VYCOR MEDICAL INC - Quarter Report: 2009 September (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)


x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the fiscal quarter ended September 30, 2009

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.)

80 Orville Drive, Suite 100, Bohemia, New York 11716

(Address of principal executive offices) (Zip code)

Issuer’s telephone number: (631) 244 1435

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

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

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

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


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

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

There were 26,422,099 shares outstanding of registrant’s common stock, par value $.001 per share, as of November 10, 2009.

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

TABLE OF CONTENTS


PART I

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008	3

	Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and September 30, 2008	4

	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	22

Item 3	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4A(T)	Controls and Procedures	32

PART II
Item 1	Legal Proceedings	32

Item 1A	Risk Factors	32

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3	Defaults Upon Senior Securities	32

Item 4.	Submission of Matters to a Vote of Security Holders	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

SIGNATURES		34

PART I

ITEM 1. FINANCIAL STATEMENTS

VYCOR MEDICAL, INC.
Balance Sheet
September 30, 2009


	September 30, 2009 (unaudited)			December 31, 2008 (audited)

ASSETS

Current Assets

Cash	$	29,516		$	196,138
Accounts receivable		25,039			89,765
Inventory		44,402			71,527
Prepaid expenses		17,511			7,040

		116,468			364,470


Fixed assets, net		196,746			213,958

Other assets:
Patents, net of accumulated amortization		99,543			42,507
Website, net of accumulated amortization		7,819			10,152
Security deposits		2,350			2,350

		109,712			55,009


TOTAL ASSETS	$	422,926		$	633,437


LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities
Accounts payable	$	341,282		$	313,611
Accrued interest		162,321			88,588
Accrued liabilities		234,534			75,468
Notes payable		120,000			—
Current portion of long-term debt		1,122,500			1,077,197

		1,980,637			1,554,864


Long-term debt less current portion		—			—


TOTAL LIABILITIES		1,980,637			1,554,864


STOCKHOLDERS’ DEFICIT
Preferred stock, $1.00 par value, 10,000,000 shares authorized, none issued and outstanding		—			—
Common Stock, $0.001 par value, 100,000,000 shares authorized, 26,422,099 and 25,463,455 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		26,422			25,463
Additional Paid-in Capital		2,976,042			2,788,415
Accumulated Deficit		(4,560,175	)		(3,735,305	)


		(1,557,711	)		(921,427	)


TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	422,926		$	633,437

See accompanying notes to financial statements

VYCOR MEDICAL, INC.
Statement of Operations


	For the three months ended September 30,

	2009 (unaudited)			2008 (unaudited)

Revenue	$	44,198		$	3,342


Cost of Goods Sold
Beginning Inventory		49,093			—
Cost of goods purchased		630			26,681


Goods available for sale		49,723			26,681
Less: Clinical samples		(737	)		—
Less: Ending inventory		(44,402	)		(26,351	)


Total Cost of Goods Sold		4,584			330

Gross Profit		39,614			3,012

Operating expenses:
Research and development		—			6,345
General and administrative		159,158			318,770


Total Operating expenses		159,158			325,115


Operating loss		(119,544	)		(322,103	)

Interest expense		33,477			441,540


Net Loss	$	(153,021	)	$	(763,643	)


Loss Per Share
Basic and diluted	$	(0.01	)	$	(0.03	)


Weighted Average Number of Shares Outstanding		26,411,189			22,408,976

See accompanying notes to financial statements

VYCOR MEDICAL, INC.
Statement of Operations


	For the nine months ended September 30,

	2009 (unaudited)			2008 (unaudited)

Revenue	$	156,587		$	3,342


Cost of Goods Sold
Beginning Inventory		71,527			—
Cost of goods purchased		630			26,681


Goods available for sale		72,157			26,681
Less: Clinical samples		(8,338	)		—
Less: Ending inventory		(44,402	)		(26,351	)


Total Cost of Goods Sold		19,417			330

Gross Profit		137,170			3,012

Operating expenses:
Research and development		—			21,906
General and administrative		735,171			1,178,763


Total Operating expenses		735,171			1,200,669


Operating loss		(598,001	)		(1,197,657	)

Interest expense		226,869			692,138


Net Loss	$	(824,870	)	$	(1,889,795	)


Loss Per Share
Basic and diluted	$	(0.03	)	$	(0.09	)


Weighted Average Number of Shares Outstanding		26,225,958			21,526,747

See accompanying notes to financial statements

VYCOR MEDICAL, INC.
Statement of Cash Flows


	For the nine months ended September 30,

	2009 (unaudited)			2008 (unaudited)

Cash flows from operating activities:

Net loss	$	(824,870	)	$	(1,889,795	)

Adjustments to reconcile net loss to cash used in operating activities:
Amortization of intangible assets		9,729			8,451
Depreciation of fixed assets		17,212			670
Amortization of debt discount expense		145,303			453,088
Share based compensation		64,524			25,969
Shares issued for consulting services		17,437			312,283
Interest satisifed with stock conversion		6,625			173,111

Changes in assets and liabilities:
Accounts receivable		64,726			(757	)
Inventory		27,125			(26,351	)
Prepaid expenses		(10,471	)		(134,226	)
Security deposit		—			(2,350	)
Accounts payable		27,671			(129,922	)
Accrued interest		73,733			65,260
Accrued liabilities		159,066			54,180


Cash used in operating activities		(222,190	)		(1,090,389	)


Cash flows used in investing activities:
Purchase of fixed assets		—			(27,175	)
Acquisition of website		—			(26,198	)
Acquisition of patents		(64,432	)		(6,499	)

Cash used in investing activities		(64,432	)		(59,872	)


Cash flows from financing activities:
Proceeds from sale of equity		—			265,000
Payment on Notes Payable-GC Advisors		—			(17,000	)
Proceeds from Notes Payable		120,000
Proceeds from Fountainhead Convertible Note Payable		—			300,000
Proceeds from Regent Convertible Note Payable		—			1,000,000
Payment on Optimum Health Services Loan Payable		—			(100,000	)

Cash provided by financing activities		120,000			1,448,000


Net increase (decrease) in cash		(166,622	)		297,739

Cash at beginning of period		196,138			15,739


Cash at end of period	$	29,516		$	313,478


Supplemental Disclosures of Cash Flow information:
Interest paid:	$	—		$	5,935


Taxes paid	$	—		$	—


Non-Cash Tranactions:
Warrants, options and stock issued for debt financing	$	100,000		$	—

See accompanying notes to financial statements

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the nine months and three months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2008.

