Vycor Medical 10Q 2013 Q3 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the fiscal quarter ended September 30, 2013

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. YesT Noo

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). Yeso Noo

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 filero	Accelerated filero
	Non-accelerated filero (Do not check if a smaller reporting company)	Smaller reporting companyT

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso NoT

There were 6,583,443 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of November 11, 2013.

Transitional Small Business Disclosure Format (check one): Yeso NoT

TABLE OF CONTENTS


PART I
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012
	Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and September 30, 2012
	Unaudited Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2013 and September 30, 2012
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	(Removed and Reserved)
Item 5.	Other Information
Item 6.	Exhibits

SIGNATURES

PART I

ITEM 1. FINANCIAL STATEMENTS

VYCOR MEDICAL, INC.
Consolidated Balance Sheets

(unaudited)


	September 30, 2013			December 31, 2012
ASSETS

Current Assets
Cash	$	944		$	59,821
Accounts receivable — Trade, net of allowance for doubtful accounts of $2,754 and $2,754		199,675			144,347
Accounts receivable — Other		75,000			—
Inventory		254,108			290,508
Prepaid expenses and other current assets		223,784			429,102
Total Current Assets		753,511			923,778

Fixed assets, net		728,320			827,389

Intangible and Other assets:
Trademarks		251,157			251,157
Patents, net of accumulated amortization		474,593			502,895
Website, net of accumulated amortization		1,848			2,772
Security deposits		53,169			53,169
Total Intangible and Other assets		780,767			809,993

TOTAL ASSETS	$	2,262,598		$	2,561,160

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current Liabilities
Accounts payable	$	357,203		$	187,789
Accrued interest: Related Party		203,034			107,176
Accrued interest: Other		130,424			87,962
Accrued liabilities		1,546,927			1,198,463
Other current liabilities		67,956			241,918
Notes payable: Related Party		2,283,556			1,732,812
Notes payable: Other		496,668			462,690
TOTAL CURRENT AND TOTAL LIABILITIES		5,085,768			4,018,810

STOCKHOLDERS’ DEFICIENCY
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 17.34 and 39.3 issued and outstanding as at September 30, 2013 and December 31, 2012 respectively	$	1		$	1
Common Stock, $0.0001 par value, 1,500,000,000 shares authorized, 6,665,088 and 6,020,555 shares issued and outstanding at September 30, 2013 and December 31, 2012 respectively		667			602
Additional Paid-in Capital		13,612,134			13,141,489
Treasury Stock (103,334 and 68,889 shares of Common Stock as at September 30, 2013 and December 31, 2012 respectively, at cost)		(1,033	)		(1,033	)
Accumulated Deficit		(16,405,321	)		(14,587,914	)
Accumulated Other Comprehensive Income		(29,618	)		(10,795	)

Total Stockholders’ Deficiency		(2,823,170	)		(1,457,650	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	2,262,598		$	2,561,160

See accompanying notes to financial statements

VYCOR MEDICAL, INC.
Consolidated Statements of Operation
(unaudited)


	For the three months ended September 30,						For the nine months ended September 30,
	2013			2012			2013			2012

Revenue	$	321,630		$	220,121		$	788,258		$	918,108

Cost of Goods Sold		41,806			25,374			99,718			145,044

Gross Profit		279,824			194,747			688,540			773,064

Operating expenses:
Research and development		—			33,650			52,635			104,197
Depreciation and Amortization		90,561			84,771			266,106			248,937
General and administrative		673,464			838,705			2,063,232			2,733,085
Negative Goodwill on Acquisition of Subsidiary					—						(66,394	)
Costs related to Acquisition of Subsidiary					—						18,285

Total Operating expenses		764,025			957,126			2,381,973			3,038,110

Operating loss		(484,201	)		(762,379	)		(1,693,433	)		(2,265,046	)

Other income (expense)
Other income (expense)		25,865			5,771			14,431			(9,449	)
Interest expense: Related Party		(34,081	)		(22,767	)		(95,859	)		(62,150	)
Interest expense: Other		(14,492	)		(12,734	)		(42,546	)		(36,629	)
Total Other expense		(22,708	)		(29,730	)		(123,974	)		(108,228	)


Net Loss	$	(506,909	)	$	(792,109	)	$	(1,817,407	)	$	(2,373,274	)

Loss Per Share
Basic and diluted	$	(0.08	)	$	(0.14	)	$	(0.29	)	$	(0.42	)

Weighted Average Number of Shares Outstanding		6,481,138			5,662,214			6,231,218			5,625,777

See accompanying notes to financial statements

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


	For the nine months ended September 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(1,817,407	)	$	(2,373,274	)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of intangible assets		97,553			79,464
Depreciation of fixed assets		188,602			185,998
Share based compensation and expense		316,003			235,963

Changes in assets and liabilities:
Accounts receivable		(129,920	)		172,799
Inventory		36,457			(137,988	)
Prepaid expenses		27,718			218,497
Accounts payable		169,283			130,910
Accrued interest: Related Party		95,859			62,150
Accrued interest: Other		42,461			36,839
Accrued liabilities		346,094			331,958
Other current liabilities		(12,281	)		808

Cash used in operating activities	$	(639,578	)		(1,055,876	)
Cash flows used in investing activities:
Purchase of fixed assets		(88,813	)		(20,215	)
Acquisition of subsidiary, net of cash acquired		(163,201	)		(153,641	)
Acquisition of patents		(68,747	)		(56,291	)
Cash used in investing activities		(320,761	)		(230,147	)
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net		332,832			170,000
Purchase of shares into Treasury Stock		—			(1,033	)
Net proceeds from issuance of Notes Payable: Related Party		550,744			293,050
Net proceeds from issuance of Notes Payable: Other		87,044			174,144
Repayment of Notes Payable: Other		(53,035	)		(34,666	)
Cash provided by financing activities		917,585			601,495
Effect of exchange rate changes on cash		(16,123	)		(2,657	)
Net decrease in cash		(58,877	)		(687,185	)
Cash at beginning of period		59,821			950,841
Cash at end of period	$	944		$	263,656

Supplemental Disclosures of Cash Flow information:
Interest paid:	$	88		$	197
Taxes paid		—			—
Non-Cash Transactions:
Common stock issued on conversion of Preferred C shares	$	1,100,000		$	900,000

