This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in this report and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto, and other financial information included elsewhere in this quarterly report on Form 10-Q.

Overview

We are a worldwide developer, manufacturer and marketer of visualization solutions for complex minimally invasive surgery. We partner with medical device companies and healthcare facilities to provide surgeons with proprietary visualization systems enabling minimally invasive surgical procedures, which reduce patient trauma and recovery time.

We manufacture two dimensional, or 2D, digital cameras that are sold to third-party companies who sell to end users through their Original Design Manufacturer , or ODM, programs and Original Equipment Manufacturer ,OEM, programs.

We sell our proprietary visualization system, (3Di Vision System) under the Viking brand directly to hospitals and outpatient surgical centers in the United States and outside the United States through our distributor network. We also sell our CardioCam/MiniCam product through these channels.

Liquidity and Capital Resources

On January 4, 2008, we completed execution of a Recapitalization Plan (the "Recapitalization Plan"). In November 2007, we received approval, subject to finalization of certain terms and execution of final documentation, from 100% of the stockholders of our Series B Variable Dividend Convertible Preferred Stock (the "Preferred Stock") and our 8% Secured Convertible Debentures due February 23, 2009 (the "Debentures"), of the Recapitalization Plan. The Recapitalization Plan called for an additional investment of $2.5 to $3.0 million (the "New Investment") and a redistribution of our common stock among the current holders of our common stock, Preferred Stock, Debentures and the investors providing the New Investment.

In consummating the Recapitalization Plan, the redistribution of our capital was accomplished on January 4, 2008 through the following: (i) a 1 for 50 "reverse split" of our outstanding common stock, (ii) our entry into a Recapitalization Agreement with the applicable holders, pursuant to which the holders of the Preferred Stock and Debentures exchanged their respective securities (including warrants that were issued in connection with the Preferred Stock and the Debentures) for shares of our common stock and warrants which may be exercised for common stock; and (iii) our entry into a Securities Purchase Agreement with those parties making the New Investment of $2.6 million pursuant to which they were issued shares of our common stock and warrants which may be exercised for shares of our common stock. As part of the recapitalization, we executed a Securities Purchase Agreement and completed a sale of 14,560,037 shares of our common stock for $0.178571 per share, or aggregate consideration of $2,600,000, of which we received net proceeds of $2,600,000.

In October 2007, our board of directors approved a revised strategic direction for our Company. This strategy included focusing on our ODM/OEM business while significantly reducing expenses associated with our 3Di Vision Systems business. We continued our 3Di Vision Systems business on a reduced basis by utilizing our independent sales representatives and our existing distributor network. The revised strategic direction of October 2007 enabled us to reduce expenses, primarily associated with the 3Di Vision Systems business, that are not expected to contribute to positive cash flow in the near term, including the elimination of our U.S. direct sales force and a reduction in related clinical and marketing expenses.

In 2008, the board of directors re-evaluated this decision in light of our subsequent experience and considered various modifications to the business strategy. The board determined to seek additional investment in our 3Di technology followed by investment in our U.S. distribution channels. However, we cannot implement these initiatives until we either enter into a business combination or raise substantial capital resources. In November 2008 we engaged an investment banking firm to assist our management in exploring business combinations and/or raising additional capital. This process continues.

Absent a business combination, we believe that it is likely that we will need to raise additional capital to execute our business plan and continue our operations for the next twelve months. Such financing may not be available on acceptable terms, or at all. We do not have any arrangements with any bank, financial institutions or investors to provide additional financing and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interests. If we fail to secure such financing and we are not generating positive cash flow, we will consider other options, including curtailing operations or seeking bankruptcy protection.

Since our inception, we financed our operations principally through private sales of equity securities and convertible debt. From January 1, 2004 through March 31, 2009, we have raised net proceeds of $10,750,000 through the sale of common and preferred stock in private placements and approximately $13,600,000 through the issuance of convertible notes and debentures. As of March 31, 2009, we had cash of $446,186.