2. FORMATION AND BUSINESS OF THE COMPANY

Business Description

Vycor Medical, LLC, (the “Company”) was formed in June 17, 2005 under the laws of the State of New York. The Company converted its entity form on August 14, 2007 from a New York Limited Liability Company to a Delaware Corporation with 16,048 of common stock exchange for each partnership unit with 1122 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; thus all are references to number of shares prior to the date of conversion are based upon the common stock equivalent of the units. The Company’s business plan is to develop and market a commercially feasible surgical access system for sale to hospitals and medical professionals.

3. ACCOUNTING POLICIES

Research and Development

The Company expenses all research and development costs as incurred. For the nine months ended September 30, 2009 and 2008, the amounts charged to research and development expenses were $0 and $21,906, respectively.

Concentration of Credit Risk

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. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.

Fair Values of Financial Instruments

At September 30, 2009, fair values of cash, accounts receivable, accounts payable, and accrued expenses short term promissory notes, approximate their carrying amount due to the short period of time to maturity. The fair value of the Company’s long term debt is based on the present value using a discount rate comparable with borrowing rates available to the Company along with various fair value model calculations used to value certain debt related securities.

Property and equipment

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and ten years.

Income taxes

The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases 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. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The Company has provided a full valuation allowance against the gross deferred tax asset as of September 30, 2009 as it is more likely than not that this deferred tax asset may not realized.

Uses of estimates in the preparation of financial statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Critical estimates include depreciation, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.

Patents

The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.

The Company reviews existing patents as well as those in the approval process for impairment on an annual basis using a present value, cash flow method pursuant to Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets. Since the Company’s patents are either very new or still in the process of approval, the Company does not believe that any impairment of these amounts exists.

Revenue Recognition

The Company records revenue, pursuant to Staff Accounting Bulletin Topic 13(a) when a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company sells a surgical access system which has already cleared the U.S. FDA 510(k) review process. It has been granted a 510(k) number for marketing the system to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warrantee costs but will review such potential costs after the commencement of sales.

Educational and marketing expenses

The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will expense such costs as a component of selling, general and administrative costs as such costs are incurred.

Website Costs

The Company capitalizes the costs associated with the acquisition of hardware and development tools as well as the creation of database tools in connection with the Company’s website pursuant to Statement of Position 98-1 and

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Emerging Issues Task Force 00-20. Other costs including the development of functionality and identification of software tools are expensed as incurred.

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations, and followed the minimum value disclosure provisions of Statement of Financial Accounting Standards NO. 123 (SFAS 123), Accounting for Stock-Based Compensation. Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price. Stock-based compensation determined under APB 25 is recognized over the option vesting period.

Prior to the adoption of a stock option plan adopted on February 13, 2008, the Company only issued share based compensation to consultants for goods or services. The Company accounted for these transactions under guidance for Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under EITF 96-18, options, warrants, and stock are recorded at their fair value on the measurement date. The Company remeasured the fair value of such instruments granted at each reporting period until performance under the consulting arrangements were completed and the measurement date was reached. The Company records the expense of such services on the estimate fair value of the equity instrument using the Black-Sholes pricing model. The initial expense is recognized over the term of the service agreement.

For future awards to employees, the Company will adopt the fair value provisions of the Statement of Financial Accounting Standards No. 123(R) (SFAS 123R), Share-Based Payment, which supersedes its previous accounting under APB 25. SFAS 123(R) requires the recognition of compensation expense for future stock-based compensation awards to employees. Using a fair-value-based method, for costs related to all share-based payments including stock options. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants valued after January 1, 2006 will be expensed on a straight-line basis over the vesting period.

Fair Values of Assets and Liabilities

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), which provides a framework for measuring fair value under GAAP. SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. SFAS 157 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.

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

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

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

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

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

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

The Company’s long-term debt is the only item that is subject to SFAS 157 as of September 30, 2009 as follows:


Other observable inputs (level 2)	$	950,000
Unobservable inputs (level 3)	$	172,500

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 based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options, convertible notes payable and warrants, have not been included in the computation of diluted net loss per share for all periods as the result 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 because to do so would be anti-dilutive as of the end of each period presented:


	September 30, 2009		December 31, 2008

Stock options outstanding		1,050,000		1,707,894

Warrants to purchase common stock		5,610,452		6,460,920

Recently Issued Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principle – a replacement of FASB statement No. 162”. SFAS No. 168 replaces the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles as stated with FASB Accounting Standards Codification becoming the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for financial statements issued for fiscal years and interim periods beginning after 15 September 2009. The Company does not expect this adoption will have a material impact on the Company’s interim condensed financial statements.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160, Interests in Consolidated Financial Statements - an amendment of ARB No. 51, (“SFAS 160”), that establishes and expands accounting and reporting standards for the non-controlling interest in a subsidiary. SFAS 160 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This Statement is required to be adopted by us in the first quarter of the Company’s fiscal year 2009. The effect the adoption of SFAS 160 will have on the Company’s financial statements will depend on the nature and size of any acquisitions the Company completes in the future.