Acquisition of subsidiary, net of cash acquired
Trademarks and Tradenames				$	121,157
Patents					180,183
Internally Developed Software					363,472
Other Net Assets					(758	)
Negative Goodwill on Acquisition					(66,394	)
				$	597,660
Warrants, options and common stock issued for acquisition of subsidiary					(287,000	)
Deferred consideration payable		161,530			(161,640	)
Foreign exchange difference on deferred consideration		1,671			4,621
	$	163,201		$	153,641

See accompanying notes to financial statements

VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)

1. BASIS OF PRESENTATION

The consolidated financial statements of the Company present the financial position, results of operations, and cash flows of Vycor Medical, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive financial statements have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2012 derives from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The condensed consolidated financial statements for the three and nine months ended September 30, 2013 and 2012, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three months and nine months ended September 30, 2013 and 2012 are not necessarily indicative of the results to be expected for any other interim period or for the entire year. 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 107 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 $1,817,407 for the nine months ended September 30, 2013, and the Company expects to incur additional losses. The Company has generated negative cash flows from operations since inception. As of September 30, 2013, current liabilities exceeded current assets by $4,332,257 the Company had a stockholders’ deficit of $2,823,170 and cash and cash equivalents of $944. 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. The Company intends to raise funds from the issuance of equity and/or debt securities, but 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, among others, 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. SIGNIFICANT 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 GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions, and profits have been eliminated in consolidation.

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.

Software Development Costs

The authoritative accounting guidancerequires 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 once the software has been brought into service. During the three months ended September 30, 2013 the Company’s NeuroEyeCoach program completed the preliminary project stage, following which there was a capitalization of $61,167 of software development costs.

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:


	September 30,		September 30,
	2013		2012
Stock options outstanding		5,557		5,557
Warrants to purchase common stock		1,413,491		1,749,874
Debentures convertible into common stock		368,726		368,726
Preferred shares convertible into common stock		239,265		663,719
Total		2,027,039		2,787,876

5. NOTES PAYABLE

Related Party Notes Payable

As of September 30, 2013 and December 31, 2012 Related Party Notes Payable consists of:


	September 30, 2013	December 31, 2012
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 orpari passuwith, 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 $1.88 per share, subject to adjustment and does not require bifurcation. These debentures were originally due August 31, 2010 and the due date has been extended over time to December 31, 2013.	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	175,000	175,000



Company, and are senior to orpari 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 $2.63 per share, subject to adjustment and does not require bifurcation. The debentures were originally due August 31, 2011, and the due date has been extended over time to December 31, 2013.

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 orpari passu with, all other obligations of the Company, subject to certain conditions. The debentures were originally due August 31, 2011, and the due date has been extended over time to December 31, 2013.	400,000	400,000

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 secured by a first priority security interest in all of the assets of the Company, and is senior to orpari 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 $2.85 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. The debentures were originally due December 31, 2012 and the due date has been extended over time to December 31, 2013.	300,000	300,000

In the period July to December 2012 the Company issued short term, unsecured notes payable to Fountainhead in the aggregate amount of $300,900. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	300,900	300,900

In the period August to December 2012 the Company issued short term, unsecured notes payable to Peter Zachariou in the aggregate amount of $115,550. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	115,550	115,550

In the period January to September 2013 the Company issued short term, unsecured notes payable to Fountainhead in the aggregate amount of $325,744. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	325,744	-

In the period January to September 2013 the Company issued short term, unsecured notes payable to Peter Zachariou in the aggregate amount of $210,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	210,000	-



In the period July to September 2013 the Company issued short term, unsecured notes payable to David Cantor, in the aggregate amount of $15,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	15,000	-


Total Related Party Notes Payable:	$2,283,556	$1,732,812

Other Notes Payable

As of September 30, 2013 and December 31, 2012 Other Notes Payable consists of:


	September 30, 2013	December 31, 2012
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 $4.50 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 $4.50 per share, subject to adjustment and does not require bifurcation. The due date for this note has been extended over time to November 30, 2013.	300,000	300,000

In the period August to December 2012 the Company issued short term, unsecured notes payable to Craig Kirsch in the aggregate amount of $98,550. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	98,550	98,550

In September 2012 the Company issued short term, unsecured notes payable to Osbaldo Trading Limited in the amount of $42,900. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	42,900	42,900

In the period June to September 2013 the Company issued short term, unsecured notes payable to Craig Kirsch in the aggregate amount of $13,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company.	13,000	-

Insurance policy finance agreements. During the nine months ended September 30, 2013 the Company received proceeds from Insurance policy finance agreement of $74,043 and made repayments of $53,035	42,218	21,240

Total Other Notes Payable:	$496,668	$462,690

As of September 30, 2013, $1,316,362 of Company's Related Party Notes Payable is secured by a 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.

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


	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Revenue:
Vycor Medical	$225,823	$118,385	$502,847	$578,405
NovaVision	95,807	101,736	285,411	339,703
Total Revenue	$321,630	$220,121	$788,258	$918,108
Gross Profit:
Vycor Medical	$197,873	$109,058	$449,304	$487,853
NovaVision	81,951	85,689	239,236	285,211
Total Gross Profit	$279,824	$194,747	$688,540	$773,064


	September 30, 2013	December 31, 2012
Total Assets:
Vycor Medical	$906,981	$1,055,026
NovaVision	1,355,617	1,506,134
Total Assets	$2,262,598	$2,561,160

(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.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenue:
United States	$	257,123	$	156,785	$	617,430	$	724,635
Europe		64,507		63,336		170,828		193,473
Total Revenue	$	321,630	$	220,121	$	788,258	$	918,108
Gross Profit:
United States	$	221,541	$	141,075	$	538,869	$	604,839
Europe	$	58,283		53,672	$	149,671		168,225
Total Gross Profit	$	279,824	$	194,747	$	688,540	$	773,064


	September 30, 2013		December 31, 2012
Total Assets:
United States	$	1,713,278	$	1,935,638
Europe		549,320		625,522
Total Assets	$	2,262,598	$	2,561,160

7. EQUITY

Certain Equity Transactions

During January to September 2013 the Company issued: 6,269 shares of Common Stock (valued at $15,000) to Steven Girgenti, 7,206 shares of Common Stock (valued at $15,000) to Dr. Oscar Bronsther and 2,892 shares of Common Stock (valued at $6,250) to Lowell Rush in consideration for services provided to the Board of Directors; and 2,253 shares of Common Stock (valued at $6,250) to Alvaro Pascual-Leone, 3,580 shares of Common Stock (valued at $9,375) to Josef Zihl and 3,075 shares of Common Stock (valued at $6,250) to Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

On January 11, 2013, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of 1 for 150 on the issued and outstanding Common Stock par value $0.0001 (“Common Stock”). On January 15, 2013 (the “Effective Date”), the Company effectuated its reverse stock split. On the Effective date, the Company implemented a one for 150 share reverse split of its Common Stock. On the Effective Date, the Company’s pre-split 892,749,897 shares of Common Stock became 5,951,744 post-split shares of Common Stock, including the issuance of 66 shares of Common Stock for the round-up of partial shares. In connection with the reverse split, the Company’s authorized capital was not changed. All relevant information relating to the number of shares and per share information has been retrospectively adjusted to reflect the reverse stock split for all periods presented.

