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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-935
 
 CYTOCORE, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    36-4296006(I.R.S. Employer
Identification No.)414 N. Orleans St., Suite 510, Chicago, IL(Address of principal executive offices)
    
    60654(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
 o þ
 o
 þ o
   o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check
if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



CYTOCORE, INC.
Annual Report on Form 10-K
December 31, 2010
 TABLE OF CONTENTS
 PagePART IItem 1. BusinessItem 1A. Risk Factors
    
    
    15Item 2. Properties
    
    
    23Item 3. Legal Proceedings
    
    
    23Item 4 Removed and ReservedPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 8. Financial Statements and Supplementary Data
    
    
    28Item 9A. Controls and Procedures
    
    
    28PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    29Item 11. Executive Compensation
    
    
    32Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    34Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    37Item 14. Principal Accountant Fees and Services
    
    
    39PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    39Signatures
    
    
    42Index to Financial StatementsReports of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at December 31, 2010 and 2009
    
    
    F-2Consolidated Statements of Operations for each of the two years ended December 31, 2010 and 2009
    
    
    F-3Consolidated Statements of Cash Flows for each of the two years ended December 31, 2010 and 2009
    
    
    F-4Consolidated Statements of Stockholders Equity (Deficit) for each of the two years ended December 31,
2010 and 2009
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-7EX-23.1EX-31.1EX-32.1
  1




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PART I
 
 Item 1. Business
 Cautionary Statement Regarding Forward-Looking Statements
 Risk Factors
 Overview
 CytoCore
Solutions ® CytoCore Solutions CytoCore
Solutions CytoCore Solutions
 SoftPAP SoftPAP ® CytoCore Solutions ® SoftPAP CytoCore Solutions
 CytoCore Solutions
 2




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Background
   Recent Developments
  Information About Industry Segments
  Description of Business
 CytoCore
Solutions ® CytoCore Solutions CytoCore
Solutions CytoCore Solutions
 SoftPap ®
 Products
 Cell Collection Devices
  3




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SoftPAP ®
 SoftPAP ®  SoftPAP SoftPAP  SoftPAP  SoftPAP
 PadKit®
 ® SoftPAP  SoftPAP CytoCore Solutions
 Specimen Preparation
  Cell Preservative
 SoftPAP
 4




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SoftPAP
 Stains and Reagents
  Specimen Evaluation
   AIPS Workstation
   5




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AIPS Imager
     Therapeutics
 SoftPAP
 6




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Product Development
 CytoCore Solutions
 SoftPAP .
 Markets and Marketing Objectives
 Diagnostic Focus
 SoftPAP CytoCore Solutions
 Point of Care for All Populations
   
    
    Increasing life spans, driving the demand for healthcare services up and
increasing the emphasis on developing screening tests for the early detection of
diseases;
 7




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
    
    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
    SoftPap PadKit
  Government Regulation, Clinical Studies and Regulatory Strategy
  8




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2 SoftPAP SoftPAP
    9




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SoftPAP
     10




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SoftPAP SoftPAP SoftPAP
 SoftPAP SoftPAP SoftPAP
 SoftPAP
 Cost and Reimbursement
  CytoCore Solutions
 11




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Competition
      CytoCore Solutions.
 Operations
 CytoCore Solutions
 12




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CytoCore Solutions SoftPAP
 SoftPAP
 Intellectual Property
    CytoCore Solutions
  13




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SoftPAP  CytoCore Solutions Cocktail-CVX
   Research and Development Expenditures
    CytoCore Solutions
 Components and Raw Materials
 14




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SoftPAP SoftPAP
 CytoCore Solutions
  Working Capital Practices
  CytoCore Solutions
 Employees
  Financial Information About Foreign and Domestic Operations and Export Sales
 CytoCore Solutions CytoCore Solutions
  
 Item 1A.
    