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, (“SFAS 141R”), which impacts the accounting for business combinations. The statement requires changes in the measurement of assets and liabilities required in favor of a fair value method consistent with the guidance provided in SFAS 157. Additionally, the statement requires a change in accounting for certain acquisition related expenses and business adjustments which no longer are considered part of the purchase price. Adoption of this standard is required for fiscal years beginning after December 15, 2008. Early adoption of this standard is not permitted. The statement requires prospective application for all acquisitions after the date of adoption. The effect the adoption of SFAS 141R will have on the Company’s financial statements will depend on the nature and size of any acquisitions the Company completes in the future.

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, (“SFAS 161”), which requires enhanced disclosures about an entity’s derivative and hedging activities in order to improve the transparency of financial reporting. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not anticipate the adoption of this statement to have a material effect on its consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, (“SFAS No. 162”), which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not anticipate the adoption of this statement to have a material effect on its consolidated financial position and results of operations.

In May 2008, the FASB issued FASB Staff Position (FSP) No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), (“FSP 14-1”) which specifies that issuers of these instruments should separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP 14-1 is also to be applied retrospectively to all periods presented except if these instruments were not outstanding during any of the periods that are presented in the annual financial statements for the period of adoption but were outstanding during an earlier period. The Company does not anticipate the adoption of this statement to have a material effect on its consolidated financial position and results of operations.

In June 2008, the FASB ratified EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, (“EITF 07-5”). Paragraph 11(a) of SFAS No 133, Accounting for Derivatives and Hedging Activities, (“SFAS 133”) specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. EITF 07-5 will be effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. While the Company is currently still evaluating the effects of adoption of EITF 07-5, it is expected that adoption may result in the reclassification of the Company’s warrants from equity to liabilities recorded at fair value and additionally could result in bifurcation and fair value accounting for the conversion rights embedded in the Company’s Series A preferred stock.

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF No. 03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the Company’s financial statements.

The Company does not believe that any other recently issued, but not yet effective accounting standards will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

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 $824,870 for the nine months ended September 30, 2009, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of September 30, 2009, the Company had a stockholders’ deficiency of $1,557,711 and cash and cash equivalents balance of $29,516. The Company also has certain debt obligations that were not paid by their respective due dates. In these circumstances the Company believes it may not have enough cash to meet its various cash needs through November 2009 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

4. LONG-TERM DEBT

As of September 30, 2009 and December 31, 2008, long-term debt consists of:


	September 30, 2009	December 31, 2008

On December 15, 2006 the Company entered into a Convertible debenture, in the amount of $172,500 payable to Fountainhead Capital Partners Limited (FCPL), with interest at the “Applicable Federal Rate” as defined in sec. 1274 (d) of the Internal Revenue Code, initially due June 21, 2007. The Debenture may be transferred or exchanged only in compliance with the Security Act of 1933, as amended and applicable state securities laws. The Holder is entitled at its option to convert debenture into a number of shares of common stock calculated to be equal to be ten percent of the issued and outstanding aggregate shares of the Company on the date of issuance of the Debenture. The following discloses the calculation the conversion price and the 1,979,456 conversion shares:

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009


Number of membership units outstanding at 12/21/2006	1,110.11	Units

The note was for 10% of Units post-money (1,110.11/90%):	1233.46	Units

FCPL is entitled to 10% of the units equal to	123.346	Units

Each unit converted into 16,048 shares	1,979,456	Shares


The Company has computed a beneficial conversion feature of $111,099 which resulted in a debt discount of such amount which is being amortized over the life of the loan to interest expense. The Company had used $0.19 per share in the computation of the beneficial conversion feature as it represents sales of private placements of the Company’s securities at the time of entering into the debenture. The Holder has the sole option to extend the due date of this debenture and has extended principal and interest payments until February 15, 2009. On April 1, 2009, FCPL agreed to extend the maturity date of the debenture to August 15, 2009. In consideration for the extension, the Company agreed to modify the effective conversion price from $0.08715 to $0.07545 per share, and other additional anti-dilution provisions in favor of FCPL. In conjunction with the convertible debenture the Company issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (805,931 shares of common stock) at $.50 per share for five years. The warrant’s fair value of $0.13 per share was calculated using the Black-Scholes Valuation Model, using the following assumptions: volatility of 99%, dividend rate of 0%, approximate risk free interest rate of 4.5% and a five year warrant life. The warrant resulted in an additional debt discount of $61,401 which is being amortized over the term of the debt. In conjunction with this debt the Company also entered into an agreement with Fountain Capital Partners Limited (FCPL) which granted to FCPL an option to invest up to $1,850,000 for three years in exchange for issuing new convertible debentures due two years from the issuance of these new notes and included with the exercise of this option would be a warrant to purchase up to 3,017,409 shares at a price of $0.44 per share. The debenture is convertible into up to 5,652,954 shares of common stock. No value was assigned to the options as there was no acquired beneficial conversion feature or acquisition of the warrants. The note reflects an unamortized discount of $0 and $3,450 as of September 30, 2009 and December 31, 2008, respectively.			172,500			169,050

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009


On February 15, 2008 the Company entered into a $150,000 Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due but not paid, on or before February 15, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $81,707, which is being amortized over the life of the loan. The note reflects an unamortized discount of $0 and $10,213 as of September 30, 2009 and December 31, 2008, respectively.	150,000	139,787

On February 15, 2008 the Company entered into a $500,000 Convertible Debenture, payable to Regent Private Capital, LLC, with interest at 6% per annum, due but not paid, on or before February 15, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $272,358, which is being amortized over the life of the loan. Subsequently, Regent assigned the principal amount of each note to Altcar Investments and Derek Johansen. On December 15, 2008, Johansen converted $250,000 of the debenture into 2,032,520 shares of common stock. This resulted in the recognition of unamortized beneficial conversion feature debt discount attributable to the debenture of $17,023. Further, on March 23, 2009, Altcar Investments converted $100,000 of the debenture plus accrued interest into 866,867 shares of common stock. The unamortized discount on the $150,000 debt as of September 30, 2009 and $250,000 debt as of December 31, 2008 is $0 and $17,023, respectively.	150,000	232,977

On April 15, 2008 the Company entered into a $150,000 Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due but not paid, on or before April 15, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $81,707 which is being amortized over the life of the loan. The unamortized discount as of September 30, 2009 and December 31, 2008 is $0 and $23,831, respectively.	150,000	126,169

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009


On April 22, 2008 the Company entered into a $500,000 Convertible Debenture, payable to Regent Private Capital, LLC, with interest at 6% per annum, due on or before April 22, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $272,358, which is being amortized over the life of the loan. The unamortized discount as of September 30, 2009 and December 31, 2008 is $0 and $90,786, respectively.		500,000		409,214

All discounts are being amortized on a straight line basis that approximates effective yield method under EITF 98-5.