In March 2013 GreenBridge Capital Partners, IV, LLC returned to Vycor all of the 34,445 shares being sought by the Company under an action filed by the Company in July 2012. These shares have been taken into Treasury Stock.

During April and May 2013, the Company issued 47,590 and 32,152 shares of Common Stock respectively on exercise of warrants by Kenneth Coviello and Heather Vinas. The warrants had an exercise price of $1.08 and were exercisable on a cashless basis.

During April to September 2013, Fountainhead Capital Management sold 177,439 warrants to purchase Vycor Common Stock at an exercise price of $1.88 per share. These warrants were granted to Fountainhead by the Company in February 2010 and were sold by Fountainhead to 7 investors at a price of $0.10 per warrant. The warrants were immediately exercised by the investors and the Company issued 177,439 shares of Common Stock in respect of the exercise and received cash proceeds of $332,832.

During April to September 2013, the Company issued a total of 325,936 shares of Common Stock in respect of conversion of Series C Preferred Stock.

During July to September 2013, Del Mar and Alex Partners were issued 10,800 and 7,200 shares of Common Stock, respectively, valued at $21,600 and $14,400, respectively, in lieu of cash consulting fees for the months of July to September 2013.

8. SHARE-BASED COMPENSATION

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 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 mare 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 nine month periods ended September 30, 2013 and 2012.

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 then Chief Executive Officer and then 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. These options have been fully expensed.

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 June 30, 2013 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, 2011		1,747,341		$	3.07
Granted		4,667			4.50
Exercised		—			—
Cancelled or expired		(2,140	)		36.00
Outstanding at December 31, 2012		1,749,874		$	3.03
Granted		—			—
Exercised		(341,941	)	$	1.49
Cancelled or expired		—			—
Outstanding at September 30, 2013		1,407,933		$	3.40


STOCK OPTIONS:	Number of shares		Weighted average exercise price per share
Outstanding at December 31, 2011		5,557	$	20.25
Granted		—		—
Exercised		—		—
Cancelled or expired		—		—
Outstanding at December 31, 2012		5,557	$	20.25
Granted		—		—
Exercised		—		—
Cancelled or expired		—		—
Outstanding at September 30, 2013		5,557	$	20.25

As of September 30, 2013, the weighted-average remaining contractual life of outstanding warrants and options is 1.16 and 4.38 years, respectively.

Non-Employee Stock Compensation

During the nine months ended September 30, 2013, the Company issued an aggregate of 6,269, 7,206 and 2,892 shares of common stock, respectively, valued at $15,000, $15,000 and $6,250 to each of Steven Girgenti, Oscar Bronsther and Lowell Rush for services rendered to the board of directors. For the nine months ended September 30, 2013, a total of $36,250 was recognized as share-based compensation for the issuance of these shares.

During nine months ended September 30, 2013 the Company issued an aggregate of 2,253, 3,580 and 3,075 shares of common stock, respectively, valued at $6,250, to each of Alvaro Pascual-Leone, Jason Barton and Jose Romano and 2,261 shares of common stock valued at $9,375 to Josef Zihl for services rendered to the Scientific Advisory Board of NovaVision. For the nine months ended September 30, 2013, an aggregate of $28,125 was recognized as share-based compensation for the issuance of these shares.

On November 30, 2012 the Company entered into 12 month consulting agreements with Del Mar Consulting, Inc and Alex Partners, LLC to provide investor relations and investor awareness consultancy services. Under these agreements, Del Mar and Alex Partners received shares Common Shares valued at $157,500 and $105,000 respectively. The value of these shares is being amortized over the period of the agreement, and for the nine months ended September 30, 2013 stock compensation of $196,875 was recognized as share-based compensation in connection with these agreements. During July to September 2013, Del Mar and Alex Partners were issued 10.800 and 7,200 shares of Common Stock, respectively, valued at $21,600 and $14,400, respectively, in lieu of cash consulting fees for the months of July to September 2013.

On July 2, 2013, the Company entered into an advisory agreement with a registered broker-dealer to provide certain financial advisory services to the Company. Under the terms of the advisory agreement, the Company issued 15,000 restricted shares of Company Common Stock to the broker-dealer on execution, which were valued on the date of issuance at $37,500, which is being amortized over the first six months of the agreement. The value of these shares is being amortized over the six months of the agreement, and for the nine months ended September 30, 2013 stock compensation of $18,750 was recognized as share-based compensation in connection with this agreement.

Aggregate stock-based compensation expense charged to operations for stock and warrants granted to the above non-employees for the nine months ended September 30, 2013 was $316,000. As of September 30, 2013, there was $175,000 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.

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 nine months ended September 30, 2013 and 2012:


	Nine months ended September 30,
	2013		2012
Risk-free interest rates		—		2.39%
Expected life		—		3 years
Expected dividends		—		0%
Expected volatility		—		96%
Vycor Common Stock fair value		—		$1.88-$3.38

9. 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 terminating July, 2017. The Company’s subsidiaries in Germany and the UK occupy properties on short term lease agreements. Rent expense for the nine months ended September 30, 2013 and 2012 were $49,569 and $48,084 respectively.

Potential German tax liability

In June 2012 the Company's German subsidiary received a preliminary assessment for Magdeburg City trade tax of approximately €75,000 (approximately $94,000). 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 for the same period has been preliminarily reduced to zero. The Company

has not accepted this trade tax assessment and is in discussion with the relevant tax authorities with a view to its reduction. To the extent that this assessment, a higher or a reduced amount, is ultimately confirmed by the tax authorities, the Company believes it has a very strong claim against certain professional advisors which would offset the liability in full. Accordingly, the Company has made no provision for this liability for the nine months ending September 30, 2013 or the year ended December 31, 2012.

