and frameless neuro navigation facilitated the surgical approach and the combination of these technologies adds to the surgeon's armamentarium to safely approach tumors in deep locations.

"Vycor Viewsite TC: Endoscope-guided Intraparenchimal Brain Tumor Resection," by Daniel Prevedello, M.D., Director of the Minimally Invasive Cranial Surgery Program at the Ohio State University. Dr Prevedello reported on a case with a patient taking Avastin®, which delays surgical wound healing. He said the Viewsite TC was essential to the surgery; otherwise, no procedure could have been performed on the patient.

"Minimally Invasive Trans-Portal Resection of Deep Intracranial Lesions" in Minimally Invasive Neurosurgery, February 2011 a Johns Hopkins University paper by lead author A. Quinones Hinojosa. The authors reported a case series of 9 adult and pediatric patients with a variety of pathologies, including colloid cyst, DNET, papillary pineal tumor, anaplastic astrocytoma, toxoplasmosis and lymphoma. The locations of the lesions approached included: lateral ventricle, basal ganglia, pulvinar/posterior thalamus and insular cortex. Post-operative imaging was assessed to determine extent of resection and extent of white matter damage along the surgical trajectory. Satisfactory resection or biopsy was obtained in all patients. "VBAS lends itself well to minimally invasive microsurgical approaches and can be used in combination with modern navigational systems. The use of navigation permits not only the creation of a smaller craniotomy but also facilitates the creation of a trajectory that provides efficient and safe means for splitting white fiber tracts," said the authors.

A comparative clinical animal study is currently being conducted at a leading university hospital, in which procedures will be performed using VBAS and blade retractors at the same time. Time and ease of surgery, and white matter damage will be comparatively measured during surgery and by post-operative MRI.

Manufacturing

Vycor Medical has executed agreements with Lacey Manufacturing Company of Bridgeport, Connecticut ("Lacey") and C&J Industries, Meadville PA ("C&J") to provide a full range of engineering, contract manufacturing and logistical support for our products.

Lacey and C&J are recognized leaders in the medical contract manufacturing sector, providing vertically integrated full services. They are U.S. Food and Drug Administration registered and meet ISO standards and certifications. Lacey and C&J have shipped orders to Vycor Medical and have made production runs of all 12 sizes.

Market

The market for our Brain Access System product lines is the neurosurgical community. The Company has analyzed and estimated the market for its products from an analysis of available statistics, discussion with surgeons, distributors and other market participants. Vycor Medical is currently focusing its attention for VBAS on the US, China and Europe.

Competition

Competitive manufacturers of brain retractors include:

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      Cardinal Health (V. Mueller line)  
      Aesculap  
      Integra Life Science  
      Codman (Division of Johnson & Johnson)  

Cervical Access System competitors include Medtronic, Asculap/B. Braun, Cardinal and Nuvasive, Cloward Instruments, among others. In addition to the standard "blade retractors" distributed by the aforementioned companies. In addition companies such as Endius and EBI have announced cervical retractor systems.

Customers

Vycor Medical sells to stocking regional distributors and direct to hospitals through independent representatives. The Company believes that its products currently are being evaluated or utilized in approximately 80 hospitals in the United States. In addition, in year ended December 31, 2011 and 2010 international sales accounted for approximately 39% and 20% of revenues, respectively.

Intellectual Property

Patent Applications

Vycor Medical has the following issued, patents:

Russia (2009124446) - Surgical Access Instruments for use with Delicate Tissues (Brain)

China (200680056889.9) - Surgical Access Instruments for use with Delicate Tissues (Brain)

Additionally, Vycor has 13 patents pending for its Brain and Spine technology and products in: the U.S. (3), Canada (2), Europe (2), India (2), Japan (2), and Hong Kong (2).

Trademarks

VYCOR MEDICAL is a registered trademark and VIEWSITE is pending registration as a trademark with the United States Patent and Trademark Office.

NovaVision, Inc.