    Risk Factors
  15




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Risks Related to Our Business
 We have a history of operating losses and there is substantial doubt as to our ability to
continue as a going concern.
 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.
  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
 16




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Our products are subject to government regulation and they may not receive necessary
government approvals.
   SoftPAP SoftPAP
    17




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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,
    
    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.
  18




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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
   We may not be able to adequately protect our intellectual property.
  19




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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 us 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 .
  20




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We may need to expand our operations and we may not effectively manage any future growth.
  Risks Related to Our Common Stock
 Trading in our common stock has been limited, there is no significant trading market for our
common stock, and purchasers of our common stock may be unable to sell their shares.
  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.
  21




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We have never been paid dividends on our common stock and do not anticipate paying dividends
in the foreseeable future.
  There are currently outstanding a substantial number of securities convertible into shares of
our common stock and we intend to raise additional funds in the future through issuances of shares
of common stock or securities convertible into shares of our common stock which will be dilutive to
existing shareholders or impose operational restrictions.
   Applicable SEC rules governing the trading of penny stocks may limit the trading and
liquidity of our common stock which may affect the trading price of our common stock.
  22




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Provisions of our certificate of incorporation, bylaws and Delaware law may make a contested
takeover of our Company more difficult.
  
 Item 2.
    
    Properties
  
 Item 3.
    
    Legal Proceedings
 MedPlast Elkhorn, Inc.
 SEC Civil Action.
 
 Item 4.
    
    Removed and Reserved.
 
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market Information
 23




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High
    
    
    LowYear Ended December 31, 20101st Quarter
    
    $
    .20
    
    
    $
    .052nd Quarter
    
    $
    .22
    
    
    $
    .113rd Quarter
    
    $
    .15
    
    
    $
    .0254th Quarter
    
    $
    .085
    
    
    $
    .019Year Ended December 31, 20091st Quarter
    
    $
    0.84
    
    
    $
    0.342nd Quarter
    
    $
    0.47
    
    
    $
    0.253rd Quarter
    
    $
    0.33
    
    
    $
    0.084th Quarter
    
    $
    0.30
    
    
    $
    0.05
 Holders
  Dividends
   Stock Transfer Agent
  Recent Sales of Unregistered Securities
   24




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 CytoCore Solutions ® CytoCore Solutions CytoCore Solutions CytoCore Solutions
   SoftPAP ® CytoCore Solutions  
 Outlook
  25




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Critical Accounting Policies and Significant Judgments and Estimates
   SoftPAP
 Results of Operations
 Fiscal Year Ended December 31, 2010 as compared to Fiscal Year Ended December 31, 2009
 Revenue
 SoftPAP
 Costs and Expenses
 Cost of Revenues
  Research and Development
 CytoCore Solutions
 SoftPAP
 Selling, General and Administrative
 26




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Other Income (Expense)
      Net Loss
   Liquidity and Capital Resources
  CytoCore
Solutions
 27




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Off-Balance Sheet Arrangements
  
 Item 8. Financial Statements and Supplementary Data
 5
 
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  28




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(i)
    
    pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;(ii)
    
    provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the
U.S., and that receipts and expenditures of the Company are being
made only in accordance with authorization of management and
directors of the Company; and(iii)
    
    provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of
the Companys assets that could have a material effect on our
consolidated financial statements.
  Changes in Internal Control over Financial Reporting
  Item 9B Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers, and Corporate Governance
 Board of Directors and Executive Officers
 Name
    
    Age
    
    Positions with the CompanyRobert F. McCullough, Jr.
    
    
    56
    
    
    Chief Executive Officer, Chief
Financial Officer and Chairman of the
Board of DirectorsJohn H. Abeles, M.D.
    
    
    66
    
    
    DirectorAlexander M. Milley
    
    
    58
    
    
    DirectorClinton H. Severson
    
    
    63
    
    
    DirectorRichard A. Domanik, Ph.D.
    