Potential Patent Infringement

The Company was made aware in 2012 that a competitor had been granted a patent, which infringed that already issued to Vycor. Following investigation, the Company has taken steps to initiate an invalidation of that patent and enforce its patent rights; the party is contesting our invalidation proceedings but the Company and its advisors believe it has a strong case. The Company has also been made aware that a second competitor has made a patent application which potentially infringes the Company is in the early stages of evaluation and has yet to determine what, if any actions to take in this instance, however as a general rule the Company intends to take all necessary action to protect its patent portfolio.. As with all patent infringement actions, there is some risk that the accused infringer will not be found to infringe the claims, and an additional risk that the accused infringer will successfully challenge the validity of the asserted claims.

VBAS Limited Product Recall

In August 2012 the Company initiated a limited product recall having identified a microscopic fiber in a single lot of its TC171105 model. Further investigation concluded that there was a very low incidence of this microscopic fiber in the lot, which had not been picked up during the manufacturer’s inspection process. The FDA was notified and all customers with units that had been distributed (a total of 5 customers in the U.S. and 2 customers internationally) were contacted and the units were recalled and replaced with re-inspected and passed units, or internationally re-inspected under 100% enhanced inspection guidelines; this recall and replacement process was completed in the US in September 2012 and internationally in November 2012 and there are no affected units on the marketplace. In January 2013, following their review, FDA classified the recall as a Class I and terminated the recall in May 2013.

Vycor re-inspected all remaining units in the lot prior to shipment under 100% enhanced inspection procedures and took steps to ensure that this issue was contained to this lot and that other lots and products were not affected (this is one of 12 products sold by Vycor). The likely source of the fiber was identified and corrective steps implemented in both the manufacturing and inspection processes to ensure that the issue would not re-occur.

Management believes that a decline in sales during February 2013 may have at least partially been the result of the posting by the FDA in late January 2013 of the Class 1 classification to the recall and which created some short-term market instability. Notwithstanding, for the period commencing March 1, 2013 and continuing through September 30, 2013, Vycor Medical’s sales have returned to pre-February 2013 levels and Vycor is not able at this time to determine whether there will be any additional financial impact on the Company as a result of this recall. Vycor’s customers have appreciated that Vycor took swift voluntary action to remove this product from the marketplace, even though the incidence of this fiber and therefore the risk was low, before any units could be used, and to maintain Vycor’s high safety and quality standards.

10. CONSULTING AND OTHER AGREEMENTS

The Company has entered into no new consulting or other agreements during the six months ended June 30, 2013. The following agreements remained in force during the period:

Consulting Agreement with Fountainhead Capital Management Limited (“Fountainhead”)

In October 2013, effective retroactively to May 5, 2013, the Fountainhead Consulting Agreement was extended on virtually the same terms as the Agreement expiring on that date. Pursuant to the Consulting Agreement, the Company pays Fountainhead a monthly retainer of $37,500. This monthly retainer shall be payable $5,000 in cash and the remainder shall be accrued and paid out to FCM at the option of FCM as follows: (i) in Vycor stock at any time at the average closing price for the 30 days prior to the end of the quarter in which the accrual is made; 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.

Consulting Agreement with Del Mar Consulting Group, Inc and Alex Partners, LLC.

Advisory and Placement Agent Agreements

On July 2, 2013, the Company entered into two agreements with a registered broker-dealer one to provide certain financial advisory services to the Company (“Advisory Agreement”) and the other to act as placement agent for the Company (“Placement Agent Agreement”).

Under the terms of the Advisory Agreement, the broker-dealer is engaged on a non-exclusive basis to provide financial advisory services to the Company for at least ninety (90) days and thereafter until either party terminates the arrangement. Under the terms of the Advisory Agreement, the Company will issue 60,000 restricted shares of Company Common Stock to the broker-dealer, 15,000 of which are issuable on the date of the execution of the Agreement and 7,500 additional shares to be issued on a monthly basis commencing the 7^th month following execution of the Agreement until the 12^th month following execution of the Agreement. The Agreement also calls for the Company to reimburse certain out-of-pocket expenses.

Under the terms of the Placement Agent Agreement, the Company engaged a broker-dealer as its exclusive placement agent until the later of (i) 90 days from the date of execution of the Agreement or (ii) the end of the offering period of any securities financing undertaken by the Company in connection with the Placement Agent Agreement. Normal placement agents fees and expense reimbursement will be payable. Any offering will be undertaken on a “best efforts” basis and the proceeds would be used for working capital and general corporate purposes.

11. RELATED PARTY TRANSACTIONS

During January to September 2013, the Company issued unsecured, subordinated loan notes to: Fountainhead for a total of $325,744; to Peter Zachariou, a director of the Company, for a total of $210,000; and to David Cantor, a director of the Company, for a total of $15,000. During October 2013, the Company issued unsecured, subordinated loan notes to Fountainhead for a total of $35,000. The loan

notes are subordinated to the Company’s secured debentures and Preferred C Stock of the Company, bear interest at a rate of 6% are due on demand or by their one-year anniversary.

In March 2013, Fountainhead and Peter Zachariou, a director of the Company, extended the maturity of secured loans totaling $1,016,362 and $300,000 respectively from March 31, 2013 to December 31, 2013.

During April and May 2013, Fountainhead Capital Management sold warrants to purchase 177,439 shares of Vycor Common Stock at an exercise price of $1.88 per share. These warrants were granted to Fountainhead by the Company in February 2010 and were sold by Fountainhead to investors at a price of $0.10 per warrant share. The warrants were immediately exercised by the investors.

There were no other related party transactions during the nine months ended September 30, 2013 other than the payment or accrual of fees under the Fountainhead Consulting agreement described in 10 above.

12. SUBSEQUENT EVENTS

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

Share Issuance

During October to November 2013, the Company issued 2,419 shares of Common Stock (valued at $5,000) to Steven Girgenti, in consideration for services provided to the Board of Directors; and 744 and 1,488 shares of Common Stock respectively (valued at $1,563 and $3,125 respectively) to Alvaro Pascual-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

Conversion of Preferred Shares

During October to November 2013, the Company issued a total of 17,038 shares of Common Stock in respect of the conversion of Series C Preferred Stock.

Loan Funding

On October 23, 2013 the Company issued a term note for $100,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and is due November 30, 2013.

During October, the Company issued unsecured, subordinated loan notes to Fountainhead for a total of $35,000. The loan notes are subordinated to the Company’s secured debentures and Preferred C Stock of the Company, bear interest at a rate of 6% are due on demand or by their one-year anniversary.

Consulting Agreement with Fountainhead Capital Management Limited (“Fountainhead”)

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 an acquisition of substantially all of the assets of NovaVision, Inc. (“NovaVision”), 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 predominantly resulting from Stroke or Traumatic Brain Injury. On January 4, 2012 Vycor, through its wholly - owned subsidiary NovaVision, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”), a previous competitor to NovaVision, which provides an interactive computer-based therapy called Neuro-Eye Therapy (“NeET”).

2. Overview of Business

Vycor operates two distinct business units within the medical industry: Vycor Medical (which operates as a division of the Company) and NovaVision (a wholly owned subsidiary). Vycor Medical is a medical device company that designs, develops and markets medical devices to hospitals and neurosurgeons for use in neurosurgery. NovaVision (which incorporates Sight Science) develops non-invasive, computer-based visual neuro-stimulation therapy for patients suffering from permanent visual field deficits resulting from neurological trauma such as Stroke and Traumatic Brain Injury, 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, can benefit from our existing infrastructure and will add shareholder value.

Vycor Medical’s first commercially marketed product, the ViewSite Brain Access System (VBAS), is a next generation retraction and access system. VBAS is used by neurosurgeons to access a surgical site in the brain, by retracting the delicate brain tissue and providing a clear, hollow working channel to provide the surgeon access to the precise target location. We believe VBAS offers several advantages over other brain retractor systems, commonly known as ribbon or blade retractors that are metallic, including having the potential to significantly reduce brain tissue trauma that arises from excessive pressure at the edges of the blade. The unique design of VBAS can minimize the size of the brain entry access necessary for surgical procedures, and is believed to significantly reduce the pressure and hence trauma on the surrounding brain tissue.

The market for VBAS is limited to craniotomy procedures and our target audience is both neurosurgeons and hospitals with neurosurgery departments. The surgeon is most interested in ease and simplicity of use, reduction in surgery times, less trauma to the patient and better overall outcomes; the surgeon is also interested in devices which can enable surgeries which would otherwise be difficult or possibly even inoperable. The Company believes there are approximately 3,500 neurosurgeons in the US, providing a well defined target audience. The hospital is most interested in reduction in surgery times, better outcomes, reduction in in-patient recovery times and the overall cost/benefit of the product. We believe VBAS targets the interests of both the surgeon and the hospital. Our strategy to increase adoption by both these groups, in the US and internationally, is centered around: increasing our access to the universe of surgeons and the larger hospitals; providing more clinical and scientific data supporting VBAS’ clinical superiority and superior cost/benefit profile; and developing new products that either assist in the adoption and sales of the existing VBAS range or address new market segments not currently addressed by VBAS.

NovaVision’s therapies (VRT and, through its Sight Science subsidiary, NeET), are aimed at those suffering from a permanent visual field deficit caused by neurological trauma such as that resulting from stroke and traumatic brain injury. VRT and NeET are restitution therapies that are designed to partially restore lost vision. Alternatives to these therapies merely allow the patient to adapt to the condition either through substitution techniques (optical aids such as prisms) or compensatory techniques that teach the patients to compensate for their visual deficits (such as eye movement training). The market for our therapies, and our target audience, comprises those who have suffered such visual field deficit, their families and physicians of all types who provide care for or advice to such patients. This is a very large a fragmented market and our strategy is centered around: continuing to increase awareness amongst our target groups by a variety of direct and indirect channels; introducing a new compensatory eye movement therapy in the form of NeuroEyeCoach which will also benefit these patients and complements VRT; and developing a much lower-cost and business-efficient web based delivery model for VRT such that we can lower significantly the price of VRT to patients and thereby we believe, remove pricing as a barrier in the minds of patients, their families and their physicians, as well as making the delivery of the therapy truly scalable.

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 and CE Marking for Europe (Class III) for brain and spine surgeries, as well as applicable full or partial regulatory approvals in Australia, Canada, China, Japan, Korea and Russia for sale of its brain access system. Vycor Medical’s first product, the ViewSite Brain Access System (VBAS), is a next generation retraction and access system that was fully commercialized in early 2010. The VBAS device is the first significant technological change to brain tissue retraction. The incumbent blade retractor technology has not changed materially in over 50 years in stark contrast to significant development in most other neuro-surgical technologies.

Vycor Medical has a current product pipeline aimed at enhancing the ease of use and increasing the compatibility of its current VBAS range, and separately also expanding the applicable procedures it addresses by expanding its VBAS range. A second potential product range focused on spinal procedures is the Cervical Access System (VCAS), which requires further prototyping and market testing prior to reaching a decision to commercialize. This product is designed to assist surgeons in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site; the VCAS is covered by Vycor’s 510(k) clearance.

Vycor Medical’s Products

Viewsite Brain Access System (VBAS)

To access a surgical site in the brain, a surgeon usually needs to remove part of the skull (craniotomy) and then make an entry incision in the outer protective brain tissue (corticotomy); the soft brain tissue is then parted (retracted) to access the target site. The current standard of care utilizes a metal blade retractor to pull the tissue apart; to maintain the opening the blades are attached to a head frame and parting tension is applied to the tissue. In a typical procedure somewhere between 2 and 5 blades are used.

Many clinical studies have shown that retractors can cause excessive pressure on brain tissues, resulting in damage and a prolonged patient recovery. The incidence of contusions (tissue injuries) or infarctions (blockage of blood supply) from brain retraction is as great as 5-10% in cranial surgeries.

Vycor’s VBAS is a significant improvement over current technologies for accessing regions within the brain. A disposable product that can be used with neuro-navigation systems (IGS), the VBAS includes an introducer and working channel. Available in multiple sizes, the current series consists of 12 disposable products, offered in four different port diameters of 12mm, 17mm, 21mm, and 28 mm and a choice of three lengths: 3cm, 5cm, and 7cm.

The Market For Vycor Medical’s VBAS Product

The market for Vycor Medical’s VBAS product range is limited to craniotomy procedures. Based on statistics from the American Association of Neurological Surgeons (AANS), management estimates 700,000 such procedures were performed in the US in 2012. Of this, management believe approximately 200,000 (28 percent) are addressable by the VBAS range currently, with another 125,000 (total of 325,000 or 46 percent) addressable by an expanded future range. Management estimates, for the global market, there exists a current addressable market of approximately 1,000,000 procedures with another 600,000 addressable by an expanded VBAS range.

Sales and Marketing

Domestic Sales Strategy

The VBAS sales strategy is focused on driving sales through leading neurosurgeons. In this regard, Vycor Medical has adopted a dual strategy of targeting both the neurosurgeons specializing in brain and the larger neurosurgical hospitals.

The surgeon is most interested in ease and simplicity of use, reduction in surgery times, less trauma to the patient and better overall outcomes; the surgeon is also interested in devices which can enable surgeries which would otherwise be difficult or possibly even inoperable. The Company believes there are approximately 3,500 neurosurgeons in the US, providing a well defined target audience. The hospital is most interested in reduction in surgery times, better outcomes, reduction in in-patient recovery times and the overall cost/benefit of the product. We believe VBAS targets the interests of both the surgeon and the hospital.

Vycor Medical sells to stocking regional distributors and direct to hospitals through independent representatives, all of whom have existing relationships with neurosurgeons and help drive sales at the target hospitals without the need for a large and costly dedicated Vycor regional sales team.

International Sales

Vycor Medical’s strategy is to target those countries or regions internationally where it has patent protection and either has or can obtain regulatory approval. Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. In Europe, the Company currently only has a limited number of distributors and is only now turning its focus to this geographic region. Vycor also has full or partial regulatory approvals in Australia, Canada, China, Japan, Korea and Russia with distribution agreements in place or being sought.

Vycor Medical plans on focusing on the international markets and is actively pursuing new distribution agreements.

VBAS Market and the Hospital Adoption Process

The market for VBAS in the US is relatively concentrated. 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. However, Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation of the product in the hospital by the neurosurgeon and this is one of the key barriers to the speed of adoption as this process can take several month.

Experience has been that the approval process can take up to six months for each hospital, and in some cases may even be longer.

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 (including 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 to the broader neurosurgical community. During the last 3 years the following papers were published:


•	“Usage of a Minimally Invasive Tubular Retraction System for Deep-Seated Tumors in Pediatric Patients” inJournal of Neurosurgeryin 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” inMinimally 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.

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 each manufacture 6 of the VBAS 12 different sizes.

Competition

The VBAS device is both a brain access system and a retractor and is therefore unique with no direct competitors. Competitive manufacturers of brain retractors include Cardinal Health (V. Mueller line), Aesculap, Integra Life Science and Codman (Division of Johnson & Johnson). Nico Corporation has a brain access device specifically designed to work with its Myriad resection and suction product.

Cervical Access System competitors are more numerous and include Medtronic, Asculap/B. Braun, Cardinal and Nuvasive, Cloward Instruments, as well as the standard “blade retractors” distributed by the aforementioned companies. In addition companies such as Endius and EBI have announced cervical retractor systems.

Intellectual Property

Patents

Vycor Medical maintains a portfolio of patent protection on its methods and apparatus for its Brain and Spine products and technology in the form of issued patents and applications, both domestically and internationally, with a total of 6 granted and 10 pending patents.

Vycor Medical’s 6 granted patents are in the China (Brain), Hong Kong (Brain), Russia (Brain) US (Brain), Japan and US (Spine).

Vycor Medical’s 10 pending patents are in: Canada (Brain, Spine), Europe (Brain, Spine), India (Brain, Spine), Japan (Brain), Hong Kong (Spine), US (Brain Apparatus and Extension Arm).

Trademarks

VYCOR MEDICAL is a registered trademark.

NovaVision, Inc.

Introduction

NovaVision develops and markets a non-invasive, computer-based light stimulation therapy called Vision Restoration Therapy (VRT) and through its subsidiary, Sight Science, Neuro-Eye Therapy (NeET). Both therapies are aimed at those suffering from a permanent visual field deficits, which are the result of neurological trauma such as that caused by Stroke and Traumatic Brain Injury. 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.

NovaVision operates in the US through our wholly-owned subsidiary, NovaVision, Inc., in Germany through our wholly-owned subsidiary, NovaVision GmbH and in the UK through our wholly-owned subsidiary, Sight Science Limited.

VRT is based on NovaVision’s platform technology which management believes induces neuroplasticity, the brain’s natural ability to compensate for damaged neural connections that cause vision loss.

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. VRT is generally performed over a four to six month period, twice a day for approximately an hour total, six days a week. The Company maintains very 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 VRT platform technology for vision restoration and other indications. NovaVision has received 510(k) clearance and CE Marking for VRT and NeET also has CE Marking (both Class I). NovaVision’s VRT is the only medical device aimed at the restoration of vision for neurologically induced vision loss which has FDA 510 (K) clearance to be marketed in the U.S.

NovaVision’s new product pipeline is centered on a new saccadic training program called NeuroEyeCoach. This is also a computer based program providing eye-movement training to those who have suffered a visual field loss as a result of neurological damage and will be complementary to its existing VRT and NeET therapies.

The Market For NovaVision’s Therapies

The market for NovaVision’s therapies comprises those suffering from vision loss resulting from neurological trauma such as Stroke and Traumatic Brain Injury (TBI). The U.S. Centers for Disease Control (CDC) estimates there are 8 million Americans who have previously had a stroke incident, with 740,000 additional cases occurring annually. Additionally, approximately 5.3 million Americans live with long term deficits resulting from a TBI. Based on published reports of industry specialists, A. Pambakian and C. Kennard, it is estimated that approximately 16% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living. NovaVision’s target market is this subset of patients who have suffered a permanent visual field deficit. Management estimates that NovaVision’s addressable target market is approximately 1.5 million people in the US, approximately 1.4 million people in Europe and approximately 6.4 million people throughout the rest of the world. The market potential will be further increase by the introduction of NeuroEyeCoach which will add an additional 3.6m people in the US and Europe and 8m in the rest of the world.

Competition

NovaVision provides restitution therapies for those suffering neurologically - induced vision loss, other therapies being substitution (optical aids such as prisms, which NovaVision does not really consider as competition) and compensation (eye movement training). Within compensation, competitors include RevitalVision, PositScience, Rehacom and NVT Systems. In restitution, competition has been reduced through NovaVision’s acquisition of Sight Science and really only leaves two small companies, Teltra and Visiontrainer in Germany. NovaVision believes that saccadic training (eye movement training) is complementary to its VRT and is in the advanced stage of developing its own saccadic therapy which will be called NeuroEyeCoach. This product will be sold as a standalone therapy or in the future as part of a NovaVision therapy regime with its VRT therapy.

Platform Technology

Although the exact mechanism by which VRT works has not been conclusively proven, management believes the light stimulation induces neuroplasticity, the brain’s natural ability to compensate for damaged neural connections that cause vision loss. Neuroplasticity has been discussed over the last 20 years or so and, as far back as 1990, Charles D. Gilbert and Torsten N Wiesel talked about the cortex not having a fixed functional architecture. The platform technology is comprised of proprietary algorithms that generate patient-specific therapies enabling NovaVision’s products to be used as both diagnostic and therapeutic tools. The platform technology generates light-based, or photic, stimulus programs. Patients are asked to focus on this fixation point, while at the same time 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 these programmed light sequences that stimulate the border zone between the “seeing” and “blind” visual fields which induces neuroplasticity. While neuroplasticity for explaining VRT has never been conclusively demonstrated, a 2007 study by Randold S. Marshall, using MRI did demonstrate that VRT results in increased neural activity in the visual cortex. Irrespective of mechanism, patient studies and the Company’s ongoing experience point to significantly improved functional outcomes for patients who have done VRT treatment. This improvement manifests itself in greater confidence to move around and, according to data published by Romano JG et al (2008), 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, of which some of the key findings can be summarized as:


	•	Approximately 70% of patients experience positive outcome reflected by an increase in their visual field and studies have indicated an average increase of 4.9 degrees (Mueller I, Mast H, Sabel BA (2007) Romano JG 2008).
	•	Elapsed time since injury does not seem to impact VRT and NeET therapies success. Therefore, a massive historical backlog of patients can potentially be treated (Romano JG, Schulz P, Kenkel S, Todd DP (2008)).
	•	Improvements are permanent and do not appear to be age or gender dependent.
	•	Age at the onset of the injury is not a critical factor, allowing access to the therapy by both young and older adults with brain injuries (Romano JG, Schulz P, Kenkel S, Todd DP (2008)).

Regulatory Matters

In the U.S., NovaVision’s products are regulated by the FDA; VRT is a Class U medical device subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT and Sight Science for NeET, both as Class I devices. 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 31 granted and 8 pending patents (including Sight Science).

NovaVision’s 31 granted patents are in the U.S. (12), Canada (3), Europe (7), Australia (2), China (2), Hong Kong (1), Singapore (1), India (1) and Japan (2).

NovaVision’s 8 pending patents are in the U.S. and Canada (2), Europe (5) and Japan (1).

Trademarks

NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT and VRT 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.

Sight Science

In January 2012 NovaVision acquired Sight Science, which was established in 2009 based on the research of Professor Arash Sahraie at the University of Aberdeen, and which provides an interactive computer-based therapy called Neuro-Eye Therapy (“NeET”), which patients administer at home. To date, over 150 patients have utilized NeET. Sight Science has 5 patents granted in the UK, France, Germany, Switzerland Singapore and Canada, and 1 patent pending in the U.S., all of which are included under the NovaVision Patents section above. Prof. Sahraie has conducted extensive research on blindsight and residual visual processing after brain injury, and is highly regarded in the field.

Both NovaVision’s VRT and Sight Science’s NeET work on the basis that repeated stimulation of the blind or transition areas by either bright patches of light (VRT) or the specific spatial patterns (NeET) which 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 blind field. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living. The Company believes that these therapies are 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 Vycor Medical is certified to the ISO standards expected of medical device manufacturers as follows:

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

Continuing Regulatory Requirements

Vycor Medical’s products have been classified as Class II products by the FDA and cleared for marketing through the 510(k) process. NovaVision’s VRT product has been cleared as a Class U product through the 510(k) while its HMP is registered as an exempt Class 1 device.

After a device is placed on the market, numerous regulatory requirements apply. These include:


•	quality system regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;
•	labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and
•	medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.

Failure to comply with applicable regulatory requirements, and failure to respond to requested corrective actions on an ongoing basis, can result in enforcement action by the FDA.

Medical device laws are also in effect in many of the countries outside of the United States in which we do business. These laws range from comprehensive device approval and quality system requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. In June 1998, the European Union Medical Device Directive became effective, and all medical devices must meet the Medical Device Directive standards and receive CE mark certification. CE mark certification involves a comprehensive Quality System program, and submission of data on a product to the Notified Body in Europe.

Vycor Medical has obtained the CE marking approval to allow for distribution of its VBAS products in Europe as a Class III device and has received HPB licensing approval for distribution in Canada. NovaVison’s VRT and Sight Science’s NeET have CE mark registrations as Class I devices in Europe. HMP does not have European regulatory clearance at this time.

Employees

We currently have 15 full-time employees.

Website.The Company operates websites at www.vycormedical.com and www.novavision.com.

Comparison of the Three Months Ended September 30, 2013 to the Three Months Ended September 30, 2012

Revenue and Gross Margin:


	2013		2012		% Change
Revenue:
Vycor Medical	$	225,823	$	118,385		91	%
NovaVision		95,807		101,736		(6	)%
Total Revenue	$	321,630	$	220,121		46	%

Gross Profit
Vycor Medical	$	197,873	$	109,058		81	%
NovaVision		81,951		85,689		(4	)%
Total Gross Profit	$	279,824	$	194,747		44	%

Vycor Medical recorded revenue of $225,823 from the sale of its products in for the three months ended September 30, 2013, an increase of $107,439 over the same period in 2012, reflecting increased activity in the US and internationally. Gross margin of 88% was achieved in 2013 compared to 92% for 2012. 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.

NovaVision recorded revenues of $95,807 for the three months ended September 30, 2013, a decrease of $5,929 over the same period in 2012, and gross margin of 87%, compared to 88% for the same period in 2012.

Research and Development Expense:

Research and development (“R&D”) expenses were $0 for the three months ended September 30, 2013, as compared to $33,650 for the same period in 2012.

During the three months ended September 30, 2013 the Company’s NeuroEyeCoach program completed the preliminary project stage, following which the authoritative accounting guidancerequires software

development costs to be capitalized. For the three months ended September 30, 2013 there was a capitalization of $61,167 of software development costs.

General and Administrative Expenses:

General and administrative expenses decreased by $165,241 to $673,464 for the three months endedSeptember 30, 2013 from $838,705 for the same period in 2012. 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 endedSeptember 30, 2013 was $141,939, an increase of $110,731 over $31,208 in 2012, reflecting the payment of fundraising-related and investor relations fees. Also included within General and Administrative Expenses are Sales Commissions, which increased by $12,716 to $23,981.

The remaining General and Administrative decrease of $288,688 reflects: reduced investor relations and related costs ($39,183); reduced professional and consulting fees ($85,560); reduced payroll costs ($127,566); and reduced other costs ($36,379). The reduced payroll cost is as a result of the outsourcing of software development activities, the reassignment of executive responsibilities and general rationalization and staffing efficiency improvements.