Net cash provided by operating activities for three months ended March 31, 2009 was $288,237. Net cash used in operating activities for the three months ended March 31, 2008 was $1,585,395. This improvement in cash flows from operating activities was attributable primarily to a smaller loss for the three months ended March 31, 2009 combined with net cash generation during 2009 from the combined changes in inventory, accounts receivable, accounts payable and accrued expenses compared with net cash consummation in those combined changes during the same period in 2008.

Net cash used in financing activities was $10,818 during the three months ended March 31, 2009 compared with net cash provided by financing activities of $2,579,632 during the three months ended March 31, 2008. The net cash provided by financing activities in 2008 resulted from the sale of common stock in connection with our Recapitalization Plan. We completed no such financing activities during the three months ended March 31, 2009.

RESULTS OF OPERATIONS

Three Month Period Ended March 31, 2009 Compared with the Three Month Period Ended March 31, 2008

Sales. We had sales of $1,521,228 for the three months ended March 31, 2009 and of $1,396,917 for the three months ended March 31, 2008, representing an increase of 9%. The increase in sales during 2009 was due to increased sales in both 3Di and OEM products and service. During the quarter ended March 31, 2009, we experienced increase demand and sales of our high definition cameras as well as our proprietary visualization system designed for and distributed by Boston Scientific as compared with the first quarter of 2008. Partially offsetting these increases was a decrease in revenue recognized associated with a third party development contract for 3D vision products.

Sales to individual customers exceeding 10% or more of revenues in the three months ended March 31, 2009 were to three customers who accounted for 25%, 20% and 16% of revenues, respectively.

Gross Profit. Gross profit was $374,296 or 24.5% for the months ended March 31, 2009 and $161,357 or 11.5% for the three months ended March 31, 2008, representing an increase of $212,939. The increase in gross margin percentage is due to a favorable sales mix of higher margin products as well as higher production volumes resulting in lower per unit manufacturing costs.

Operating Expenses. We incurred operating expenses of $781,643 for the three months ended March 31, 2009 and $2,012,223 for the three months ended March 31, 2008. For the three months ended March 31, 2009 and 2008, excluding non-cash stock based compensation expense, total operating expenses were $663,882 and $1,287,432, respectively. This decrease of $623,550 is due largely due to decreased general and administrative expense and our continued cost reduction efforts .

Sales and Marketing Expense. Sales and marketing expenses were $230,895 for the three months ended March 31, 2009 and $390,823 for the three months ended March 31, 2008. This decrease of $159,928, or approximately 41% is due to reductions in our or marketing efforts, reduction in sales related headcount, and lower depreciation expense related to demonstration equipment.

Research and Development Expense. We had research and development expenses of $147,721 for the three months ended March 31, 2009 and $237,508 for the three months ended March 31, 2008, representing a decrease of $89,797. This decrease occurred primarily due to the reduction of personnel focused on research and development activities.

General and Administrative Expense. General and administrative expenses include costs for administrative personnel, legal and accounting expenses and various public company expenses. General and administrative expenses were $403,027 for the three months ended March 31, 2009 and $1,383,892 for the three months ended March 31, 2008. During the three months ended March 31, 2009, we recorded $117,761 related to non-cash stock option compensation expense compared with $724,791 for the same period in 2008. Excluding these charges, general and administrative expense decreased $373,837. Legal expense decreased approximately $191,000 as compared with the prior year due to services associated with the 2008 Recapitalization not repeating in 2009. We also incurred lower audit related expenses in the first quarter of 2009 compared with the same period in 2008. Additionally, we accrued an employee separation charge of approximately $90,000 during the quarter ended March 31, 2008 that was not repeated in 2009.