Total long-term debt:		1,122,500		1,077,197

Less current portion of debt		1,122,500		1,077,197


Long-term portion of debt	$	—	$	—

The following is a schedule of future minimum loan payments:


Twelve months ending September 30,	Amount

2010	$	1,122,500
2011		—
2012		—
2013		—
2014		—
Thereafter		—

Total	$	1,122,500
Less
debt discount		—

	$	1,122,500

The Company’s entire long-term debt is secured by a first security interest in all of the assets of the Company.

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

5. EQUITY

Certain Equity Transactions

As prescribed in a previous agreement, in consideration for services provided to the Board of Directors, the Company issued 26,318 shares of its common stock to Steven Girgenti on July 28, 2009.

In accordance with an existing consulting agreement, in consideration for services provided, the Company issued 39,145 shares of its common stock to Dr. Konstantin Slavin on July 28, 2009.

6. SHARE-BASED COMPENSATION

The Company accounts for the following transactions under the guidance of Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under EIFT 96-18, options are recorded at their fair value on the measurement date. The Company remeasured the fair value of the options or warrants granted at each reporting period until performance under the consulting agreement was completed and the measurement date was reached. The Company expensed the fair value of the instrument granted over the requisite service period which was the term of the consulting agreement, or one year.

For employee based awards which consist only of awards made under the “Stock Option Plan” described below, the company follows the provisions of Statement of Financial Accounting Standards No. 123R (SFAS 123 R), Share –Based Payment which requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. Under SFAS 123 R, 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. There were no employee stock options granted for the nine months ended September 30, 2009.

Stock Option Plan

The Company has adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan as of February 13, 2008, that includes both incentive stock options and nonqualified stock options to be granted to employees, officers, and consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock options 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 nonemployees is determined based on the services being provided.

Initial grants totaling 500,000 shares each were issued on February 13, 2008 to Kenneth T. Coviello, Chief Executive Officer and Heather N. Vinas, President at an exercise price of $.135 per share. The options vest 33 1/3 % on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Accordingly, for the

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

nine months ended September 30, 2009, the Company recognized share-based compensation amounts of $28,920 and $28,920, for each of the respective grants.

The maximum number of shares of stock which maybe 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.

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 September 30, 2009 there were no awards of any stock appreciation rights.

Consulting Agreements

The Company entered into no new consulting agreements during the nine months ended September 30, 2009.

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


Balance, January 1, 2006
Granted		4,144,300		$	0.43
Exercised
Cancelled or expired

Outstanding at December 31, 2006		4,144,300			0.43

Granted		1,143,408			0.32
Exercised
Cancelled or expired

Outstanding at December 31, 2007		5,287,708			0.41

Granted		1,365,788			0.31
Exercised
Cancelled or expired		(192,576	)		0.24

Outstanding at December 31, 2008		6,460,920		$	0.39


Exercised
Cancelled or expired		(850,468	)		0.26

Outstanding at September 30, 2009		5,610,452		$	0.39

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009


STOCK OPTIONS:

	Number of shares		Weighted average exercise price per share


Balance, January 1, 2006
Granted		—	$	—
Exercised
Cancelled or expired

Outstanding at December 31, 2006		—		—

Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2007		—		—

Granted		1,050,000		0.14
Exercised
Cancelled or expired

Outstanding at December 31, 2008		1,050,000	$	0.14

Granted
Exercised

Cancelled or expired

Outstanding at September 30, 2009		1,050,000	$	0.14

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

In consideration for providing consulting services, the Company granted to GC Advisors LLC three warrants, each to purchase of 192,576 shares of the Company’s common stock for a purchase price of $.24, .389, and .549 per share, respectively. The warrants expire on January 9, 2008, 2009, and 2010, respectively and were fair valued under the Black-Scholes Model.

In consideration for being the Company’s strategic business advisor, in 2007 the Company issued a warrant to Martin Magida to purchase up to 160,480 shares of the Company’s common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. This warrant was fair valued under the Black-Scholes Model and amortized over the life of the agreement. For the nine months ended September 30, 2009, $3,342 was recognized as share-based compensation in connection with this agreement.

In consideration for providing advisory services in 2007, the Company issued a warrant to Robert Guinta to purchase up to 160,480 shares of the Company’s common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. This warrant was fair valued under the Black-Scholes Model and amortized over the life of the agreement. For the nine months ended September 30, 2009, $3,342 was recognized as share-based compensation in connection with this agreement.

As of September 30, 2009, there was approximately $143,000 of total unrecognized compensation costs related to non-vested stock options awards, which are expected to be recognized over a weighted average period of 2 years.

Stock-based compensation expenses related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of the stock options granted is calculated at each reporting date, using the Black-Scholes option-pricing model, until the award vests or there is substantial disincentive for the non-employee not to perform the required services. The following assumptions were used in calculations of the Black Scholes option pricing model:


Risk-free interest rates	4 - 5%
Expected life	3 years
Expected dividends	0%
Expected volatility	99%

Stock-based compensation expense charged to operations on options and warrants granted to the above non-employees for the nine months ended September 30, 2009 is $6,684.