    
    64
    
    
    Chief Operating Officer
 29




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Board of Directors
  Robert F. McCullough, Jr.
 John H. Abeles, M.D.
 Alexander M. Milley
 30




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Clinton H. Severson
 Executive Officer
 Richard A. Domanik, Ph.D.
 Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 Code of Ethics and Business Conduct for Officers, Directors and Employees
 Board of Directors and Committee Information
   31




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Audit Committee
   Stockholder Nominations
  
 Item 11. Executive Compensation
 Summary Compensation Table
  AllName
    
    
    
    
    
    
    
    
    
    Otherand
    
    
    
    
    
    Salary
    
    
    Compensation
    
    
    TotalPrincipal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)Robert F.
McCullough, Jr.(1)

CEO, CFO and
Chairman of the
Board
    
    
    2010
    
    
    $
    45,000
    (2)
    
    
    
    
    
    $
    45,0002009
    
    
    $
    180,000
    (2)
    
    $
    15,000
    (3)
    
    $
    180,000Richard A. Domanik,

Ph.D.(4)
COO
    
    
    2010
    
    
    $
    150,000
    (5)
    
    
    
    
    
    $
    150,0002009
    
    
    $
    150,000
    (5)
    
    
    
    
    
    $
    150,000
 
 (1)
    
    Mr. McCullough has served as our Chief Executive Officer since October 2007 and as our
Chief Financial Officer since September 2005.(2)
    
    Mr. McCullough voluntarily reduced his salary in 2010 and has deferred payment of his
salary earned in 2010 and 2009.(3)
    
    Represents the fair value, in accordance with ASC 718, of reducing the exercise price
of warrants originally issued for compensationto purchase 435,000 shares of common stock
exercised in 2009. 32




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(4)
    
    Dr. Domanik has served as our Chief Operating Officer since October 2007, and has also
served as our President from May 2007 until August 2008.(5)
    
    Dr. Domanik has deferred payment of his salary earned in 2010 and 2009.
 Outstanding Equity Awards at Fiscal Year-End
  Narrative Disclosure to Summary Compensation Table
    Equity Incentive Plan and Employee Stock Purchase Plan
 Equity Compensation Plan
Information
 Potential Payments Upon Termination or Change-in-Control
 Compensation of Directors
 Compensation of Directors
  Fees Earned 
or Paid in Cash
    
    
    TotalName(1)
    
    ($)
    
    
    ($)(3)John H. Abeles, M.D.
    
    $
    20,000
    (2)
    
    $
    20,000Alexander M. Milley
    
    $
    20,000
    (2)
    
    $
    20,000Clinton H. Severson
    
    $
    20,000
    (2)
    
    $
    20,000
 
 (1)
    
    Mr. McCullough has been omitted from this table as he is a management member of our board of
directors and is not separately compensated for his service on the board of directors. 33




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(2)
    
    Represents accrued but unpaid director fees with respect to fiscal year 2010. This amount does
not include fees payable to each director in the amount of $30,000, which were accrued but unpaid
in 2009 and have not been paid to date.(3)
    
    As of December 31, 2010, each of our directors is entitled to receive 100,000 shares of common
stock in connection with a stock bonus provided to each of our directors in 2009. In addition to
the amounts shown above, Dr. Abeles is the holder of warrants to purchase an aggregate 62,500
shares of the Companys common stock. These warrants were granted in September 2006 at an exercise
price of $2.00 per share were fully vested upon issuance, and have a term of five years. Mr. Milley
is the holder of warrants to purchase an aggregate 62,500 shares of the Companys common stock.
These warrants were granted in September 2006 at an exercise price of $2.00 per share were fully
vested upon issuance, and have a term of five years. Narrative Disclosure to Director Compensation Table
     Transactions with Related Persons, Promoters and Certain Control Persons
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 Common Stock
  34




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Amount and Nature of
    
    
    PercentName and Address of Beneficial Owner
    
    Beneficial Ownership(1)
    
    
    of ClassRobert F. McCullough
    
    
    3,889,353
    (2)
    
    
    7.6
    %NeoMed Innovations III L.P. Parkvein 55
N-0256 Oslo, Norway
    
    
    2,875,800
    (3)
    
    
    5.6
    %John H. Abeles, M.D.
    
    
    385,598
    (4)
    
    
    *Richard A. Domanik, Ph.D.
    
