Other Notes Payable

Other Notes Payable consists of:

inIn January 2018 the Company entered into an amendment agreement (the “Amendment”) with EuroAmerican Investments (“EuroAmerican”) regarding its $300,000 loan note (the “Note”). Under the Amendment, the Note was extended until December 31, 2018 and was further extended until December 31, 2019 in March 2019. The conversion terms of the Note were reduced to $0.21, the same as the offering price of the 2018 Offering. Conversion of the Note and accrued interest would result in the issuance of 2,595,3372,650,324 shares of Common Stock as of March 31,June 30, 2019. Notwithstanding, EuroAmerican agreed that the Note could not be converted without first offering the Company the right to redeem the Note at principal and accrued interest, and secondly Fountainhead the right to purchase the Note, which cannot be converted prior to such offer and the failure of the Company and Fountainhead to exercise such option in accordance with the amendment terms. In addition, the Company agreed to issue warrants to purchase 2,308,405 shares of Common Stock at $0.27, the same terms as the 2018 Offering, exercisable for three years from January 1, 2018, if and when the conversion option is exercised. The amendment was recognized as a modification, based on the guidance in ASC 470-50.

The Company routinely finances all their insurance policies through a third party finance company which requires a down payment and subsequent monthly payments, the time periods vary from 10 months to 12 equal monthly payments.

The Company recognized the following related to leases in its Unaudited Consolidated Balance Sheet at March 31, 2019 (in millions):June 30, 2019:

Long term lease liabilities are due during 2020.

(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 and which includes Sight Science. Set out below are the revenues, gross profits and total assets for each segment

(b) Geographic information

The Company operates in two geographic segments, the United States and Europe. Set out below are the revenues, gross profits and total assets for each segment.

Common Stock and Stock Grants

During January to MarchJune 2019 and 2018, the Company granted 99,999199,998 and 105,092 shares, respectively, of Common Stock (valued at $21,000)$42,000 during each period) to non-employee Directors. Under the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until the January 15^th following the termination of their services as a director. As of March 31,June 30, 2019 these shares have yet to be issued.

During January to MarchJune 2019, under the terms of the Consulting Agreement referred to in note 9, the Company issued 535,7141,071,428 shares of Common Stock to Fountainhead for fees of $112,500 in accordance with$225,000. During January to June 2018, under the terms of a consulting agreement.the Consulting Agreement, the Company issued 1,281,125 shares of Common Stock to Fountainhead for fees of $450,000 of which $225,000 was accrued at December 31, 2017.

During the period ended June 30, 2019 the Company issued 5,000 shares of Common Stock to Robert Anderson for fees of $940 for consultancy.

On April 20, 2018, the Company issued an aggregate of 1,113,936 shares of Company Common Stock on the cashless exercise of an aggregate of Warrants to purchase 3,111,560 shares of Common Stock.

Warrants and Options

The details of the outstanding warrants and options are as follows:

STOCK WARRANTS:

STOCK OPTIONS:

As of March 31,June 30, 2019, the weighted-average remaining contractual life of outstanding warrants and options is 0.870.62 and 2.211.96 years, respectively.

Stock Option Plan

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.

For the threesix months ended March 31,June 30, 2019 and 2018, the Company recognized share-based compensation of $0 and $4,871 respectively, for employee stock options.

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,June 30, 2019 there were no awards of any stock appreciation rights.

Non-Employee Stock Compensation

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.

Aggregate stock-based compensation for stock and warrants granted to non-employees for the threesix months ended March 31,June 30, 2019 and 2018 was $133,500.$267,940 and $353,754. The expense related to stock not issued during the periods ended March 31,June 30, 2019 and 2018 comprise: $21,000,$42,000, respectively for both periods, related to stock granted but not issued to directors under the Directors Deferred Compensation Plan. As of March 31,June 30, 2019, there was $0 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.

During the six months ended June 30, 2019 and 2018, options with a value of $0 and $216,582, respectively, were granted to Fountainhead with performance vesting conditions, (see Note 9). The performance conditions of the options granted during 2018 were not met and these options were cancelled.

Stock-based Compensation Valuation Methodology

Stock-based compensation resulting from the issuance of Common Stock is calculated by reference to the valuation of the Stock on the date of issuance, the expense being recognized as the compensation is earned. 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. Expected volatility is based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the expected life of the option or warrant, and the risk-free rate is based on the U.S. Treasury Constant Maturity rate.

The following assumptions were used in calculations of the Black-Scholes option pricing model for the threesix months ended March 31,June 30, 2019 and 2018:

Lease

The Company leases office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2 L.P., for a gross rent of approximately $5,700 plus sales tax per month. The lease terminates September 30, 2020. The Company’s subsidiary in Germany occupies premises on a short-term lease agreement. Rent expense for the threesix months ended March 31,June 30, 2019 and 2018 was $24,706$49,354 and $25,168$49,979 respectively.