Introduction

NovaVision develops non-invasive, computer-based visual neuro-stimulation therapy called VRT for those suffering from vision loss resulting from neurological trauma. VRT is a patient-specific diagnostic and therapeutic platform that improves patient's vision and enables them to experience significant functional improvements. VRT is currently focused on visual deficits resulting from stroke, traumatic brain injury, or other acquired brain injuries. NovaVision operates in the US and in Germany through a wholly-owned subsidiary.

VRT is successful in treating vision loss because people look with their eyes and see with their brain. VRT is based on NovaVision's platform technology which management believes induces neuroplasticity, the brain's natural ability to repair or remap broken neural connections that cause vision loss. Before VRT, such patients were informed that their vision loss would likely be permanent and they were prescribed therapy or aids to merely compensate for their lost vision.

VRT is a patient-specific diagnostic and therapeutic platform. The VRT diagnostic program maps the area of lost visual field. Proprietary algorithms help generate a customized therapy which delivers light-based stimuli to neurologically stimulate the visual cortex of the brain and restore the lost visual field. VRT is generally performed over a six month period, twice a day for an hour total, six days a week. The Company maintains broad IP protection. NovaVision has collected significant amounts of data from clinical studies and peer reviewed papers that support the Company's claims about the benefits of its platform technology for vision restoration and other indications. NovaVision has received 510(k) clearance and CE Marking for VRT.

Platform Technology

The management of NovaVision believes that the underlying basis for the visual field recovery it has witnessed, and the functional outcome improvements it has noted with its patients is largely due to neuroplasticity of the visual field which is the brain's ability to remap or repair itself in response to a pre-programmed and deliberate stimulation. Neuroplasticity has been discussed over the last 20 years or so and as far back as 1990 Gilbert & Weisel talked about the cortex not having a fixed functional architecture. The platform technology is comprised of proprietary algorithms that generate patient-specific therapies which enable NovaVision's products to be used as both diagnostic and therapeutic tools. The platform technology generates

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light-based, or photic, stimulus programs consisting of a fixation point on a display screen. As the patient focuses on this fixation point, a series of photic stimuli are delivered on the screen that are specific to the patient's neurological requirements, and relayed directly to the brain using the eye as a conduit.

Management believes that it is this programmed light sequences that stimulate the border zone between the "seeing" and "blind" visual fields and which induces neuroplasticity. The diagnostic algorithm in the VRT product first maps the visual field and defines the areas of defect in patients suffering vision loss. The therapeutic algorithm in the VRT product is then specifically designed for each patient based upon the results of the diagnostic program and it repetitively challenges the visual cortex with thousands of stimuli over the course of time. While neuroplasticity for explaining VRT has never been conclusively demonstrated, Randy Mashall's study using MRI did demonstrate that VRT results in increased neural activity in the visual cortex. Management is also aware of other studies which should be published during the course of 2011 which will shed further light on this. Irrespective of mechanism, patient studies point to significantly improved functional outcomes for patients who have done VRT treatment. This improvement manifests itself in greater confidence to move around and an average shift of 4.9 degrees in the border between seeing and blind visual fields. The visual field is the portion of space surrounding an individual which is visible at any given time by that individual while their gaze is held stationary. To humans, the central 10° of visual field holds the greatest functional importance for focal and cognitive tasks.

Clinical Data Relating to VRT

NovaVision has accumulated significant amounts of clinical data as a result of company-sponsored trials as well as studies conducted by independent third parties.

A large retrospective VRT study indicated that 88% of patients experience an improvement in at least one of their daily life activities

75% of patients experience improvement in their mobility which is regarded as the most important functional task

Time since injury does not seem to matter so historical backlog of patients can be treated

Results do not appear to be age or gender dependent

Pipeline Products Utilizing NovaVision's Platform Technology

Management is looking to further develop its product range leveraging its existing technology platform. To this end it is in the process of launching a second generation of portable visual field screening device called head mounted perimeter (HMP). The Company has registration to sell the HMP as a Class 1 device as a screening tool for physicians. Physicians would use this novel portable HMP as a low-cost screening tool providing automated perimetry for visual field screenings performed more efficiently in the clinician's office, waiting room, nursing homes or within the hospital setting by Ophthalmologists, Optometrists and even the Primary Care Physician. The visual field test qualifies for reimbursement under CPT code 92082 (ranging from $60 - $70). While entirely focused on just screening and as such not as complex as an Oculus or Humphreys its screening ability is actually more resolute as it tests every 4 degrees compared to every 6 degrees. Its greatest advantage is its portability which enables it to be utilized in a number of situations where patients with a Visual Field Deficit may otherwise not be able to take a table mounted test.