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

Expected Life. The expected life is based on the “simplified” method described in the SEC Staff Accounting Bulletin, Topic 14: Share-Based Payment.

Volatility. Since the Company was a private entity for most of 2007 with no historical data regarding the volatility of its common stock, the expected volatility used for 2006 and 2007 is based on volatility of similar entities, referred to as “guideline” companies. In evaluation similarity, the Company considered factors such as industry, stage of life cycle and size.

Risk-Free Interest Rate. The risk-free rate is based on rates approximating U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation method.

Forfeitures. SFAS No. 123R also requires the Company to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data, however limited to date, to estimate pre-vesting options forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of awards, which are generally the vesting periods. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

The weighted-average remaining contractual life of outstanding warrants and options is two and two years, respectively. All of the warrants outstanding are currently exercisable.

7. INCOME TAXES

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

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

Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as follows:


	September 30, 2009			December 31, 2008

Gross deferred tax assets		1,193,500			904,750
Valuation allowance		(1,193,500	)		(904,750	)

Net deferred tax asset		—			—

As of September 30, 2009 and December 31, 2008, the Company has estimated U.S. federal net operating loss carryforwards of approximately $3,410,000 and $2,585,000, respectively. The federal net operating loss carryforwards expire in the years 2027 through 2029.

VYCOR MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

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

The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007. Implementation of FIN 48 resulted in no adjustments to the Company’s liability for unrecognized tax benefits. As of both the date of adoption and as of December 31, 2008 there were no unrecognizable tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits.

The Company is subject to federal and state examinations for the year 2006 forward. There are no tax examinations currently in progress.

8. COMMITMENTS AND CONTINGENCIES

Employment and Consulting Agreements

There were no new employment or consulting agreements executed during the nine months ended September 30, 2009.

Lease

The Company leases its office space on a month to month basis. Rental expense for the nine months ended September 30, 2009 and 2008 were $16,904 and $20,173, respectively.

SUBSEQUENT EVENTS

The maturity dates have passed with respect to all of the Company’s Debenture obligations to Fountainhead Capital Management Limited and Regent Private Capital, LLC. The parties are engaged in ongoing negotiations with respect to such matters, however, the Company cannot predict the final outcome of such negotiations. If a restructuring of these obligations is ultimately achieved, the terms of such restructuring may result in significant dilution to current equity holders.

On November 6, 2009, Fountainhead Capital Partners Limited and Regent Private Capital, LLC advanced an aggregate of $64,000 as a bridge loan due and payable on November 30, 2009. The terms of this bridge loan are detailed in a Senior Debenture between the parties.

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

Forward Looking Statements

This Form 10-Q contains some forward-looking statements. 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.

Organizational History

We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical LLC”. On November 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.” (“Delaware Corporation”). Our sole reason for conversion to the Delaware Corporation was to facilitate the raising of additional capital, as prospective investors had expressed resistance to investing in the Company as the NY LLC. At November 14, 2007, we had approximately 1,122 membership units of the NY LLC issued and outstanding. The managing members of the NY LLC determined, in their reasonable business judgment, that such units, in the aggregate, should convert to an aggregate of 17,999,999 shares of common stock of the Delaware Corporation. On this basis, we adopted a conversion ratio of 16,048 shares of common stock of the Delaware Corporation for each former unit of the NY LLC. Likewise, all conversion rights, options, warrants and any other rights to acquire units of the NY LLC (including but not limited to units issuable pursuant to the terms of the Fountainhead Bridge Loan Debenture, Fountainhead Warrant to purchase 50.22 units of the NY LLC, the Company’s Option Agreement with Fountainhead dated December 14, 2006), were converted to conversion rights, options, warrants and rights to acquire common shares of the Delaware Corporation, based on the same conversion ratio. The action authorizing the conversion was adopted by the unanimous consent of the Managing Members of the NY LLC pursuant to the terms of the NY LLC Operating Agreement.

Overview of Business

We are a developer of neurosurgical medical devices. We have been conducting research, developing, prototyping, and producing mold development work for the Brain Access System. This product is designed to assist the neurosurgeon with brain surgery. It allows the surgeon to gain access to various regions in the brain through a working channel.

We are in the process of marketing our first series of products to the marketplace. Our first product line that we introduced to the market is a new type of self retaining brain retractor called the ViewSite Brain Access

System. We started marketing the Brain Access System in September 2008 and started shipping all sizes in November 2008. The product line consists of various port sizes and lengths to allow the surgeon to use the device for various regions of the brain and different procedures.

The second product in our pipeline is the Cervical Access System, which, pending receipt of additional funding and successful market testing, is planned for launch during 2010 pending funding. Like the Brain Access System, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.

We have received FDA 510(k) clearance for both our Brain Access System and Cervical Access System products. Section 510(k) of the United States Food, Drug and Cosmetic Act requires medical device manufacturers to register with the U.S. Food and Drug Administration of their intent to market a medical device at least 90 days in advance. The 510(k) submission allows the U.S. Food and Drug Administration to determine whether a device is generally equivalent to any similar product already on the market. With the FDA 510(k) clearance, we are authorized to take our products to market in the U.S. without further approvals.

We have also received CE Marking for our products in September 2006 and are able to sell them in member countries of the European Union. The European Medical Device Directive makes it mandatory to fulfill CE certification requirements in order to export medical devices of Class I, IIa, IIb, and III to any country within the European community.

We believe that our Brain Access System and Cervical Access System products will replace standard retraction devices to establish a new standard of care in neurosurgery, leading to a broad and rapid adoption of our products.

Our Products

Our initial product applications for the retractor technology will be in neurological surgeries involving brain and spinal access.