Other Income and Expenses. During the three months ended 2009, other income and expense totaled to income of $116,835 compared with a net charge of $2,110,605 for the same period in 2008. During the first quarter of 2009 we recorded $115,000 of license fee income related to the granting of a license to use one of our patents in the nonmedical markets. During the first quarter of 2008, we recorded a charge of $2,703,776 related to the recapitalization transaction. This charge was offset by the reversal of approximately $271,000 related to accrued fees associated with our failure to file a registration statement for common stock and warrants issued during 2006. Additionally, during the first quarter of 2008, we recorded a non-cash gain on derivative liability of $307,061 related to the decrease in value of tour derivative instruments.

Operating Loss Before Non-Cash Charges

A reconciliation of net loss in accordance with U.S. generally accepted
accounting principles (GAAP) to the non-GAAP measure of operating loss before
non-cash charges is as follows:

                                             Three Months Ended
                                                  March 31,
                                            2009            2008
Net loss, as reported                    $ (290,512 )   $ (3,961,471 )
Adjustments:
Total other (income)/expense               (116,835 )      2,110,605
Non-cash stock option expense               117,161          724,791
Depreciation and amortization                91,494          131,512
Operating loss before non-cash charges   $ (198,692 )   $   (994,563 )

Use of Estimates and Critical Accounting Policies

This Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions, including those related to inventory, income taxes, long lived asset valuation, revenue recognition, stock-based compensation and derivative liabilities. Management bases its estimates and judgments on historical experience of operations and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, will affect its more significant judgments and estimates used in the preparation of our Financial Statements.

Inventory. Parts and supplies inventories are stated at the lower of cost or market. Cost is determined using the standard cost method which approximates actual cost. Work-in-process and finished goods are stated at the lower of the accumulated manufacturing costs or market. We reduce the stated value of our inventory for obsolescence or impairment in an amount equal to the difference between the cost of the inventory and the estimated market value, based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional reductions in stated value may be required.

Income Taxes. In determining the carrying value of our net deferred tax assets, we must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, we may record a reduction in the valuation allowance, resulting in an income tax benefit in our Statements of Operations. Management evaluates the realizability of the deferred tax assets and assesses the valuation allowance quarterly.

Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109. The implementation of FIN 48 had no impact on our financial statements.

We are primarily subject to U.S. federal and state income tax. Tax years subsequent to December 31, 2003 remain open to examination by U.S. federal and state tax authorities. In addition, our policy is to recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2009, we had no accruals for interest or penalties related to income tax matters.

Amortization and Impairment of Long Lived Assets. Long lived assets, such as property, equipment and intangible assets are recorded at historical cost. We amortize our intangible assets using the straight-line method over their estimated useful lives, usually two to five years. We review intangible assets subject to amortization periodically to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life of the applicable asset. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to a significant adverse change in the legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. If the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less the estimated costs to sell. In addition, depreciation of the asset ceases. During the three months ended March 31, 2009 and 2008, no impairment of long-lived assets was recorded.

Revenue Recognition. Our revenues are derived from the sale of surgical visualization technology products to end users, distributors and original equipment manufacturers. Revenue from the sale of products is recognized when evidence of an arrangement exists, the product has been shipped, the selling price is fixed or determinable, collection is reasonably assured and when both title and risk of loss transfer to the customer, provided that no significant obligations remain. If installation is included as part of the contract, revenue is not recognized until installation has occurred, or until any remaining installation obligation is deemed to be perfunctory. Shipping and handling costs are included in cost of sales.

For the sale of products and services as part of a multiple-element arrangement, we allocate revenue from multiple-element arrangements to the elements based on the relative fair value of each element. For sales of extended warranties with a separate contract price, Viking defers revenue equal to the separately stated price. Revenue associated with undelivered elements is deferred and recorded when delivery occurs.

Stock-Based Compensation. On January 1, 2006, we adopted Statement of Financial Accounting Standards ("SFAS") No.123 (Revised 2004), "Share Based Payment," ("SFAS 123R"), using the modified prospective method. In accordance with SFAS 123R, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options. The Company uses historical data among other information to estimate the expected price volatility, the expected annual dividend, the expected option life and the expected forfeiture rate.