Regulatory Matters

In the U.S., NovaVision's products are regulated by the Food and Drug Administration ("FDA") as Class U medical devices subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT as a Class I device. NovaVision received its 510(k) clearance for VRT specific to Stroke and TBI indications in 2003.

Intellectual Property

Patents

NovaVision maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically and internationally, with a total of 23 granted and 15 pending patents.

The Company's 23 granted patents are in the U.S. (11), Canada (2), Europe (4), Australia (1), China (2), Hong Kong (1), India (1) and Japan (1).

The Company's 15 pending patents are in the U.S. and Canada (5), Europe (5), Australia (2), and Japan (3).

Trademarks

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NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT and VISION RESTORATION THERAPY amongst others, both in the US and internationally.

Manufacturing and Operations

NovaVision is based at the Vycor Medical, Inc. group headquarters at a 10,000 square foot leased facility in Boca Raton, Florida. NovaVision purchases electronics and custom fabricated hardware from third party vendors and assembles and tests all of its medical devices within the facility. NovaVision has an FDA Establishment Registration and the Company does not have any long-term contractual obligations with its vendors to purchase products from them, nor are suppliers contractually obligated to sell products to NovaVision.

Acquisition of Sight Science, Ltd.

On January 4, 2012, NovaVision, entered into various agreements with Professor Arash Sahraie ("Prof. Sahraie") and the University of Aberdeen (Scotland) (the "University"), relating to the acquisition of all of the shares of Sight Science, Ltd. ("Sight Science") by NovaVision. In consideration of the Share Purchase Agreement and other transaction agreements, the Company agreed to pay the Sight Science shareholders £200,000 (US$ 310,660) cash, of which £100,000 (US$155,330) was paid at the Closing and an additional £100,000 (US$155,330) cash to be paid to the Sight Science shareholders on the one-year anniversary of the Closing. In addition, the Sight Science shareholders received at Closing further consideration in the form of an aggregate of 14,350,000 restricted shares of the Company, which are the subject of lock-up agreements between the Parties and which at Closing were valued at £184,768 (US$287,000).

Sight Science was established in 2009 based on the research of Professor Arash Sahraie at the University of Aberdeen. Sight Science, which is owned jointly by Prof. Sahraie and the University of Aberdeen, provides an interactive computer-based therapy called Neuro-Eye Therapy ("NeET"), which patients administer at home. To date, over 100 patients have utilized NeET. The Company has 5 patents granted in the UK, France, Germany, Switzerland and Singapore and 2 patents pending in the U.S. and Canada. Prof. Sahraie has conducted extensive research on blindsight and residual visual processing after brain injury, and is highly regarded in the field.

As part of the transaction, Prof. Sahraie agreed to join NovaVision as its Chief Scientific Officer on a part-time secondment basis from the University for a minimum of 5 years. Prof. Sahraie is responsible for driving NovaVision's scientific effort to develop and validate technologies in vision rehabilitation for visual field defects resulting from brain injury. The acquisition also created a long-term relationship between the Company, NovaVision and the University, which is a leading medical research center. In connection with the transaction, the University entered into an Option Agreement with Sight Science whereby Sight Science is granted an option over certain related developments created by Prof. Sahraie and his laboratory. The University also entered into a Patent Agreement and Assignation Agreement with Sight Science where all of the intellectual property held by the University and which was related to Sight Science's business was assigned to Sight Science.

Both NovaVision's VRT and Sight Science's NeET work on the basis that repeated stimulation of the blind areas by either bright patches of light (VRT) or the specific spatial patterns (NeET) and can lead to increases in sensitivity of the blind areas. Patients progress after VRT appears to be initiated at the blind and sighted borders whereas NeET results in changes deep within the field damage. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living. The Company believes that these therapies are highly complementary.

3. Other Matters

Product Liability Insurance

We presently have Product Liability insurance for both Vycor Medical and NovaVision.

Government Regulations

We are committed to an integrated total quality management system. We believe that we have completed the necessary procedures and are certified to the ISO standards expected of medical device manufacturers as follows:

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ISO 13485:2003 Medical Devices — Quality Management Systems

The certification of a quality management system to ISO 13485, specifically for medical devices, is advantageous and often essential for medical companies to export their products to the global market, as well as maintain and enter into certain agreements and business growth opportunities within the U.S. For example, Canada requires that medical device manufacturers marketing their products in Canada must have a quality system certified to ISO 13485:2003. The certification is also required for placement of branded devices into the European Union.

Vycor Medical has the following certification/licensing:

Fully Quality Assurance System Directive 93/42/EEC for Medical Devices, Annex II (3)

EC Design-Examination Certificate Directive 93/42/EEC for Medical Devices, Annex II (4)

ISO 13485.2003

HPB Licensing for Canada

Employees

We currently have 21 full-time employees.

Comparison of the Three Months Ended March 31, 2012 to the Three Months Ended March 31, 2011

Results for the three months ended March 31, 2011 include adjustments to reflect of the effects of the restated financial statements included in the Company's Quarterly Report on Form 10-Q/A for the quarterly period ending March 31, 2011.

Revenue and Gross Margin:

                       
        2012     2011     % Change  
  Revenue:                    
  Vycor Medical   $ 321,781   $ 99,842     222 %
  NovaVision     110,820     45,280     145 %
  Total Revenue   $ 432,601   $ 145,122     198 %
                       
  Gross Profit                     
  Vycor Medical    $ 260,588   $ 92,724     181 %
  NovaVision      92,591     30,025     208 %
  Total Gross Profit   $ 353,179   $ 122,749     188 %

Vycor Medical recorded revenue of $321,781 from the sale of its products in for the three months ended March 31, 2012, an increase of 222% over the same period in 2011. The increase in sales was attributable to greater penetration and usage of our product in hospitals in the United States both direct and through distributors, and increased sales internationally. In December 2011 VBAS received SFDA approval to be marketed in the People's Republic of China (PRC) and made shipments with a value of $152,850 during the period and also shipped its first order to Japan. Gross margin of 81% was achieved in 2012 compared to 93% for 2011. Gross margin is mostly a product of sale mix between US sales through distributors, US sales direct and international sales. International sales are all indirect through distributors and end-market prices internationally tend to be lower. In addition the 2011 period reflected certain inventory credits.

Sales commissions for the sale of Vycor's products, which are recorded in General and Administrative Expenses, were $20,489 for the three months ended March 31, 2012 compared to $18,709 for the same period in 2011.

NovaVision recorded revenues of $110,820 for the three months ended March 31, 2012 and gross margin of 84%, compared to $45,280 and gross margin of 66% for the same period in 2011. This reflects the start-up of NovaVision in the US in 2011 and the consolidation of Sight Science in 2012.

Research and Development Expense:

Research and development ("R&D") expenses were $24,687 for the three months ended March 31, 2012, as compared to $23,852 for the same period in 2011.

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General and Administrative Expenses:

General and administrative expenses increased by $93,702 to $1,054,973 for the three months ended March 31, 2012 from $961,271 for the same period in 2011. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the three months ended March 31, 2012 was $149,342, a decrease of $58,877 over $208,219 in 2011. The remaining General and Administrative increase of $152,579 reflects: increased scientific advisory costs ($36,732); increased investor relations costs ($75,000); increased professional fees ($16,600); the costs of the move to a new headquarters premises ($41,622); increased other costs ($16,336); offset by lower payroll and consultant costs ($33,711).

Interest Expense:

Interest expense includes interest expense on the Company's debt and insurance policy financing. Interest expense in the three months ended March 31, 2012 increased by $7,679 to $31,600 from $23,921 for the same period in 2011, reflecting increased debt levels.

Liquidity and Capital Resources

Liquidity

The following table shows cash flow and liquidity data for the periods ended March 31, 2012 and December 31, 2011:

                       
        March 31, 2012     December 31, 2011     $ Change  
  Cash   $ 405,991   $ 950,841   $ (544,850 )
  Accounts receivable, inventory and other current assets     1,164,353     1,378,754     (214,401 )
  Total current liabilities     (3,030,139 )   (2,696,316 )   (333,823 )
  Working capital deficit     (1,459,795 ) $ (366,721 )   (1,093,074 )
  Cash provided by financing activities     -     4,190,510     (4,190,510 )

As of March 31, 2012 we had $405,991 cash, a working capital deficit of $1,459,795 and an accumulated deficit of $12,445,134. Total Stockholders' equity at March 31, 2012 was $383,410. Total debt at March 31, 2012, included in the working capital deficit above, was $1,643,229.

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, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.

Going Concern

The Company's financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $783,431 for the three months ended March 31, 2012, and the Company expects to continue to incur substantial additional losses in the future, including significant development, marketing, manufacturing and distribution costs. The Company has generated negative cash flows from operations since inception. As of March 31, 2012 the Company had a stockholders' equity of $383,410 and cash and cash equivalents of $405,991. The Company believes it will not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The 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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Research and Development

The Company expenses all research and development costs as incurred.

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 at the end of therapy. At March 31, 2012 and December 31, 2011 patient deposits amounted to $xxxx and $25,000, respectively, and are reserved against in Other Current Liabilities

Property and equipment

The Company records property and equipment 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.

Income taxes

The Company accounts for income taxes in accordance with the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be realized.

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 and expensed as incurred. The capitalized costs are amortized over the life of the patent. The Company reviews intangible assets for impairment on an annual basis. Trademarks have an indefinite life and are also reviewed annually by management for impairment in accordance with the authoritative guidance.

Revenue Recognition

Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.

NovaVision generates revenues from various programs, therapy services and other sources such as government grants. Therapy services revenues represent fees from NovaVision's vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Company's work effort is expended. 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 10 months in Germany. A patient contract comprise 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.

Research grants and other subsidies represent revenue from certain German government agencies to cover certain patients within an insurance group and also to reimburse NovaVision AG for certain payroll and other costs. The Company recognizes grant revenue when services or costs have been incurred which would entitle the Company to use the German government funds, and the grant requirements have been satisfied.

Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.

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Accounts Receivable

The Company's accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly 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. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customer's ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.

Inventory

Inventories are comprised of Vycor Medical VBAS devices, components ancillary to NovaVision's medical device provided to patients and centers and diagnostic products, and are stated at the lower of cost or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a device is shipped to a customer or patient.

Foreign Currency

The Euro is the local currency of the country in which NovaVision AG 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 shareholders' (deficit) 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

(a)      Disclosure Controls and Procedures

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), the Company carried out an evaluation, with the participation of the Company's management, including the Company's President ("President") (the Company's principal executive officer) and Chief Financial Officer ("CFO") (the Company's principal financial and accounting officer), of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based upon that evaluation, and taking the matters which were the subject of certain remedial action described in our prior reports, the Company's President and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2012 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's President and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b)      Changes in Internal Controls

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There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.  In light of the matters described above with respect to accounting for warrants issued under consulting or other service agreements and the beneficial conversion feature of certain convertible debt, the Company intends to re-evaluate its internal control over financial reporting and to implement such changes as it may deem appropriate in light of such re-evaluation.

The Company's management, including the Company's President and CFO, do not expect that the Company's internal control over financial reporting will prevent all errors and all fraud.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

PART II

ITEM 1. LEGAL PROCEEDINGS

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of March 31, 2012, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

ITEM 1A. RISK FACTORS.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Common Stock

On January 4, 2012, an aggregate of 14,350,000 restricted shares of the Company were issued to Prof. Sahraie and the University of Aberdeen, relating to the acquisition of all of the shares of Sight Science, Ltd. ("Sight Science") by NovaVision.

During January to March 2012, or effective March 31, 2012, the Company issued 222,222 shares of Common Stock (valued at $5,000) to each of Steven Girgenti and Dr Oscar Bronsther in consideration for services provided to the Board of Directors, and 138,890 shares of Common Stock (valued at $3,125) to each of Alvaro Pascuale-Leone, Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

During January to March 2012, the Company issued a total of 15,555,554 shares of Common Stock in respect of conversion of Series C Preferred Stock

During April and May 2012, the Company issued 138,890 shares of Common Stock (valued at $3,125)

to each of Alvaro Pascuale-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

During April and May 2012, the Company issued a total of 2,222,222 shares of Common Stock in respect of conversion of Series C Preferred Stock.

On April 23, 2012, the Company entered into a Consulting Agreement with Brunella Jacs, LLC ("Brunella") wherein the Company agreed to deliver to Brunella 1,333,333 shares of Company Common Stock ($30,000 value at $0.225 per share) for certain consulting services which had previously been provided by Brunella.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

None.

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ITEM 5. OTHER INFORMATION

Subsequent events

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10Q.

Share Issuance

During April and May 2012, the Company issued 138,890 shares of Common Stock (valued at $3,125)

to each of Alvaro Pascuale-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board, and 222,222 shares (valued at $5,000) to Steve Girgenti in respect of his role as a board member of Vycor.

Conversion of Preferred Shares

During April and May 2012, the Company issued a total of 2,222,222 shares of Common Stock in respect of conversion of Series C Preferred Stock.

Consulting Agreement with GreenBridge Capital Partners, IV, LLC

On April 14 the Consulting Agreement was amended to extend the time period under which the Company has the option to repurchase 5,166,666 of the shares to June 15, 2012 and a further 5,166,667 of the shares to June 30, 2012. On May 11, 2012 the Company gave notice to Greenbridge that it was exercising its option to repurchase 10,333,333 at $0.0001 per share. The Company further believes that Greenbridge has not adequately performed its services under the Consulting Agreement, and is therefore considering its position with regard to recovery of the 5,166,666 shares no longer the subject of the repurchase option.

Brunella Jacs, LLC Consulting Agreement

On April 23, 2012, the Company entered into a Consulting Agreement with Brunella Jacs, LLC ("Brunella") wherein the Company agreed to deliver to Brunella 1,333,333 shares of Company Common Stock ($30,000 value at $0.225 per share) for certain consulting services.

Agreement with Partizipant, LLC

In July, 2011 the Company entered into an Agreement with Partizipant to provide a broad range of investor relations and public relations services. Pursuant to the Agreement, the Company agreed to pay Partizipant a one-time payment of $300,000. The Company believes that Partizipant has not adequately performed its services under the Agreement and as of May 2012 is therefore considering its position with regard to the recovery of certain of these funds.

ITEM 6. EXHIBITS
Index to Exhibits

           
  31.1     Certification of Chief Financial Officer under Rule 13(a) - 14(a) of the Exchange Act.  
  31.2     Certification of Chief Executive Officer under Rule 13(a) - 14(a) of the Exchange Act.  
  32.1     Certification of CEO under 18 U.S.C. Section 1350  
  32.2     Certification of CFO under 18 U.S.C. Section 1350  

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 14, 2012.

                 
           
        VYCOR MEDICAL, INC.  
                 
        By:     /s/ David M. Cantor                        
              David M. Cantor  
              President and  
              Director (Principal Executive Officer)  
                 
        By:     /s/ Adrian C. Liddell                            
              Adrian C. Liddell  
              Chairman of the Board and  
              Director (Principal Financial Officer)  
                 

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