Potential German tax liability

In June 2012 the Company’s NovaVision German subsidiary received a preliminary assessment for Magdeburg City trade tax of a maximum of approximately €630,000 preliminarily reduced to €75,000, (approximately $85,000).with an additional interest charge of €12,000. This assessment is for the 2010 fiscal year and relates to the Company’s acquisition of the assets of the former NovaVision, Inc. An initial assessment for corporate tax of the same for the same period has beenwas preliminarily reduced to zero. The Company hasdid not acceptedaccept this trade tax assessment and is in discussion withappealed against it to the relevant tax authorities with a view to its reduction. The relevant tax authorities have agreed to suspend the assessment pending the outcome of certain court hearings and proposed tax legislation, and the Company has agreed to make limited monthly payments on account totalling €75,000 which were completed in October 2016.2016 and fully expensed. At that time the Company appealed against the interest charge of €12,000 which the tax authorities did not accept but also agreed to suspend pending the outcome of the hearings and proposed legislation outlined above. Accordingly, the Company has made no provision for this liability in the threesix months ended March 31,June 30, 2019 and the year ended December 31, 2018 respectively.

The following agreements were entered into or remained in force during the period ended March 31,June 30, 2019:

Consulting Agreement with Fountainhead

In March 2017 and effective April 1, 2017, the Company amended the Fountainhead Consulting Agreement (“the Amended Agreement”). Under the Amended Agreement, fees of $450,000 are payable to Fountainhead, with an option to receive $5,000 per month in cash and the remainder payable in Company Common Stock issued at the higher of $0.21 and the average price for the 30 days prior to issuance, and deliverable at the end of each fiscal quarter. The Consulting Agreement also contains provisions for Fountainhead to receive a higher proportion of its fees in cash subject to certain future liquidity events and Board approval.

During the threesix months ended March 31,June 30, 2019, under the terms of the Amended Agreement, Fountainhead received total fees of $112,500,$225,000, which were paid through the issuance of 535,7141,071,428 shares of Company Common Stock. During the six months ended June 30, 2018, under the terms of the Consulting Agreement, the Company issued 1,281,125 shares of Common Stock to Fountainhead for fees of $450,000 of which $225,000 was accrued at December 31, 2017.

During the six months ended June 30, 2019 and 2018, options pursuant to the Vycor Medical, Inc. 2018 Stock Option Plan with a value of $0 and $216,582, respectively, were granted to Fountainhead with performance vesting conditions. The performance conditions of the options granted during 2018 were not met and these options were cancelled.

Peter Zachariou and David Cantor, directors of the Company, are investment managers of Fountainhead which owned, at March 31,June 30, 2019, 54%55% of the Company’s Common Stock and 70% of the Company’s Preferred D Stock. Adrian Liddell, Chairman, is a consultant for Fountainhead.

During the threesix months ended March 31,June 30, 2019, under the terms of the Consulting Agreement referred to in note 8,9, the Company issued 535,7141,071,428 shares of Common Stock to Fountainhead for fees of $112,500.$225,000. During the six months ended June 30, 2018, under the terms of the Consulting Agreement, the Company issued 1,281,125 shares of Common Stock to Fountainhead for fees of $450,000 of which $225,000 was accrued at December 31, 2017.

During the threesix months ended March 31,June 30, 2019 and 2018, the Company accrued an aggregate of $162,185 of Preferred D Stock dividends, of which an aggregate of $154,712 Preferred D Stock dividends were in respect of related parties for both periods.

During the threesix months ended March 31,June 30, 2019 and 2018 the Company issued unsecured loan notes to Fountainhead for a total of $17,873 and $30,000,$133,000, respectively. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary.

During the three months ended March 31, 2018, under the terms of the Consulting Agreement referred to in note 8, the Company issued 250,000 shares of Common Stock to Fountainhead for fees of $92,500 accrued at December 31, 2017 and accrued fees of $112,500, which were paid after the period end through the issuance of 234,375 shares of Company Common Stock.(See Note 3)

Vycor Medical sells its neurosurgical devices in the US primarily direct to hospitals, and internationally through distributors who in turn sell to hospitals. For the three months ended March 31,June 30, 2019 sales to no customer represented over 10% of total sales and for the three months ended March 31,June 30, 2018 sales to onetwo customers represented 15% and 25%, respectively, of total sales. For the six months ended June 30, 2019 sales to no customer represented 14%over 10% of total sales and for the six months ended June 30, 2018 sales to two customers represented 12% and 12%, respectively, of total sales. As of June 30, 2019 accounts receivable from two customers represented 35% and 11%, respectively, of total accounts receivable, and as of December 31, 2018 accounts receivable from two customers represented 40% and 13%, respectively, of total accounts receivable.

The Company has evaluated the existence of events and transactions subsequent to the balance sheet date through the date the consolidated financial statements were issued and has determined that there were no significant subsequent events or transactions which would require recognition or disclosure in the financial statements.

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

The Company was 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.”. The Company’s listing went effective on February 2009 and on November 29, 2010 Vycor completed the acquisition of substantially all of the assets of NovaVision, Inc. (“NovaVision”) and on January 4, 2012 Vycor, through its wholly-owned NovaVision subsidiary, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”).