Interest Expense:

Interest expense includes interest expense on the Company’s debt and insurance policy financing. Related Party Interest expense in the three months ended September 30, 2013 increased by $11,314to $34,801 from $22,767for the same period in 2012. Other Interest expense in the three months ended September 30, 2013 increased by $1,758to $14,492 from $12,734for the same period in 2012.

Comparison of the Nine Months Ended September 30, 2013 to the Nine Months Ended September 30, 2012

Revenue and Gross Margin:


	2013		2012		% Change
Revenue:
Vycor Medical	$	502,847	$	578,405		(13	)%
NovaVision		285,411		339,703		(22	)%
Total Revenue	$	788,258	$	918,108		(16	)%

Gross Profit
Vycor Medical	$	449,304	$	487,853		(8	)%
NovaVision		239,236		285,211		(16	)%
Total Gross Profit	$	688,540	$	773,064		(11	)%

Vycor Medical recorded revenue of $502,847 from the sale of its products for the nine months ended September 30, 2013, a decrease of $75,558 over the same period in 2012. Management believes that a decline in sales during February 2013 may have partially been the result of the posting by the FDA in late January 2013 of a Class 1 classification to the recall which the Company had completed in November 2012, and which created some short-term customer instability. Notwithstanding, for the period commencing March 1, 2013 and continuing through September 30, 2013, Vycor Medical's sales have returned to pre-February 2013 levels. Gross margin of 89% was achieved in 2012 compared to 84% for 2012. 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.

NovaVision recorded revenues of $285,411 for the nine months ended September 30, 2013, a decrease of $54,292 over the same period in 2012, and gross margin of 84%, compared to 84% for the same period in 2012. $10,730 of the decrease was accounted for by the sale of HMP-200 units in the 2012 period; NovaVision has ceased sales of this unit pending further development. NovaVision’s revenues are impacted by regional variations and timing. While both overall patient prescriptions and new patient contracts increased during the period, regional pricing variations resulted in lower revenue levels. In addition, patient therapy extensions decreased, and these timing differences account at least in part for the remainder of the decrease.

Research and Development Expense:

Research and development (“R&D”) expenses were $52,635 for the nine months ended September 30, 2013, as compared to $104,197 for the same period in 2012.

During the three months ended September 30, 2013 the Company’s NeuroEyeCoach program completed the preliminary project stage, following which the authoritative accounting guidancerequires software development costs to be capitalized. For the nine months ended September 30, 2013 there was a capitalization of $61,167 of software development costs.

General and Administrative Expenses:

General and administrative expenses decreased by $669,852 to $2,063,233 for thenine months ended September30, 2013 from $2,733,085 for the same period in 2012. 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 thenine months ended September30, 2013 was $316,003, an increase of $80,040 over $235,963 in 2012, reflecting the payment of fundraising-related and investor relations fees.. Also included within General and Administrative Expenses are Sales Commissions, which increased by $25,134 to $79,502.

The remaining General and Administrative decrease of $775,026 reflects: reduced investor relations and related costs ($46,717); reduced professional and consulting fees ($164,920); reduced premises costs ($51,881); reduced payroll costs ($296,539); reduced sales and marketing costs ($143,869); and reduced other costs ($71,099). The reduced payroll cost is as a result of the outsourcing of software development activities, the reassignment of executive responsibilities and general rationalization and staffing efficiency improvements.

Interest Expense:

Interest expense includes interest expense on the Company’s debt and insurance policy financing. Related Party Interest expense in the nine months ended September 30, 2013 increased by $33,709to $95,859 from $62,150for the same period in 2012. Other Interest expense in the nine months ended September 30, 2013 increased by $5,916to $42,546 from $36,629for the same period in 2012.

Liquidity and Capital Resources

Liquidity

The following table shows cash flow and liquidity data for the periods ended September 30, 2013 and December 31, 2012:


	September 30, 2013			December 31, 2012			$ Change
Cash	$	944		$	59,821		$	(589,877	)
Accounts receivable, inventory and other current assets	$	752,567		$	863,958		$	(111,390	)
Total current liabilities	$	(5,085,768	)	$	(4,018,810	)	$	(1,066,058	)
Working capital deficit	$	(4,332,257	)	$	(3,095,031	)	$	(1,237,225	)
Cash provided by financing activities	$	917,585		$	728,368		$	189,217

As of September 30, 2013 we had $944 cash, a working capital deficit of $4,332,257 and an accumulated deficit of $16,405,321. Total Stockholders’ deficit at September 30, 2013 was $2,823,171. Total debt at September 2013, included in the working capital deficit above, was $2,780,224.

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

cash from the issuance of debt or equity securities. The Company intends to raise funds from the issuance of equity and/or debt securities, but 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, among others, 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.

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 September 30, 2013 and December 31, 2012 patient deposits amounted to $27,171 and $35,000, respectively, and are reserved against in Other Current Liabilities.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

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 on an annual in accordance with the authoritative guidance. 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.

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

Accounts Receivable and Allowance for Doubtful Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.

Inventory

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company's consolidated statements of operations.

Foreign Currency

The Euro is the local currency of the country in which NovaVision GmbH conducts its operations and is considered the functional currency of this entity; the GB Pound is the local currency of the country in which Sight Science Limited conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated as part of the accumulated other comprehensive income (loss) and included in 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.

The Company’s management, including our President and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our President and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports its files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 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) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(b)

Changes in Internal Controls

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.

The Company’s management, including the Company’s President and CFO, does 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 August 10, 2013, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements other than the following:

On July 20, 2012, the Company filed Action #13 148 01633 12 with the American Arbitration Association entitledVycor Medical, Inc. (Claimant) against Greenbridge Capital Partners IV, LLC, Partizipant, LLC, and Joseph D. Kowal (Respondents) (the “Action”). This matter was fully settled on September 10, 2013.

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

During April to September 2013, the Company issued a total of 325,936 shares of Common Stock in respect of conversion of Series C Preferred Stock.

During October to November 2013, the Company issued a total of 17,038 shares of Common Stock in respect of the conversion of Series C Preferred Stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

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

Conversion of Preferred Shares

During October to November 2013, the Company issued a total of 17,038 shares of Common Stock in respect of the conversion of Series C Preferred Stock.

Loan Funding

On October 23, 2013 the Company issued a term note for $100,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and is due November 30, 2013.

Consulting Agreement with Fountainhead Capital Management Limited (“Fountainhead”)

ITEM 6. EXHIBITS

Index to Exhibits


31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 November 14, 2013.



	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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Vycor Medical (VYCO) 10-Q2013 Q3 Quarterly report

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