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


•	gently separate delicate tissue;

•	improve surgical outcomes (reducing potential surgeon and hospital liability), for example, decreased insertion tissue trauma, less need for readjustment during surgery and minimum interface surface pressures;

•	increase surgical site access;

•	provide superior field of vision and lighting;

•	minimal invasive surgery;

The Brain Access System and Cervical Access System were invented by Dr. John Mangiardi. Dr. Mangiardi assigned the rights to the Brain Access System and Cervical Access System to Sawmill Trust on September 17, 2005 pursuant to an assignment agreement on the same date. Sawmill Trust then, in turn, assigned the same rights to us on September 17, 2005 pursuant to another assignment agreement dated the same date.

Brain Access System Products

The Brain Access System series of disposable products are used by the neurosurgeon to access the surgical site. This is done by inserting the Brain Access System through the brain tissue and then removing the Brain Access System introducer, leaving the remaining hollow working channel in place to provide the surgeon with access to the precise location desired for surgery.

The Brain Access System is available in multiple sizes and is a single-use product. We have designed multiple sizes and intend to add additional sizes in the future. During our design process we listed what product

benefits would be of value to the neurosurgeons when using a retractor system. We then designed our product with the following intent:


•	To minimize brain disruption during surgery by utilizing a tapered forward edge;

•	To minimize venous pressure in the brain;

•	To reduce “target shift” to allow the surgeon to reach the site accurately;

•	To minimize off site healthy tissue damage;

•	To allow for accurate neuronavigational image guidance systems (“IGS”) performance;

•	To integrate with the leading surgical IGS systems such as Medtronics® and BrainLab®

•	To allow for easier positioning during surgery;

•	To reduce damage to healthy brain tissue leading to shorter post-op recovery and reduced hospital stay; and

•	To allow direct surgical visualization of brain tissue via optically transparent construction;

The extent to which we are successful in achieving the above objectives will be judged by the acceptance of the devices in the market.

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

Furthermore, retractors that are currently in use are metallic and non-transparent. This requires the surgical team to maintain the retracted surface, typically by packing gauze around the access edges increasing movement and pressures over a greater portion of the brain and extending overall elapsed surgery times. We believe that the Brain Access System product eliminates this process, while providing better visibility for the surgeon and lower pressures on the retracted brain tissue.

Product shortcomings

Our products have a few shortcomings:


•	One of the shortcomings of our products as compared to existing blade retractors is that our device diameter is fixed as opposed to variable. This gives the surgeon less flexibility once he is at the location unless he knows where he needs to go in the brain first.

•	Another shortcoming is that the diameters and lengths of our devices are set to specific measurements, which limits the surgeon to these specific sizes.

•	Depending on the case, usage of a disposable product may be viewed as costing more over time and may not be accepted by our potential customers.

IGS Opportunity for the Brain Access System

The VBAS product has the potential to significantly improve surgical acceptance and use of IGS (Image Guidance Systems) used in many surgeries, by addressing the two substantial IGS-related problems of target shifting and the lack of real-time retractor positioning data during procedures:


•	*Target Shifting*

The normal surgical procedure utilizing standard retractors in brain surgery require pulling away the healthy tissue to expose the targeted region of the brain located underneath. However, in many cases, the amount of pulling required causes the targeted area to shift away from what is shown on the IGS system. This target shifting then requires the surgeon to cause additional trauma to healthy tissue and spend additional time as the shifted target

area is located and the retractor is repositioned. The VBAS system is designed to minimize or eliminate target shift, as the elliptical shape of the product distributes relatively uniform pressure on the surrounding brain tissue.


•	*Real-Time Retractor Positioning Data*

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

We plan on offering a version of all Brain Access System models that are IGS-friendly.

Brain Access System Product Models

The Brain Access System products consists of two models initially, namely, TC-VBAS and EC-VBAS and any additional models in the future, each designed to allow the surgeon the choice for specific brain surgeries for various procedures. Each of these models will be manufactured in various lengths to accommodate different depths for surgical access.


•	TC-VBAS

The series consist of twelve disposable products, offered in four different port diameters of 12mm, 17mm, 21mm, and 28mm and a choice of three lengths for each of 3, 5, and 7cm.


•	EC-VBAS

At present, this is available only in one size – 34mm x 5cm.

Cervical Access Products

The Cervical Access System products are to be used by the neurological surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck). This type of surgery is near very critical and delicate structures such as the larynx, esophagus and carotid artery. The shape of the Cervical Access System with the introducer lets the surgeon carefully place the device and the unique anchor screws then safely hold the access channel in place during the procedure. The clear body of the retractor allows the surgeon to see the entire field both during the insertion process as well as throughout the surgical procedure.

We have designed the Cervical Access System to:


•	reduce the possibility of surrounding anatomic tissue damage, which include the trachea, esophagus, carotid artery, recurrent laryngeal and sympathetic nerve;

•	minimize skin disruption with the utilization of tapered outward edges;

•	eliminate retractor induced electrocautery burn injuries because it is made with surgical grade plastic materials;

•	enable stable fixation (directly to the spinal column) in order to avoid accidental displacement and surrounding “tissue creep” and

•	allow for direct visualization of underlying anatomic structures using optically clear plastic.

Because our products have not been brought to market yet, there is no guarantee that any of the abovementioned features would prove effective and even so, be welcomed by the consumer.

Cervical Access System Product Models

The plan for the Cervical Access System series will consist of disposable products. The widths are able to accommodate from one to three levels of the cervical spine, from 26mm to 54mm. We are also evaluating a telescoping design that would reduce the number of sizes necessary and a version that incorporates a distractor. Further research and development is needed for a market-ready product.

Brain Retractors

Future plans include developing additional Brain Access System retractors to allow for access to various regions of the brain. This allows us to target more diverse neurosurgical specialties. We anticipate research and developing work starting in 2009 and estimate a research and development budget of $500,000 for 2009 and 2010, pending future funding.

Our plans are to eventually include retractor lines that are designed for the requirements of specific surgical applications like aneurisms, tumors and endoscopic work.