2. Overview of Business

Vycor is dedicated to providing the medical community with innovative and superior surgical and therapeutic solutions and operates two distinct business units within the medical device industry. Vycor Medical designs, develops and markets medical devices for use in neurosurgery. NovaVision provides non-invasive rehabilitation therapies for those who have vision disorders resulting from neurological brain damage such as that caused by a stroke. Both businesses adopt a minimally or non-invasive approach. Both technologies have strong sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has 68 issued or allowed patents and a further 6 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner.

The Company periodically engages in discussions with potential strategic partners for or purchasers of each or both of our operating divisions.

Vycor Medical

Vycor Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medical’s ViewSite Brain Access System (“VBAS”) is a next generation retraction and access system that was fully commercialized in early 2010 and is the first significant technological change to brain tissue retraction in over 50 years in contrast to significant development in most other neuro-surgical technologies. Vycor Medical is ISO 13485:2016 and MDSAP (Medical Device Single Audit Program) certified, and VBAS has U.S. FDA 510(k) clearance and CE Marking for Europe (Class III) for brain and spine surgeries, and regulatory approvals in Australia, Brazil, Canada, China, Korea, Japan, Russia and Taiwan. Vycor Medical has 25 granted patents

NovaVision

NovaVision provides non-invasive, computer-based rehabilitation targeted at a substantial and largely un-addressed market of people who have lost their sight as a result of stroke or other brain injury, and has 4538 granted patents.

Strategy

The Company is continuing to execute on a plan to achieve revenue growth and a reduction in cash operating losses. For Vycor Medical this plan includes in particular: increasing market penetration in the US through targeted focus group programs with surgeons, closer cooperation with complementary product manufacturers and tight management of the distribution network; increasing international growth particularly in Europe and other territories where we are not represented or under represented; and continued new product development. The first phase of modification of the existing VBAS product range to make it more easy to use with the most common IGS systems was completed in September 2017 and has been well received by surgeons; we are continuing our roll-out of this model throughsurgeons, resulting in increased hospital inventories.penetration and revenues. The second phase of the development of further IGS integration is in process and will then be completed in 2019 and then subject to regulatory clearances and approvals. Upon regulatory approval and product release of this new VBAS AC the Company intends to conduct a multi-center study with selected surgeons who are familiar with the VBAS. We will also be exploring with surgeons and focus groups additional selected development work targeted at increasing the ease and applicability of our products to common procedures. For NovaVision, given the company’s resources, and the large size and diversity of its end markets, we believe that the most efficient way to tackle the distribution of its broad range of patient and professional products is by partnering with entities that have either direct access to the end users or a desire and financial wherewithal to leverage the NovaVision therapy platform into new indications.. The Company is in the process of identifying and talking to such partners. The range of alternatives for NovaVision could comprise distribution and marketing partnerships, licensing, merger, sale and/or a significant restructuring of its activities.

Comparison of the Three Months Ended March 31,June 30, 2019 to the Three Months Ended March 31,June 30, 2018

Revenue and Gross Margin:

Vycor Medical recorded revenue of $297,106$390,627 from the sale of its products for the three months ended March 31,June 30, 2019, an increase of $19,295$137,335 over the same period in 2018. The increase in revenue is largely attributed to the increasing adoption of the enhanced tip VBAS product. Gross margin of 90%91% was recorded for the three months ended March 31,June 30, 2019 compared to 91%83% for the same period in 2018. Gross margin is primarily affected by the domestic versus international revenue mix.mix and also by inventory validation charges during the 2018 period.

NovaVision recorded revenues of $53,560$39,263 for the three months ended March 31,June 30, 2019, an increasea decrease of $6,270$9,110 over the same period in 2018, and gross margin of 89%91%, compared to 92% for the period in 2019 and 2018. New patient starts increased by 17% over the same period in 2018. NovaVision revenue is susceptible to short-term variation, with the first quarter of 2019 seeing a large number of new patient starts.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses decreased by $106,084$73,541 to $462,221$543,456 for the three months ended March 31,June 30, 2019 from $568,305$616,997 for the same period in 2018. Included within Selling, General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the three months ended March 31,June 30, 2019 was $133,500,$134,439 a decrease of $4,871$85,815 over $138,371$220,254 in 2018. Also included within Selling, General and Administrative Expenses are Sales Commissions, which increased by $6,887$38,013 from $48,938$37,022 to $75,035 in 2018 to $55,8252019, as a result of higher revenues in 2019.the US market. The remaining Selling, General and Administrative expenses decreased by $108,100$25,739 from $380,996$359,721 to $272,896$333,982 in 2019.

An analysis of the change in cash and non-cash G&A is shown in the table below:

Interest Expense:

Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for the three months ended March 31,June 30, 2019 was $4,758$5,257 compared to $0$646 for 2018. Other Interest income and expense for 2019 decreased by $72$187 to $11,954$12,012 from $12,026$12,199 for 2018.

LiquidityComparison of the Six Months Ended June 30, 2019 to the Six Months Ended June 30, 2018

Revenue and Capital ResourcesGross Margin: