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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-935
      CYTOCORE, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

36-4296006(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)414 N. Orleans St., Suite 510, Chicago, IL

60654(Address of principal executive
    offices)

(Zip Code)   (312) 222-9550
 (Registrants telephone
    number, including area code)
  Securities registered pursuant
    to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredNone

Not Applicable   Securities registered pursuant to Section 12(g) of the
    Act:
  Common Stock, $0.001 par value
 (Title of class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      Documents
    Incorporated By Reference
  Form 10-K.




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CYTOCORE,
    INC.
    Annual Report on
    Form 10-K
    December 31, 2008
  TABLE OF
    CONTENTS
   
 PagePART IItem 1.

Business


4Overview


4Recent Developments


4Information About Industry Segments


5Description of Business


5Products


5Cell Collection
    Devices


5The
    SoftPAP®Cervical Cell Collector


6The
    PadKit®Cell Collector


6Specimen
    Preparation


6The
GluCytetm

cell preservative


6Stains
    and Reagents


7Specimen
    Evaluation


7AIPStm

Workstation


7AIPStm

Imager


8OmniDROPtm


8Therapeutics


9Product
    Development


9Markets and Marketing Objectives


9Sales and Distribution


10Government Regulation, Clinical
    Studies and Regulatory Strategy


10Cost and Reimbursement


12Competition


13Operations


14Intellectual Property


14Research and Development
    Expenditures


15Component and Raw Materials


16Working Capital Practices


16Employees


16Financial Information About Foreign and
    Domestic Operations and Export Sales


16Available Information


17Item 1A.

Risk Factors


17Item 1B.

Unresolved Staff Comments


24Item 2.

Properties


25Item 3.

Legal Proceedings


25Item 4.

Submission of Matters to a Vote of Security
    Holders


26 1




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PagePART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


26Market Information


26Holders


26Dividends


26Stock Transfer Agent


27Securities Authorized for Issuance under
    Equity Compensation Plans


27Recent Sales of Unregistered Securities and
    Use of Proceeds from Registered Securities


28Issuance of Securities


28Conversions of Preferred Stock


29Purchases of Equity Securities by the Issuer
    and Affiliated Purchasers


30Item 6.

Selected Financial Data


30Item 7.

Managements Discussion and Analysis
    of Financial Condition and Results of Operations


31Forward-Looking Statements


31Overview


31Critical Accounting Policies and Significant
    Judgments and Estimates


32Results of Operations


33Liquidity and Capital Resources


35Off-Balance Sheets Arrangements


36Contractual Obligations


36Item 7A.

Quantitative and Qualitative Disclosures
    about Market Risk


36Item 8.

Financial Statements and Supplementary
    Data


37Item 9.

Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure


37Item 9A.

Controls and Procedures


38Evaluation of Disclosure Controls and
    Procedures


38Managements Report on Internal Control
    over Financial Reporting


38Changes in Internal Control over Financial
    Reporting


38Item 9B.

Other Information


38PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


39Code of Ethics


39Item 11.

Executive Compensation


39Item 12.

Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters


39Item 13.

Certain Relationships and Related
    Transactions, and Director Independence


39Item 14.

Principal Accountant Fees and
    Services


39 2




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PagePART IVItem 15.

Exhibits and Financial Statement
    Schedules


39Signatures


43Index to Financial StatementsReports of Independent Registered Public
    Accounting Firms


F-1- F-2Consolidated Balance Sheets at December 31,
    2008 and 2007


F-3Consolidated Statements of Operations for each of
    the three years ended December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Cash Flows for each of
    the three years ended December 31, 2008, 2007 and 2006


F-5Consolidated Statements of Stockholders
    Equity (Deficit) for each of the three years ended
    December 31, 2008, 2007 and 2006


F-6-F-8Notes to Consolidated Financial Statements


F-9EX-23.1EX-23.2EX-31EX-32   3




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PART I  Item 1.
    Business Overview  CytoCore
    Solutions tm CytoCore Solutions CytoCore Solutions CytoCore Solutions CytoCore Solutions
  SoftPAP®, CytoCore Solutions ® SoftPAP tm CytoCore Solutions tm
  CytoCore Solutions
     Recent
    Developments  SoftPAP SoftPAP
 4




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SoftPAP tm
  SoftPAP
   Information
    About Industry Segments   Description
    of Business  CytoCore
    Solutions tm CytoCore Solutions CytoCore
    Solutions CytoCore Solutions
  SoftPap
 Products Cell
    Collection Devices  and/or
 5




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SoftPAP®  SoftPAP® SoftPAP SoftPAP SoftPAP SoftPAP
   PadKit®  ® SoftPAP SoftPAP CytoCore Solutions
 Specimen
    Preparation   GluCytetm  tm SoftPAP
 6




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SoftPAP
 Stains
    and Reagents   Specimen
    Evaluation    tm
 AIPStmWorkstation  tm
  Fly-by-wire
 7




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AIPStmImager  follow-up
  tm
  tm
   OmniDROPtm   8




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##### Table of Contents



tm
 Therapeutics  SoftPAP
 Product
    Development  CytoCore Solutions
  SoftPAP.
 Markets
    and Marketing Objectives  Diagnostic
    Focus
  SoftPAP CytoCore Solutions
  Point of
    Care for All Populations
   9




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
    Increasing life spans, driving the demand for healthcare
    services up and increasing the emphasis on developing screening
    tests for the early detection of diseases;
    Limited infrastructure and the fact that a significant portion
    of the world population lives in locations where the
    infrastructure does not support the classical laboratory-based
    model of healthcare delivery, putting a premium on point-of-care
    diagnostic testing;
    An increasingly mobile population, which has increased the
    pressure to minimize the time between when a patient is tested
    and when the test result is available and delivered;
    Increasing worldwide shortage of physicians and laboratory
    professionals who have the skills and training needed to perform
    and interpret screening and diagnostic tests, increasing the
    need for tests that can be performed and interpreted by
    technicians and para-professionals; and
    Constrained funds available for healthcare, driving the need to
    reduce healthcare costs.   Sales
    and Distribution  SoftPAP SoftPAP
    GluCyte SoftPAP PadKit OmniDrop
 Government
    Regulation, Clinical Studies and Regulatory
    Strategy   10




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and/or
  SoftPAP 2 SoftPAP
           11




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and/or
  CytoCore Solutions
    CytoCore Solutions
  SoftPAP follow-up CytoCore Solutions CytoCore Solutions CytoCore Solutions CytoCore
    Solutions CytoCore Solutions
 Cost
    and Reimbursement  and/or
 12




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and/or
  CytoCore
    Solutions and/or
 Competition             13




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Operations  CytoCore
    Solutions
  CytoCore Solutions SoftPAP
  SoftPAP
 Intellectual
    Property    12-month continuation-in-part
     14




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CytoCore Solutions
      SoftPAP tm CytoCore Solutions Cocktail-CVX tm
     Research
    and Development Expenditures     15




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CytoCore Solutions
 Components
    and Raw Materials  SoftPAP SoftPAP
  CytoCore Solutions CytoCore Solutions
   Working
    Capital Practices    CytoCore Solutions
 Employees   Financial
    Information About Foreign and Domestic Operations and Export
    Sales  CytoCore Solutions CytoCore Solutions
 16




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Available
    Information  www.cytocoreinc.com Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors    Risks
    Related to Our Business
  We
    have a history of operating losses and there are doubts as to
    our ability to continue as a going concern.
  CytoCore Solutions
  SoftPAP CytoCore Solutions
    We
    have limited financial resources and we are not certain we will
    be able to obtain additional financing to maintain operations
    and fund the development of future products.
   17




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We
    currently depend on the sale of a single product and product
    line.
  CytoCore
    Solutions SoftPAP CytoCore Solutions
  Our
    future success will depend on our ability to develop new
    products and respond to technological changes in the markets in
    which we compete.
  CytoCore Solutions
    Our
    products are subject to government regulation and they may not
    receive necessary government approvals.
     18




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SoftPAP follow-up
    and/or
    Changes
    in third-party reimbursement may negatively affect
    us.
  SoftPAP CytoCore Solutions
    Our
    international operations expose us to additional
    risks.
    
    imposition of tariffs or embargoes,
    trade barriers and disputes,
    regulations related to customs and export/import matters,
    fluctuations in foreign economies and currency exchange rates, 19




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
    longer payment cycles and difficulties in collecting accounts
    receivable,
    the complexity and necessity of using foreign representatives
    and consultants,
    tax uncertainties and unanticipated tax costs due to foreign
    taxing regimes,
    the difficulty of managing and operating an enterprise spanning
    several countries, including difficulties in maintaining
    effective communications with employees and customers due to
    distance, language and cultural barriers,
    the uncertainty of protection for intellectual property rights
    and differing legal systems generally,
    compliance with a variety of laws, and
    economic and geopolitical developments and conditions, including
    international hostilities, armed conflicts, acts of terrorism
    and governmental reactions, inflation, trade relationships and
    military and political alliances.  We may
    not be able to compete with companies that are larger and have
    more resources.
    and/or
  We may
    not be able to market our products.
  SoftPAP CytoCore Solutions
  The
    accuracy, performance and cost of our products are critical to
    our business and reputation, and we are subject to product
    liability.
  SoftPAP CytoCore Solutions and/or
 20




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We may
    not be able to adequately protect our intellectual
    property.
           21




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We may
    not be able to maintain effective product distribution
    channels.
  SoftPAP
  Our
    quarterly operating results may fluctuate and our future
    revenues and profitability are uncertain.
    
    introduction and market acceptance of new products and product
    enhancements by both CytoCore and our competitors,
    timing and execution of distribution and sale contracts,
    competitive conditions in the medical device and diagnostic
    markets,
    product development, sales and marketing expenses,
    third-party reimbursement levels, and
    changes in general economic conditions.  The
    loss of existing key management and technical personnel or the
    inability to attract new hires could have a detrimental effect
    on the Company.
    We may
    need to expand our operations and we may not effectively manage
    any future growth.
   22




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Risks
    Related to Our Common Stock
  There
    is a limited market for penny stocks such as our
    common stock.
    The
    historically volatile market price of our common stock may
    affect the value of our stockholders
    investments.
    
    announcements of new products or technology by us or our
    competitors;
    announcements of the FDA relating to products and product
    approvals;
    announcements of private or public sales of securities;
    ability to finance our operations;
    announcements of mergers, acquisitions, licenses and strategic
    agreements;
    fluctuations in operating results; and
    general economic and other external market factors.    Our
    common stock is unlikely to produce dividend income for the
    foreseeable future.
    Our
    common stock is subject to dilution, and an investors
    ownership interest and related value may decline.
   23




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Investors
    may find it difficult to trade or obtain quotations for our
    common stock.
    Our
    authorized share capital may be used as an anti-takeover
    device.
    The
    implementation of SFAS No. 123R has reduced and may
    continue to reduce our reported earnings, which could result in
    a decline in our stock price.
    Item 1B.
    Unresolved
    Staff Comments   24




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Item 2.
    Properties    Item 3.
    Legal
    Proceedings  Settled
    in 2008
  Attorney General of Illinois. No. 2006-L-003353)
  Diamics, Inc.
  Daniel McMahon.
  Pending
    as of December 31, 2008
  NeoMed Innovation III L.P.
  Other
    claims
  Other Creditors.
 25




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Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities Market
    Information  mark-ups,
  Range of Common StockHigh


LowYear Ended December 31, 20081st Quarter

$
4.08


$
1.752nd Quarter

$
3.10


$
1.903rd Quarter

$
2.15


$
0.554th Quarter

$
0.79


$
0.15Year Ended December 31, 20071st Quarter

$
7.50


$
3.002nd Quarter

$
6.00


$
3.303rd Quarter

$
4.10


$
2.204th Quarter

$
4.10


$
1.65  Holders   Dividends     26




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Stock
    Transfer Agent  522-6645.
 Securities
    Authorized for Issuance under Equity Compensation
    Plans      Equity
    Compensation Plan Information
  Number of SecuritiesNumber of





Remaining AvailableSecurities to be





for Future IssuanceIssued Upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(Excluding SecuritiesOptions, Warrants


Options, Warrants,


Reflected in ColumnPlan Category

and Rights


and Rights


(a))(a)


(b)


(c)Equity Compensation Plans Approved by Security
    Holders1999 Equity Incentive Plan (as amended) 
    2,000,000 shares


110,786


$
2.97



1,725,2801999 Employee Stock Purchase Plan 
    20,000 shares










16,042Equity Compensation Plans Not Approved by Security
    HoldersWarrants issued with debt and equity(1)


3,386,090


$
1.92



Warrants issued for financial and IR services(2)


345,631


$
2.21



Warrants issued for officer, director and employee
    compensation(3)


1,384,000


$
1.82



Warrants issued in forgiveness of debt and other
    services(4)


458,849


$
1.91



Warrants from AccuMed acquisition(5)


3,983


$
150.60



Total


5,689,339


$
2.04



1,741,322     1)
    
    CCI has issued warrants in conjunction with the issuance of debt
    and equity. The issuance of warrants significantly reduces the
    cash costs that would otherwise be associated with raising
    capital.2)
    
    CCI has included warrants in agreements for providers of
    investor relations and/or public relations services. Warrants
    were also issued to financial advisors as remuneration for the
    procurement of equity, debt and preferred stock convertible into
    equity. This practice significantly reduces the cash costs to
    CCI to obtain these services.3)
    
    CCI has issued warrants in lieu of cash payment for employment
    services, for achieving certain goals or for other corporate
    reasons. During fiscal year 2008, 10,000 warrants were issued to
    our current CEO, Robert McCullough Jr., and our non-executive
    employees were issued 41,000 warrants in the aggregate.4)
    
    CCI has issued warrants to settle debt and pay for services
    rendered. The issuance of warrants significantly reduces the
    cash costs that would otherwise be associated with the
    settlement of such debt or payment for such services. 27




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5)
    
    In September 2001, CCI completed the acquisition of AccuMed by
    merging it into a wholly-owned subsidiary of CCI. As a result,
    CCI assumed stock options and warrants outstanding on the
    records of AccuMed at the time of the acquisition. The remaining
    options that were assumed in the acquisition are included in
    total options outstanding under the Companys 1999 Equity
    Incentive Plan. Recent
    Sales of Unregistered Securities; Use of Proceeds from
    Registered Securities Issuance
    of Securities  Common
    Stock
               28




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Warrants
                 Conversions
    of Preferred Stock   29




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Exumptions
  and/or and/or
 Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers    Item 6.
    Selected
    Financial Data    2008


2007


2006


2005


2004Dollars in thousandsNet Sales

$
125


$
83


$
94


$
117


$
243Operating ExpensesCost of revenues


(81
)


(30
)


(19
)


(21
)


(24
)Research and development


(1,852
)


(2,599
)


(854
)


100



(834
)Selling, general and administrative


(4,301
)


(5,060
)


(3,967
)


(1,346
)


(4,109
)Selling, general and administrative  related parties


(263
)


(239
)










Total cost and expenses


(6,497
)


(7,928
)


(4,840
)


(1,267
)


(4,967
)Operating Loss

$
(6,372
)

$
(7,845
)

$
(4,746
)

$
(1,150
)

$
(4,724
)Other income (expense)


44



(74
)


(1,820
)


(3,176
)


(8,843
)Loss from operations


(6,328
)


(7,919
)


(6,566
)


(4,326
)


(13,567
)Preferred stock dividends


(58
)


(324
)


(693
)


(20
)


(1,034
)Net loss applicable to common shareholders

$
(6,386
)

$
(8,243
)

$
(7,259
)

$
(4,346
)

$
(14,601
)Basic and fully diluted loss per common share (1)

$
(.16
)

$
(.24
)

$
(.30
)

$
(.40
)

$
(1.90
)Balance sheet data (at end of period)Total Assets

$
3,956


$
1,113


$
1,282


$
390


$
529Convertible securities

$



$



$
567


$



$
Preferred stock

$
1,492


$
1,628


$
2,920


$
7,716


$
7,767  30




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(1)
    
    Reflects the one-for-ten reverse stock split effected on
    November 27, 2007. Prior periods have been restated to
    reflect the reverse stock split.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations Forward-Looking
    Statements       Overview  CytoCore
    Solutions tm CytoCore Solutions CytoCore Solutions CytoCore Solutions
   31




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® TM TM
    SoftPAP ® CytoCore Solutions tm
     Critical
    Accounting Policies and Significant Judgments and
    Estimates      Revenue Recognition.
  Share-Based Payment.
 32




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Results
    of Operations  Fiscal
    Year Ended December 31, 2008 as compared to Fiscal Year
    Ended December 31, 2007
  Revenue
  SoftPAP
  Costs and
    Expenses
  Cost
    of Revenues
    Research
    and Development
  SoftPAP CytoCore
    Solutionstm
  Selling,
    General and Administrative
    Other
    Income (Expense)
       33




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Net
    Loss
      Fiscal
    Year Ended December 31, 2007 as compared to Fiscal Year
    Ended December 31, 2006
  Revenue
  SoftPAP
  Costs and
    Expenses
  Cost
    of Revenues
      Research
    and Development
  CytoCore Solutions
  SoftPAP
 34




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Selling,
    General and Administrative
  SoftPAP
  Other
    Income and Expense
  Interest
    Income
    Interest
    Expense
    Restructuring
    Settlements
    Net
    Loss
   Liquidity
    and Capital Resources   35




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CytoCore Solutions ,
     Off-Balance
    Sheet Arrangements   Contractual
    Obligations    2009


2010


2011


2012


2013


TotalRecorded Obligations:Note payments


70



















70Unrecorded Obligations:Purchase of license


100



42















142Operating lease obligation


132



137



141



145



124



679Total future obligations at December 31, 2008


302



179



141



145



124



891   Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk     36




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Item 8.
    Financial
    Statements and supplementary data  Form 10-K page F-1
  Item 9.
    Changes
    In and Disagreements With Accountants on Accounting and
    Financial Disclosure  Dismissal
    of Auditors
             37




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Item 9A.
    Controls
    and Procedures Evaluation
    of Disclosure Controls and Procedures   Managements
    Report on Internal Control Over Financial Reporting       38




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Changes
    in Internal Control over Financial Reporting    Item 9B.
    Other
    Information   39




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control 
    Integrated Framework
        Internal Control  Integrated
    Framework
    /s/ L J
    Soldinger Associates LLC
      40




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PART III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance   Code of
    Ethics  Code of Ethics and Business
    Conduct for Officers, Directors and Employees Form 10-KSB
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Form 10-K
  Item 13.
    Certain
    Relationships, Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services    Item 15.
    Exhibits
    and Financial Statement Schedules      ExhibitNo.

Description2
.1

Stock and Membership Interest Exchange Agreement dated as of
    December 4, 1998 among Bell National Corporation, InPath,
    LLC and the InPath Members (as such term is defined therein).
    (Incorporated herein by reference to Appendix A to the Bell
    National Corporation Definitive Proxy Statement on
    Schedule 14A, filed on April 30, 1999 (the 1999
    Proxy Statement).)2
.2

Agreement and Plan of Merger of Bell National Corporation and
    Ampersand Medical Corporation. (Incorporated herein by reference
    to Appendix C to 1999 Proxy Statement.)2
.3

Agreement and Plan of Merger by and among AccuMed International,
    Inc., AccuMed Acquisition Corp. and Ampersand Medical
    Corporation, dated as of February 7, 2001, and Amendment
    No. 1 thereto. (Incorporated herein by reference to
    Appendix I to Registration Statement (as amended) on
    Form S-4,
    No. 333-61666,
    as filed on May 25, 2001 (the May 2001
    S-4).) 41




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ExhibitNo.

Description3
.1

Certificate of Incorporation of Ampersand Medical Corporation,
    as amended. (Incorporated herein by reference to
    Exhibit 3.1 to the Companys Current Report on
    Form 8-K
    dated September 26, 2001.)3
.2

By-laws of Ampersand Medical Corporation. (Incorporated herein
    by reference to Appendix E to the 1999 Proxy Statement.)3
.3

Certificate of Designation, Preferences and Rights of
    Series A Convertible Preferred Stock of Ampersand Medical
    Corporation. (Incorporated herein by reference to
    Exhibit 3.5 to the Ampersand Medical Corporation Annual
    Report on
    Form 10-K
    (as amended) for the fiscal year ended December 31, 2000,
    as filed on March 29, 2001 (the 2000
    10-K).)3
.4

Certificate of Designation, Preferences and Rights of
    Series B Convertible Preferred Stock of Ampersand Medical
    Corporation. (Incorporated herein by reference to
    Exhibit 3.6 to the 2000
    10-K.)3
.5

Section 6 of Article VII of the By-laws of Ampersand
    Medical Corporation, as amended. (Incorporated herein by
    reference to Exhibit 3.3 to the May 2001
    S-4.)3
.6

Certificate of Designation, Preferences and Rights of
    Series C Convertible Preferred Stock (Incorporated herein
    by reference to Exhibit 3.4 to the Companys
    Registration Statement on
    Form S-2
    (as amended), File
    No. 333-83578,
    as filed on February 28, 2002 (the February 2002
    S-2).)3
.7

Certificate of Amendment of Certificate of Designation,
    Preferences and Rights of Series C Convertible Preferred
    Stock. (Incorporated herein by reference to Exhibit 3.5 to
    the February 2002
    S-2.)3
.8

Certificate of Amendment of Amended Certificate of Designation,
    Preferences and Rights of Series C Convertible Preferred
    Stock. (Incorporated herein by reference to Exhibit 3.6 to
    the February 2002
    S-2.)3
.9

Certificate of Designations, Preferences and Rights of
    Series D Convertible Preferred Stock. (Incorporated herein
    by reference to Exhibit 3.7 to the February 2002
    S-2.)3
.10

Certificate of Designation, Preferences and Rights of
    Series E Convertible Preferred Stock. (Incorporated herein
    by reference to Exhibit 3.8 to the February 2002
    S-2.)3
.11

Certificate of Amendment to Certificate of Incorporation of the
    Company, dated August 5, 2004. (Incorporated herein by
    reference to Exhibit 3.1 to the Companys Quarterly
    Report on
    Form 10-QSB
    for the quarter ended June 30, 2004, as filed on
    August 16, 2004 (the 2004 2Q
    10-QSB).)3
.12

Certificate of Amendment to Certificate of Incorporation, as
    filed on June 22, 2006.(Incorporated herein by reference to Exhibit 3.1 to the
    Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended June 30, 2006, as filed on
    August 21, 2006)3
.13

Certificate of Amendment to Certificate of Incorporation of the
    Company, as filed with the Delaware Secretary of State on
    June 22, 2007. (Incorporated herein by reference to
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended June 30, 2007, as filed on
    August 17, 2007.)3
.14

Certificate of Amendment to Certificate of Incorporation of the
    Company, as filed with the Delaware Secretary of State on
    November 19, 2007. (Incorporated herein by reference to
    Exhibit 3.14 to the Companys Annual Report on
    Form 10-KSB
    for the year ended December 31, 2007, as filed
    April 2, 2008 (the 2007
    10-KSB)4
.1

Form of subscription agreement to purchase common stock of the
    Company at $0.25 per share. (Incorporated herein by reference to
    Exhibit 4.38 to the Companys Annual Report on
    Form 10-KSB
    for the year ended December 31, 2005, as filed on
    April 17, 2006 (the 2005
    10-KSB).)4
.2

Form of subscription agreement used to purchase common stock of
    the Company during 2006. (Incorporated herein by reference to
    Exhibit 4.43 to the Companys Annual Report on
    Form 10-KSB
    for the year ended December 31, 2006, as filed
    April 17, 2007 (the 2006
    10-KSB).)4
.3

Common Stock Purchase Warrant dated December 8, 2006 in
    favor of Azimuth Corporation representing the right to purchase
    154,808 shares of common stock of the Company.
    (Incorporated herein by reference to Exhibit 4.19 to the
    2007 10-KSB.)4
.4

Common Stock Purchase Warrant dated December 8, 2006 in
    favor of Cadmus Corporation representing the right to purchase
    195,192 shares of common stock of the Company.
    (Incorporated herein by reference to Exhibit 4.20 to the
    2007
    10-KSB.) 42




---



##### Table of Contents



ExhibitNo.

Description4
.5

Form of common stock purchase warrant issued in 2006, 2007 and
    2008 to vendors in consideration for services rendered,
    representing the right to purchase an aggregate
    24,532 shares of common stock. (Incorporated herein by
    reference to Exhibit 4.21 to the 2007
    10-KSB.)4
.6

Registration Rights Agreement in connection with $7 million
    maximum offering of Units completed in March 2008. (Incorporated
    herein by reference to Exhibit 4.22 to the 2007
    10-KSB.)4
.7

Form of Warrant in connection with $7 million maximum
    offering of Units completed in March 2008. (Incorporated herein
    by reference to Exhibit 4.23 to the 2007
    10-KSB.)10
.1+

1999 Equity Incentive Plan established as of June 1, 1999,
    as amended. (Incorporated herein by reference to Appendix B
    to the Companys Definitive Proxy Statement on
    Schedule 14A, as filed on July 1, 2004.)10
.2+

1999 Employee Stock Purchase Plan. (Incorporated herein by
    reference to Appendix G to the 1999 Proxy Statement.)10
.3

Lease Agreement between Ampersand Medical Corporation and O.P.,
    L.L.C, dated May 18, 2000, pertaining to premises located
    at 414 N. Orleans, Suite 510, Chicago, Illinois
    60610. (Incorporated by reference to Exhibit 10.32 to the
    2000 10-K.)10
.4

First Amendment to Lease Agreement between Ampersand Medical
    Corporation and O.P., L.L.C., dated February 13, 2001,
    pertaining to additional premises at 414 N. Orleans,
    Suite 503, Chicago, Illinois 60610 and extending the term
    of the original lease until February 28, 2006.
    (Incorporated by reference to Exhibit 10.33 to the 2000
    10-K.)10
.5

Clinical Study Agreement, entered into January 2006, between
    University Hospitals of Cleveland and the Company. (Incorporated
    herein by reference to Exhibit 10.36 to 2005
    10-KSB.)10
.6

Consulting Agreement, dated January 27, 2006 and effective
    March 1, 2006, by and between the Company and GSG
    Enterprises LLC (Incorporated herein by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended September 30, 2006, as filed on
    November 20, 2006 (the 2006 3Q
    10-QSB/A).)10
.7+

Employment agreement dated November 15, 2006 between
    Augusto Ocana and the Company. (Incorporated herein by reference
    to Exhibit 10.39 to the 2006
    10-KSB.)10
.8+

Employment agreement dated November 20, 2006 between Robert
    McCullough and the Company. (Incorporated herein by reference to
    Exhibit 10.40 to the 2006
    10-KSB.)10
.9

Consulting agreement dated November 20, 2006 between Future
    Wave Management and the Company. (Incorporated herein by
    reference to Exhibit 10.41 to the 2006
    10-KSB.)10
.10

Consulting agreement dated November 20, 2006 between EBM,
    Inc. and the Company. (Incorporated herein by reference to
    Exhibit 10.42 to the 2006
    10-KSB.)10
.11

Common Stock Purchase Warrant dated September 28, 2006
    issued to David Weissberg representing the right to purchase
    400,000 shares of common stock. (Incorporated herein by
    reference to Exhibit 10.2 to the 2006 3Q
    10-QSB/A.)10
.12+

Common Stock Purchase Warrant dated September 28, 2006
    issued to Robert McCullough Jr. representing the right to
    purchase 400,000 shares of common stock. (Incorporated
    herein by reference to Exhibit 10.45 to the 2006
    10-KSB.)10
.13+

Common Stock Purchase Warrant dated September 28, 2006
    issued to Alexander Milley representing the right to purchase
    62,500 shares of common stock. (Incorporated herein by
    reference to Exhibit 10.46 to the 2006
    10-KSB.)10
.14+

Common Stock Purchase Warrant dated September 28, 2006
    issued to John Abeles representing the right to purchase
    62,500 shares of common stock. (Incorporated herein by
    reference to Exhibit 10.47 to the 2006 3Q
    10-QSB/A.)10
.15+

Common Stock Purchase Warrant dated January 22, 2007 issued
    to Augusto Ocana representing the right to purchase
    50,000 shares of common stock. (Incorporated herein by
    reference to Exhibit 10.40 to the 2007
    10-KSB.)10
.16+

Common Stock Purchase Warrant dated February 12, 2007
    issued to Robert McCullough Jr. representing the right to
    purchase 25,000 shares of common stock. (Incorporated
    herein by reference to Exhibit 10.41 to the 2007
    10-KSB.) 43




---



##### Table of Contents



ExhibitNo.

Description10
.17+

Form of common stock purchase warrants issued to Richard A.
    Domanik on each of June 29, 2007 and December 18, 2007
    representing the right to purchase an aggregate
    35,000 shares of common stock. (Incorporated herein by
    reference to Exhibit 10.42 to the 2007
    10-KSB.)10
.18

Form of common stock purchase warrants issued to non-executive
    employees of the Company during the 2007 fiscal year
    representing the right to purchase an aggregate
    96,000 shares of common stock. (Incorporated herein by
    reference to Exhibit 10.43 to the 2007
    10-KSB.)10
.19

Form of warrant amendment (Incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-QSB
    for the quarter ended March 31, 2007, as filed on
    May 15, 2007).10
.20

Distribution Agreement with M.O.S.S. S.r.L. (Incorporated
    herein by reference to Exhibit 10.45 to the 2007
    10-KSB.)10
.21

Distribution Agreement with MUNDITER  Intercambio
    Mundial de Comercio, S.A. (Incorporated herein by reference to
    Exhibit 10.46 to the 2007
    10-KSB.)10
.22

Distribution Agreement with Palex Medical S.A. (Incorporated
    herein by reference to Exhibit 10.47 to the 2007
    10-KSB.)10
.23

Distribution Agreement with HT Hospital Technologies GmbH.
    (Incorporated herein by reference to Exhibit 10.49 to the
    2007 10-KSB.)10
.24+

Amendment to Employment Agreement dated as of December 15,
    2006 by and between the Company and Augusto Ocana dated as of
    July 15, 2007. (Incorporated herein by reference to
    Exhibit 10.50 to the 2007
    10-KSB.)10
.25+

Second Amendment to Employment Agreement dated as of
    December 15, 2006 by and between the Company and Augusto
    Ocana. (Incorporated herein by reference to Exhibit 10.51
    to the 2007
    10-KSB.)10
.26

Form of Subscription Agreement and Letter of Investment Intent
    in connection with $7 million maximum offering of Units
    completed in March 2008. (Incorporated herein by reference to
    Exhibit 10.52 to the 2007
    10-KSB.)10
.27

Purchase Agreement in connection with $7 million maximum
    offering of Units completed in March 2008. (Incorporated herein
    by reference to Exhibit 10.52 to the 2007
    10-KSB.)10
.28

License agreement with Quantrx Biomedical Corporation dated
    May 19, 2008 (Incorporated herein by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2008, as filed on
    August 11, 2008)14


Code of Ethics and Business Conduct of Officers, Directors and
    Employees of CytoCore, Inc. (Incorporated herein by reference to
    Exhibit 99.1 to the 2003
    10-KSB.)21


Subsidiaries of the Company. (Incorporated herein by reference
    to Exhibit 21 to the 2007
    10-KSB.)23
.1*

Consent of L J Soldinger Associates LLC23
.2*

Consent of Amper, Politziner & Mattia, LLP31
.1*

Certification of the Chief Executive Officer and Chief Financial
    Officer of CytoCore, Inc. pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1*

Certification of the Chief Executive Officer and Chief Financial
    Officer of CytoCore, Inc. pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.  44




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##### Table of Contents



SIGNATURES    CYTOCORE, INC.
  By:
    /s/  Robert
    McCullough, Jr.          Signature

Title

Date/s/  Daniel
    BurnsDaniel
    Burns

Chairman of the Board of Directors

March 31, 2009/s/  Robert
    McCullough, Jr.Robert
    McCullough, Jr.

Chief Executive Officer and
    Chief Financial Officer
    (Principal Accounting Officer and Director)

March 31, 2009Alexander
    M. Milley

Director

March 31, 2009/s/  John
    Abeles, M.D.John
    Abeles, M.D.

Director

March 31, 2009/s/  Clint
    SeversonClint
    Severson

Director

March 31, 2009/s/  David
    Weissberg M.D.David
    Weissberg M.D.

Director

March 31, 2009/s/  Phillip
    Bradley Hall M.D.Phillip
    Bradley Hall M.D.

Director

March 31, 2009Erik
    Danielsen

Director

March 31, 2009  45




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Internal Control 
    Integrated Framework
      L
    J Soldinger Associates LLC
    F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                 
    F-2




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2008


2007(Dollars in thousands, except per share amounts)ASSETSCurrent Assets:Cash and cash equivalents

$
553


$
316Accounts receivable, net of allowance of $7 for the year ended
    December 31, 2008


36



15Inventories


1,168



14Prepaid expenses and other current assets


58



216Total current assets


1,815



561Fixed assets, net


2,040



532Licenses, patents, and technology, net of amortization


101



20Total assets

$
3,956


$
1,113LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Account payable

$
2,320


$
1,778Accrued Payroll Costs


127



589Accrued Expenses


1,041



1,912Notes Payable


70



70Total current liabilities


3,558



4,349Commitments and contingencies






Stockholders equity (Deficit):Preferred stock; $0.001 par value; shares authorized
    10,000,000; 373,559 and 403,272 shares issued and
    outstanding at December 31, 2008, and 2007 respectively
    (Liquidation value of all classes of preferred stock of $2,876
    at December 31, 2008)


1,492



1,628Common stock, $0.001 par value; shares authorized
    500,000,000; 41,226,903, and 35,866,156 shares issued and
    41,207,694, and 35,846,947 shares outstanding at
    December 31, 2008 and 2007, respectively


41



36Additional paid-in capital


91,065



80,917Treasury stock at cost; 19,209 shares at December 31,
    2008 and 2007


(327
)


(327
)Accumulated deficit


(91,799
)


(85,413
)Accumulated comprehensive loss  Cumulative
    translation adjustment


(74
)


(77
)Total stockholders equity (deficit)


398



(3,236
)Total liabilities and stockholders equity

$
3,956


$
1,113    F-3




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##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2008


2007


2006(Dollars in thousands, except per share amounts)Net Sales

$
125


$
83


$
94Operating ExpensesCost of revenues (includes impairment charge of property assets
    of $169, net of settlement of trade debt of $176 for the year
    ended December 31, 2006)


81



30



19Research and development (net of settlement of trade debt of
    $207 and $342 for the years ended December 31, 2007 and
    2006, respectively)


1,852



2,599



854Selling, general and administrative (net of settlement of trade
    debt of $56 and $994 for the years ended December 31, 2007
    and 2006, respectively)


4,301



5,060



3,967Selling, general and administrative  related parties


263



239



Total cost and expenses


6,497



7,928



4,840Operating Loss


(6,372
)


(7,845
)


(4,746
)Other Income (Expense):Interest expense  related party






(93
)


(14
)Interest expense (net of settlement of interest of $85 and $70
    for the years ended December 31, 2007 and 2006,
    respectively)


(9
)


(9
)


(1,818
)Unrealized gain on convertible securities






7



Interest income


53



21



12Total other income (expense)


44



(74
)


(1,820
)Loss from operations before income taxes


(6,328
)


(7,919
)


(6,566
)Income taxes










Net Loss


(6,328
)


(7,919
)


(6,566
)Preferred stock dividends


(58
)


(324
)


(693
)Net loss applicable to common stockholders

$
(6,386
)

$
(8,243
)

$
(7,259
)Basic and fully diluted net loss per common share(1)

$
(.16
)

$
(.24
)

$
(.30
)Weighted average number of common shares outstanding(1)


39,984,394



34,259,161



24,143,146     (1)
    
    Reflects the one-for-ten reverse stock split effected on
    November 27, 2007. Prior periods have been restated to
    reflect the reverse stock split.   F-4




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##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2008


2007


2006(Dollars in thousands)Operating Activities:Net loss


(6,328
)

$
(7,919
)

$
(6,566
)Amortization of debt discount










173Depreciation


229



34



41Amortization of license


58







Increase in allowance for doubtful accounts


7







Loss on disposal of fixed asset


1







Non-cash interest related to warrant modification






182



100Impairment charge of property asset










169Non-cash interest on beneficial note conversion settled in stock










1,321Stock and warrants issued for settlement of debt










210Stock and warrants issued to non-employees for services


37



530



832Non-cash compensation expense


87



549



1,270Gain on settlements of trade indebtedness


(19
)


(349
)


(1,581
)Unrealized gain on convertible securities






(7
)


Changes in assets and liabilities:Accounts receivable


(28
)


10



14Inventories


(1,155
)


(14
)


26Prepaid expenses and other current assets


159



(94
)


(50
)Accounts payable


371



605



(745
)Deferred Revenues






(25
)


Lease obligation










(14
)Accrued expenses


(537
)


807



(452
)Net cash used for operating activities


(7,118
)


(5,691
)


(5,252
)Investing activities:Purchase of license


(139
)






Capital purchases


(1,544
)


(324
)


(219
)Net cash used for investing activities


(1,683
)


(324
)


(219
)Financing activities:Proceeds from issuance of common stock


9,381



3,760



7,362Financing costs in connection with private placement of stock


(405
)


(249
)


(79
)Payments of notes payable






(355
)


(1,185
)Proceeds from exercise of warrants and options


62



2,301



247Net cash provided by financing activities


9,038



5,457



6,345Net increase (decrease) in cash and cash equivalents


237



(558
)


874Cash and cash equivalents at beginning of year


316



874



Cash and cash equivalents at end of year

$
553


$
316


$
874Supplemental disclosure of cash flow information:Cash paid during the year for:Interest

$



$
23


$
319Non-cash transaction during the year for:Preferred stock and cumulative dividends converted into common
    stock

$
136


$
1,616


$
5,489Payment of accrued bonuses with common stock

$
604


$



$
Warrant exercised with debt

$
180


$



$
Convertible promissory notes and accrued interest converted into
    common stock

$



$



$
2,370Convertible securities related to shares issued in excess of
    amount authorized

$



$
567


$
Settlement of trade debt with stock

$



$
467


$
321    F-5




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##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
  AccumulatedPreferred Stock


Common Stock








Additional





Other


Totalpar Value $0.001


par Value $0.001(1)


Treasury Stock(1)


Paid-In


Accumulated


Comprehensive


StockholdersShares


Amount


Shares


Amount


Shares


Amount


Capital(1)


Deficit


Loss


Deficit(Dollars in thousands)January 1, 2006


1,102,192


$
7,716



15,466,508


$
16



19,209


$
(327
)

$
52,525


$
(69,911
)

$
(68
)

$
(10,049
)Comprehensive Loss:Net loss






























(6,566
)






(6,566
)Foreign currency translation


































(7
)


(7
)Total net comprehensive loss






































(6,573
)Series B preferred stock and cumulative dividends converted
    to common stock


(139,370
)


(557
)


85,104















608



(51
)






Series C preferred stock and cumulative dividends converted
    to common stock


(207,500
)


(264
)


151,759















365



(101
)






Series E preferred stock and cumulative dividends converted
    to common stock


(180,680
)


(3,975
)


720,996



1











4,515



(541
)






Bridge I conversions










428,194















642











642Bridge II conversions










169,306















253











253Bridge III conversions










336,270















336











336Related party notes converted










90,019















120











120Monsun note conversion










762,433



1











2,339











2,340Sale of common stock, net of financing costs of $79,317










8,006,429



8











7,275











7,283Stock issued for sale of stock in prior year










3,821,050



4











(4
)










Exercise of warrants










202,308















247











247Common stock issued for services










680,903



1











518











519Common stock issued in settlement of debt










292,827















321











321Common stock issued for compensation










28,852















38











38Warrant conversion exercise price modification


























100











100Convertible securities in excess of authorized


























(567
)










(567
)Stock appreciation rights liability


























(180
)










(180
)Warrants issued for compensation


























1,232











1,232Warrants issued for services


























313











313Warrants issued in settlement of trade debt


























210











210December 31, 2006


574,642


$
2,920



31,242,958


$
31



19,209


$
(327
)

$
71,206


$
(77,170
)

$
(75
)

$
(3,415
)     (1)
    
    Reflects the
    one-for-ten
    reverse stock split effected on November 27, 2007. All
    periods have been restated to reflect the reverse stock split.   F-6




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##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
  AccumulatedPreferred Stock


Common Stock








Additional





Other


Totalpar Value $0.001


par Value $0.001(1)


Treasury Stock(1)


Paid-In


Accumulated


Comprehensive


StockholdersShares


Amount


Shares


Amount


Shares


Amount


Capital(1)


Deficit


Loss


Deficit(Dollars in thousands)January 1, 2007


574,642


$
2,920



31,242,958


$
31



19,209


$
(327
)

$
71,206


$
(77,170
)

$
(75
)

$
(3,415
)Comprehensive Loss:Net loss






























(7,919
)






(7,919
)Foreign currency translation


































(2
)


(2
)Total net comprehensive loss






































(7,921
)Series A preferred stock converted to common stock


(35,405
)


(159
)


1,546















159











Series B preferred stock and cumulative dividends converted
    to common stock


(103,250
)


(413
)


65,548















513



(100
)






Series E preferred stock and cumulative dividends converted
    to common stock


(32,715
)


(720
)


135,050















944



(224
)






Sale of common stock, net of financing costs of $249










1,741,389



2











3,509











3,511Exercise of warrants










2,397,492



3











2,221











2,224Exercise of options










38,333















77











77Common stock issued for services










57,180















158











158Common stock issued in settlement of debt










186,660















467











467Warrant conversion exercise price modification


























182











182Convertible securities in excess of authorized


























560











560Warrants issued for compensation


























549











549Warrants issued for services


























372











372December 31, 2007


403,272


$
1,628



35,866,156


$
36



19,209


$
(327
)

$
80,917


$
(85,413
)

$
(77
)

$
(3,236
)     1)
    
    Reflects the
    one-for-ten
    reverse stock split effected on November 27, 2007. All
    periods have been restated to reflect the reverse stock split.   F-7




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##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
  Preferred Stock


Common Stock








Additional





Other


Totalpar Value $0.001


par Value $0.001


Treasury Stock


Paid-In


Accumulated


Comprehensive


StockholdersShares


Amount


Shares


Amount


Shares


Amount


Capital


Deficit


Loss


Equity


(Deficit)(Dollars in thousands)January 1, 2008


403,272


$
1,628



35,866,156


$
36



19,209


$
(327
)

$
80,917


$
(85,413
)

$
(77
)

$
(3,236
)Comprehensive Loss:Net loss






























(6,328
)






(6,328
)Foreign currency translation


































3



3Total net comprehensive loss






































(6,325
)Series B preferred stock converted to common stock


(28,736
)


(115
)


19,786















169



(54
)






Series E preferred stock and cumulative dividends converted
    to common stock


(977
)


(21
)


4,305















25



(4
)






Sale of common stock, net of financing costs of $405










4,690,500



5











8,971











8,976Exercise of warrants










301,288















242











242Common stock issued for compensation










200,000















356











356Common stock issued for services










144,868















261











261Warrants issued for compensation


























87











87Warrants issued for services


























37











37December 31, 2008


373,559


$
1,492



41,226,903


$
41



19,209


$
(327
)

$
91,065


$
(91,799
)

$
(74
)

$
398    F-8




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007
 (Tabular data in thousands, except per share amounts)
  Note 1.
    The
    Company and Basis of Presentation      CytoCore
    Solutions tm CytoCore Solutions CytoCore Solutions CytoCore Solutions
  Liquidity
     F-9




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Increase
    in authorized shares
    Reverse
    Stock Split
  one-for-ten
  Note 2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Use of
    Estimates
    SoftPAP®
  Revenue
    Recognition
    Cash
    and Cash Equivalents
    Inventory
  SoftPAP®
 F-10




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
    Property
    and Equipment
  straight-line
  Furniture and fixtures

5 yearsLaboratory equipment

5 yearsComputer and communications equipment

3 yearsDesign and tooling

5 yearsMachinery and Equipment

7 yearsLeasehold improvements

Useful life or term of lease, whichever is shorter     Licenses,
    Patents, and Technology
    Impairment
    or Disposal of Long-Lived Assets
    Research
    and Development Costs
    Stock
    Based Compensation
  share-based
  Foreign
    Currency Translation
   F-11




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Legal
    Costs
    Fair
    Value of Financial Instruments
    Other
    Comprehensive Income (Loss)
    Net
    Loss Per Share
  anti-dilutive
  Income
    Taxes
      Risks
    from Concentrations
      Recent
    Accounting Pronouncements
  Fair Value Measurements SFAS 157-2, Effective Date of FASB Statement No. 157
 F-12




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  SFAS 157-2
  The Fair Value Option for Financial
    Assets and Financial Liabilities  Including an
    Amendment of FASB Statement No. 115
  Interests
    in Consolidated Financial Statements  an amendment of
    ARB No. 51
  Business Combinations
  Disclosures about Derivative Instruments and Hedging
    Activities an amendment to FASB Statement No. 133
  No. FAS 142-3, Determination of the Useful Life of Intangible Assets FAS 142-3. FAS 142-3 FAS 142-3 FAS 142-3. 14-1
 F-13




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1. 14-1 14-1 14-1 14-1
  Note 3.
    Fixed
    Assets    2008


2007Furniture and fixtures

$
47


$
124Laboratory equipment


508



622Computer and communications equipment


261



343Design and tooling


1,418



486Machinery and equipment


777



Leasehold improvements






283,011



1,603Less accumulated depreciation and amortization


(971
)


(1,071
)Total

$
2,040


$
532     Note 4.
    Licenses,
    Patents, and Technology    2008


2007Licenses

$
159


$
20Patent costs


133



133LabCorp Technology Agreement


260



260Subtotal


552



413Less accumulated amortization


(451
)


(393
)Total

$
101


$
20      F-14




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Note 5.
    Accrued
    Expenses    2008


2007Accrued interest

$
357


$
350Accrued taxes


102



707Accrued compensation


241



637Other accrued expenses


341



218Total

$
1,041


$
1,912   Note 6.
    Notes
    Payable    2008


2007Xillix Technologies Corporation, $361,000 Promissory Note issued
    June 26, 1998; interest rate Canadian Prime plus 6% per
    annum; represents a debt of AccuMed; due December 27, 1999


34



34Robert Shaw, $25,000 Promissory Note issued September 20,
    2001; interest rate 9% per annum


15



15Ventana Medical Systems, Inc., $62,946 Promissory Note issued
    November 30, 2003; due December 31, 2003; interest at
    8% per annum payable after December 31, 2003


21



21$
70


$
70   Default.
  Note 7.
    Stockholders
    Equity  Reverse
    Stock Split
  1-for-5 shares 1-for-10 shares. 1-for-10
   F-15




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Earnings
    (loss) per share
    For the Years Ended December 31,2008


2007


2006Basic and Diluted:Net loss applicable to common stockholder (in thousands)


(6,328
)

($
8,243
)

($
7,259
)Weighted average common shares outstanding


39,984,394



34,259,161



24,143,146Net loss per common share

($
.16
)

($
.24
)

($
.30
)     Preferred
    Stock
    Shares Issued &


Shares Issued &


Shares Issued &Shares Authorized


Outstanding


Outstanding


OutstandingOffering




2008


2007


2006Series A convertible


590,197



47,250



47,250



82,655Series B convertible, 10% cumulative


1,500,000



93,750



122,486



225,736Series C convertible, 10% cumulative


1,666,666



38,333



38,333



38,333Series D convertible, 10% cumulative


300,000



175,000



175,000



175,000Series E convertible, 10% cumulative


800,000



19,226



20,203



52,918Undesignated Preferred Series


5,143,137











Total Preferred Stock


10,000,000



373,559



403,272



574,642  F-16




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Summary
    of Preferred Stock Terms
  Series A Convertible Preferred StockLiquidation Value:

$4.50 per shareConversion Price:

$103.034 per shareConversion Rate:

0.04367  Liquidation Value divided by Conversion
    Price ($4.50/$103.034)Voting Rights:

NoneDividends:

NoneConversion Period:

Any timeSeries B Convertible Preferred StockLiquidation Value:

$4.00 per shareConversion Price:

$10.00 per shareConversion Rate:

0.40  Liquidation Value divided by Conversion
    Price ($4.00/$10.00)Voting Rights:

NoneDividends:

10%  Quarterly  Commencing March
    31, 2001Conversion Period:

Any timeCumulative dividends in arrears at December 31, 2008 were
    $295,000Series C Convertible Preferred StockLiquidation Value:

$3.00 per shareConversion Price:

$6.00 per shareConversion Rate:

0.50  Liquidation Value divided by Conversion
    Price ($3.00/$6.00)Voting Rights:

NoneDividends:

10%  Quarterly  Commencing March
    31, 2002Conversion Period:

Any timeCumulative dividends in arrears at December 31, 2008 were
    $82,000Series D Convertible Preferred StockLiquidation Value:

$10.00 per shareConversion Price:

$10.00 per shareConversion Rate:

1.00  Liquidation Value divided by Conversion
    Price ($10.00/$10.00)Voting Rights:

NoneDividends:

10%  Quarterly  Commencing April
    30, 2002Conversion Period:

Any timeCumulative dividends in arrears at December 31, 2008 were
    $1,255,000Series E Convertible Preferred StockLiquidation Value:

$22.00 per shareConversion Price:

$8.00 per shareConversion Rate:

2.75  Liquidation Value divided by Conversion
    Price ($22.00/$8.00)Voting Rights:

Equal in all respects to holders of common sharesDividends:

10%  Quarterly  Commencing May
    31, 2002Conversion Period:

Any timeCumulative dividends in arrears at December 31, 2008 were
    $306,000   Issuance
    of Securities
  Common
    Stock
   F-17




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
               F-18




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
                  Warrants
       F-19




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
                       F-20




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  120-day
          Exchange
    of Certain Convertible Promissory Notes for Common
    Shares
     F-21




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Conversions
    of Preferred Stock
        Application
    of Black-Scholes Valuation Model
    2008

2007

2006Expected volatility

125% - 132%

120% - 143%

84%-206%Expected term (years)

11/2

11/2
    - 2

3-5Risk-free interest rate

4.25%

4.25%

4.25% - 4.50%Expected dividend yield

0%

0%

0%Forfeiture rate

0%

0%

0%Resulting weighted average grant date fair value

$1.49

$2.80

$1.20    F-22




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Warrants
    Total Warrant


Warrant Shares


Exercise Price


Weighted AverageShares Outstanding


Exercisable


(not weighted)


Years until Expiration2,000



2,000


$
0.17



2.867,000



7,000


$
0.61



2.6886,700



86,700


$
1.00



1.36400,000



400,000


$
1.28



0.7412,500



12,500


$
1.30



1.0320,000



20,000


$
1.33



2.185,000



5,000


$
1.45



2.33494,233



494,233


$
1.50



2.3029,498



29,498


$
1.60



0.5010,000



10,000


$
1.66



1.6247,500



47,500


$
1.70



0.63352,403



352,403


$
1.80



2.2529,000



29,000


$
1.89



2.164,500



4,500


$
1.90



1.383,343,684



3,343,684


$
2.00



2.1030,000



30,000


$
2.06



2.252,000



2,000


$
2.23



2.25311,550



311,550


$
2.25



2.2975,000



75,000


$
2.60



1.1230,000



30,000


$
2.67



1.4930,000



30,000


$
2.80



1.5864,000



64,000


$
2.87



1.3010,000



10,000


$
3.25



2.2525,000



25,000


$
3.30



0.5310,001



10,001


$
3.50



1.711,328



1,328


$
75.10



Perpetual1,328



1,328


$
150.50



Perpetual1,328



1,328


$
226.20



PerpetualTotal


5,435,553



5,435,553    F-23




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Convertible
    Securities
  EITF 00-19, EITF 00-19,
  Note 8.
    Equity
    Incentive Plan and Employee Stock Purchase Plan               F-24




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
          2008

2007

2006Expected volatility

125% - 132%

120% - 143%

84% - 206%Expected term (years)

11/2

11/2
    - 2

3-5Risk-free interest rate

4.25%

4.25

4.25% - 4.50%Expected dividend yield

0%

0%

0%Forfeiture rate

0%

0%

0%Resulting weighted average grant date fair value

$1.49

$2.80

$1.20    F-25




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
      1999
    Stock Option Plan
  Weighted





Weighted AverageAverage


Aggregate


RemainingExercise


Intrinsic


Contractual LifeOptions


Price


Value


(Years)Outstanding at December 31, 2005


400,398


$
4.412


$
0.00Granted


Exercised


Forfeited


(174,600
)Outstanding at December 31, 2006


225,798


$
2.767


$
433,500


$
1.68Granted


Exercised


(38,333
)

$
2.000Forfeited


(26,679
)

$
2.000Outstanding at December 31, 2007


160,786


$
3.050


$
0.00



1.01Granted


Exercised


Forfeited


(50,000
)

$
3.220Outstanding and exercisable at December 31, 2008


110,786


$
2.974


$
0.00



0.15   Warrants
    and options issued outside of the Plan for employee
    compensation
  Weighted





Weighted AverageAverage


Aggregate


RemainingOptions and


Exercise


Intrinsic


Contractual LifeWarrants


Price


Value


(Years)Outstanding at December 31, 2005


Granted


1,025,000


$
1.70Exercised


ForfeitedOutstanding at December 31, 2006


1,025,000


$
1.70


$
323,100Granted


330,000


$
1.70Exercised


(50,000
)Forfeited


Outstanding at December 31, 2007


1,305,000


$
1.82


$
299,000Granted


79,000


$
1.45Exercised


Forfeited


Exercisable at December 31, 2008


1,384,000


$
1.80


$
7,000



1.85  F-26




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
    Stock
    Appreciation Rights
    Note 9.
    Leases      OperatingYear

Leases2009

$
1322010

$
1372011

$
1412012

$
1452013

$
124Total

$
679   Note 10.
    Income
    Taxes    2008


2007


2006Federal










State and Local










Foreign










Total Income Tax Expense

$



$



$
   F-27




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  2008


2007


2006Current










Deferred










Total Income Tax Expense

$



$



$
     2008


2007


2006Tax Expense/(Benefit) at U.S Statutory Rate

$
(2,151,403
)

$
(2,693,000
)


(1,964,000
)Effect of premanent differences


3,544







State income Taxes, net of benefit


(304,364
)






Foreign Rate Differential










Tax Rate Change


903,088







Alternative minimum tax










Other


(1
)


(230,000
)


Change in Valuation Allowance


1,549,136



2,923,000



1,964,000Provision for Income Taxes

$



$




     2008


2007Deferred Tax Assets:Net Operating Loss Carryforwards


28,306,745



28,730,008Non-cash compensation


391,352



368,541Writedown of intangibles


20,794



12,153Accrued liabilities


187,549



416,955Allowance and reserves


2,756



Total Deferred Tax Assets


28,909,195



29,527,657Deferred Tax Liabilities:Total Deferred Tax Liabilities






Net Deferred Tax Asset/(Liability)


28,909,195



29,527,657Valuation Allowance


(28,909,195
)


(29,527,657
)Net Deferred Tax Asset/(Liability)






    F-28




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
        Tax
    Uncertainties
        AmountGross unrecognized tax benefits at December 31, 2007


$    Increases in tax positions for current year


Settlements


Lapse in statute of limitations


Gross unrecognized tax benefits at December 31, 2008


$          F-29




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
  Note 11.
    Commitments
    and contingencies  Legal
    Proceedings
  Settled
    in 2008
  Attorney General of Illinois. No. 2006-L-003353)
  Diamics, Inc.
  Daniel McMahon.
  Pending
    as of December 31, 2008
  NeoMed Innovation III L.P.
  Other
    claims
  Other Creditors.
   F-30




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
    Commitments
    Note 12.
    Related
    Party Transactions               F-31




---



##### Table of Contents



CYTOCORE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008 and
    2007  (Continued)
        Note 13.
    Selected
    Quarterly Financial Information (Unaudited)    Quarter EndedMarch 31


June 30


September 30


December 31Dollars in thousands, except per share amounts2008Net Sales

$
46


$
36


$
28


$
15Operating loss


(1,901
)


(1,725
)


(1,549
)


(1,204
)Net loss


(1,886
)


(1,702
)


(1,537
)


(1,203
)Basic and fully diluted net loss per common share

$
(0.05
)

$
(0.04
)

$
(0.04
)

$
(0.03
)2007Net Sales

$
22


$
18


$
15


$
28Operating loss


(2,081
)


(1,400
)


(1,585
)


(2,779
)Net loss


(2,460
)


(1,012
)


(1,569
)


(2,878
)Basic and fully diluted net loss per common share(1)

$
(0.05
)

$
(0.03
)

$
(0.04
)

$
(0.08
)     (1)
    
    Reflects the one-for-ten reverse stock split effected on
    November 27, 2007. March 31, June 30, and
    September 30 have been restated to reflect the reverse
    stock split.  Note 14.
    Subsequent
    Events   F-32