Intellectual Property

Patent Applications

Below is a table setting out the status and particulars of our patent applications:

Filing Date

Application No.

Country

Title

Status

June 22, 2005

60/692,959

US — provisional

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery (Cervical)

Converted to PCT

June 22, 2006

PCT/US06/24243

PCT

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery (Cervical)

National Phase Completed

June 22, 2005

11/155,175

US — utility

Surgical Access Instruments for Use with Delicate Tissues (Brain)

Abandoned

November 27, 2006

PCT/US06/61246

PCT

Surgical Access Instruments for Use with Delicate Tissues (Brain)

National Phase Completed

June 22, 2006

2613323

Canada

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery

Pending

June 22, 2006

06785312.7

Europe

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery

Pending

June 22, 2006

299/KOLNP/2008

India

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery

Pending

June 22, 2006

188321

Israel

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery

Response to Official Action due 12/2/09 (extendable for 4 months)

June 22, 2006

2008-518369

Japan

Surgical Access Instruments for Use with Spinal or Orthopedic Surgery

Published

December 20, 2007

11/993,280

US – utility

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending

June 25, 2008

08107050.4

Hong Kong

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending

September 18, 2008

61/098041

US – provisional

Surgical Access Instruments for use with Delicate Tissues (Brain)

Converted

May 25, 2009

Canada

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

May 26, 2009

06840022.5

Europe

Surgical Access Instruments for use with Delicate Tissues (Brain)

Hong Kong due 2/10/09 - final

May 26, 2009

1977/KOLNP/2009

India

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

May 27, 2009

Japan

Surgical Access Instruments for use with Delicate Tissues (Brain)

Examination due November 27, 2009 - final

June 26, 2009

2009124446

Russia

Surgical Access Instruments for use with Delicate Tissues (Brain)

Examination due November 27, 2009 - final

July 27, 2009

China

Surgical Access Instruments for use with Delicate Tissues (Brain)

Examination due November 27, 2009 - final

August 21, 2009

12/545686

US – CON

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

August 21, 2009

12/545719

US – CON

Surgical Access Instruments for use with Delicate Tissues (Brain) (apparatus claims)

Pending

September 17, 2009

PCT/US09/57322

PCT

Surgical Access Instruments for use with Delicate Tissues (Brain)

Abandoned

The above-indicated patent applications were invented by Dr. John Mangiardi, who assigned the rights to the Sawmill Trust on September 17, 2005 under the terms of an assignment agreement between the parties. The Sawmill Trust then, in turn, assigned the same rights to us on September 17, 2005 pursuant to an assignment agreement between the Sawmill Trust and the Company dated the same date. The consideration for such assignment was the issuance of one-third of the initial equity of our predecessor (Vycor Medical, LLC) and the inclusion of certain rights in favor or the Sawmill Trust, including but not limited to certain supermajority voting rights and the right to appoint members of the board of managers, which were incorporated in the Operating Agreement of such entity. Dr. Mangiardi’s wife, Pascale Mangiardi, who is a director of the Company, was the Settlor of the Sawmill Trust and Dr and Mrs. Mangiardi are both beneficiaries of the Sawmilll Trust. The Sawmill Trust is an irrevocable trust and A. Mitchell Green is the sole Trustee and has sole voting power and investment power with respect to the assets of the trust.

Trademarks

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

Results of Operations

Comparison of the Three Months Ended September 30, 2009 to the Three Months Ended September 30, 2008

The following table presents the dollar amount changes from period to period of the line-items included in our Statements of Operations for the three months ended September 30, 2009 and 2008:


Three months ended:	2009			2008			Increase/ (Decrease)


Revenue:
Sales	$	44,198		$	3,342		$	40,856
Cost of Goods Sold		4,584			330			4,254

Gross Profit		39,614			3,012			36,602
Operating expenses:
Research and development		—			6,345			(6,345	)
General and administrative		159,158			318,770			(159,612	)

Operating loss		(119,544	)		(322,103	)		202,559
Interest Expense		33,477			441,540			(408,063	)

Net loss	$	(153,021	)	$	(763,643	)	$	610,622

Revenue:

The company recorded revenue of $44,198 from the sale of our products in the three months ended September 30, 2009 compared to $3,342 in the three months ended September 30, 2008. This included sales of various quantities of each of the twelve sizes of its Brain Access System product to both domestic and international customers.

Research and Development Expenses:

Research and development expenses decreased from $6,345 to $0 for the three months ended September 30, 2009. This decrease can be attributed to the ceasing of research and development activities on the existing product line.

General and Administrative Expenses:

General and administrative expenses decreased by $159,612 from $318,770 for the three months ended September 30, 2008 to $159,158 for the three months ended September 30, 2009. The decrease was attributable to the elimination of certain nonrecurring legal and consulting costs related to the company’s capital transactions in 2008.

Interest Expense (Income):

The company recorded interest expense of $33,477 and $441,540 for the three months ended September 30, 2009 and 2008, respectively. This decrease occurred since the debt discount attributable to the company’s existing convertible debt was fully recognized prior to the three months ended September 30, 2009. For the three months ended September 30, 2009 and 2008, interest expense was offset with interest income of $10 and $1,777, respectively.

Comparison of the Nine Months Ended September 30, 2009 to the Nine Months Ended September 30, 2008

The following table presents the dollar amount changes from period to period of the line-items included in our Statements of Operations for the six months ended September 30, 2009 and 2008:


Nine months ended:	2009			2008			Increase/ (Decrease)


Revenue:
Sales	$	156,587		$	3,342		$	153,245
Cost of Goods Sold		19,417			330			19,087

Gross Profit		137,170			3,012			134,158
Operating expenses:
Research and development		—			21,906			(21,906	)
General and administrative		735,171			1,178,763			(443,592	)

Operating loss		(598,001	)		(1,197,657	)		599,656
Interest Expense		226,869			692,138			(465,269	)

Net loss	$	(824,870	)	$	(1,889,795	)	$	1,064,925

Revenue:

The company recorded revenue of $156,587 from the sale of our products in the nine months ended September 30, 2009 compared to $3,342 in the same period the prior year.

Research and Development Expenses:

Research and development expenses decreased from $21,906 to $0 for the nine months ended September 30, 2009. This decrease can be attributed to the ceasing of research and development activities on the existing product line.

General and Administrative Expenses:

General and administrative expenses decreased by $443,592 from $1,178,763 for the nine months ended September 30, 2008 to $735,171 for the nine months ended September 30, 2009. The decrease was attributable to the elimination of certain nonrecurring legal and consulting costs related to the company’s capital transactions in 2008.

Interest Expense (Income):

The company recorded interest expense of $226,869 and $692,138 for the nine months ended September 30, 2009 and 2008, respectively. The decrease occurred since the majority of debt discount attributable to the Company’s existing convertible debt was recognized prior to the nine months ended September 30, 2009. For the nine months ended September 30, 2009 and 2008, interest expense was offset with interest income of $257 and $6,009, respectively.

Liquidity and Capital Resources

As of September 30, 2009, the Company had $29,516 cash, a working capital deficit of $1,864,169 and an accumulated deficit of $4,560,175 on September 30, 2009. The Company’s operating activities used $222,190 in cash for the quarter period ended September 30, 2009.

The Company’s existing cash, cash equivalents and available borrowings will not be sufficient to meet its anticipated cash needs for working capital and capital expenditures for current and future periods. No assurances can be made that additional capital will be available or that assumptions regarding sales and expenses will ever be achieved. While the company intends to seek additional funding through public or private financings or other arrangements, adequate funds may not be available when needed or may not be available on terms favorable to us. If additional funds are raised by issuing equity securities, dilution to existing stockholders may result. If the company raises additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, the company may be unable to develop or enhance our products, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Going Concern

Our independent auditors have added an explanatory paragraph to their audit issued in connection with the financial statements for the period ended December 31, 2008, relative to our ability to continue as a going concern. This means that there is substantial doubt that the company can continue as an ongoing business for the next 12 months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business. The company has incurred losses since inception, including net losses of $2,381,295 for the year ended December 31, 2008 and $598,001 for the nine months ended September 30, 2009, and expects to incur substantial additional losses, including additional development costs, costs related to clinical trials and manufacturing expenses. The company has incurred negative cash flows from operations since inception. As of September 30, 2009 and December 31, 2008, the company had stockholders’ deficiencies of $1,557,711 and $921,427, respectively, and cash and cash equivalents balance of $29,516 and $196,138 at September 30, 2009 and December 31, 2008, respectively. The Company also has certain debt obligations that were not paid by their respective due dates. Since there is no record of profitable operations, there is high a possibility that you may suffer a complete loss of your investment. Because our auditors have issued a going concern opinion, there is substantial uncertainty we will continue operations in which case you could lose your investment. In these circumstances the Company believes it may not have enough cash to meet ongoing cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Recently Issued Accounting Pronouncements

The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.

Critical Accounting Policies and Estimates

Uses of estimates in the preparation of financial statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Currently, the Company estimates depreciation, amortization of intangible assets, and the fair values of options and warrants.

The most critical estimates that impact the financial position and results of operation of the company have to do with the methodologies and assumptions used in determining the fair value of various debt estimates. These include assumptions associated with warrants, options and stock issued in conjunction with such debt. Additionally, the Black-Scholes option pricing model and its related assumptions of volatility, risk free interest, stock price also significantly impacted share based compensation and the results of operations.

Research and Development

Cash and cash equivalents

The Company considers all highly liquid debt investments with original maturities of six months or less when purchased to be cash equivalents. The carrying amounts approximate fair market value because of the short maturity. 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. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.

Fair Values of Financial Instruments

At September 30, 2009 and 2008, fair values of cash and cash equivalents, accounts payable, convertible promissory notes, and options and warrants approximate their carrying amount due to the short period of time to maturity and various fair value model calculations.

Property and equipment

Income taxes

Patents

The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or process are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.

Revenue Recognition

The Company records revenue at the time, pursuant to Staff Accounting Bulletin Topic 13(a), that a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company intends to sell a surgical access system which has already cleared the U.S. FDA 510(k) review process. It has been granted a 510(k) number to market to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warrantee costs but will review such potential costs after the commencement of sales.

Educational and marketing expenses

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4A(T). CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

The Company’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were adequate and effective.

(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) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 September 30, 2009, to the best knowledge of the Company’s management, the Company is not party to any material litigation whose outcome could have a material effect on our financial statements.

ITEM 1A. RISK FACTORS.

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

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As prescribed in a previous agreement, in consideration for services provided to the Board of Directors, the Company issued 26,318 shares of its common stock to Steven Girgenti on July 28, 2009.

In accordance with an existing consulting agreement, in consideration for services provided, the Company issued 39,145 shares of its common stock to Dr. Konstantin Slavin on July 28, 2009.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

restructuring of these obligations is ultimately achieved, the terms of such restructuring may result in significant dilution to current equity holders.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS

Index to Exhibits


31.1	Certification of Chief Executive Officer under Rule 13(a) - 14(a) of the Exchange Act.

31.2	Certification of Chief Financial Officer under Rule 13(a) - 14(a) of the Exchange Act.

32	Certification of CEO and CFO under 18 U.S.C. Section 1350

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 16, 2009.


	VYCOR MEDICAL, INC.

	By:	/s/ Kenneth T. Coviello

		Kenneth T. Coviello
		Chief Executive Officer and Director (Principal Financial Officer)

	By:	/s/ Heather N. Vinas

		Heather N. Vinas
		President, Founder and Director (Principal Executive Officer)