    
    127,272
    (5)
    
    
    *Alexander M. Milley
    
    
    965,450
    (6)
    
    
    1.9
    %Clinton H. Severson
    
    
    110,000
    (7)
    
    
    *All current directors and executive
officers as a group (5 persons)
    
    
    5,477,673
    
    
    
    10.7
    %
 
 *
    
    Less than one percent(1)
    
    Unless otherwise indicated, each of the persons named in the table has sole voting and
investment power with respect to the shares set forth opposite such persons name. With
respect to each person or group, percentages are calculated based on the number of shares
beneficially owned, including shares that may be acquired by such person or group within 60
days of March 25, 2011 upon the exercise of stock options, warrants or other purchase rights,
but not the exercise of options, warrants or other purchase rights held by any other person.
There were 51,407,709 shares of common stock outstanding as of the close of business on April
4, 2011.(2)
    
    Includes (i) 2,187,500 shares owned by Summitcrest Capital L.P., of which Mr. McCullough is
President of the General Partner; and (ii) an aggregate 166,205 shares owned by various trusts
of which Mr. McCullough is trustee as follows: MJM Educational Trust (15,000) shares, PFM
Educational Trust (15,000 shares), CDM Educational Trust (15,000) shares and the MPC Trust
(121,205 shares).(3)
    
    Includes 217,000 shares of common stock issuable upon exercise of warrants(4)
    
    Includes: (i) 213,098 shares owned by Northlea Partners, Ltd., of which Dr. Abeles is General
Partner; (ii) 62,500 shares of common stock issuable upon exercise of warrants; and (iii)
100,000 shares of common stock awarded in 2009 that have not yet been issued. Dr. Abeles
disclaims beneficial ownership of all shares owned by, or issuable to, Northlea Partners
except shares attributable to his 1% interest in Northlea Partners as General Partner.(5)
    
    Includes 100,000 shares of common stock awarded in 2009 that have not yet been issued.(6)
    
    Includes: (i) 149,551 shares held by Azimuth Corporation, of which Mr. Milley is President
and Chairman of the Board of Directors, 429,255 shares held by Cadmus Corporation, of which
Mr. Milley is President and a director, 80,282 shares held by Milley Management, Inc., of
which Mr. Milley is President, sole director and majority stockholder, and 23,710 shares held
by Winchester National, Inc., of which Mr. Milley is a director and executive officer; (ii)
62,500 shares of common stock issuable upon exercise of warrants; and (iii) 100,000 shares of
common stock awarded in 2009 that have not yet been issued. An aggregate of 402,890 shares of
common stock held directly by Mr. Milley, Cadmus Corporation, Winchester National and Milley
Management have been pledged to ELXSI Corp., of which Mr. Milley is President, Chief Executive
Officer and Chairman of the Board.(7)
    
    Includes 100,000 shares of common stock awarded in 2009 that have not yet been issued. 35




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Series E Convertible Preferred Stock
  Amount and Nature of
    
    
    PercentName and Address of Beneficial Owner(1)
    
    Beneficial Ownership
    
    
    of ClassKevin F. Flynn June 1992 Non-Exempt Trust
    
    
    6,667
    (2)
    
    
    34.7
    %120 South LaSalle Street
Chicago, IL 60602Rolf Lagerquist
    
    
    2,000
    (3)
    
    
    10.4
    %4522 CO Road 21 NE
Elgin, MN 55932
 
 (1)
    
    No executive officers or directors own any shares of Series E Convertible Preferred Stock.(2)
    
    Converts into 35,157 shares of common stock, including shares issuable upon payment of
cumulative dividends.(3)
    
    Converts into 10,564 shares of common stock, including shares issuable upon payment of
cumulative dividends. Equity Compensation Plan Information
 Number of securitiesremaining availablefor future issuanceNumber of securities
    
    
    Weighted-average
    
    
    under equityto be issued upon
    
    
    exercise price of
    
    
    compensation plansexercise of

    
    
outstanding

    
    
    (excludingoutstanding options,

    
    
options, warrants

    
    
    securities reflectedwarrants and rights

    
    
and rights

    
    
    in column (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity Compensation Plans Approved by Security Holders1999 Equity
Incentive Plan (as
amended) 
Terminated in
2009
    
    
    10,000
    
    
    $
    2.97
    
    
    
    Equity Compensation
Plans Not Approved
by Security HoldersWarrants issued for financial and
IR services (1)
    
    
    404,696
    
    
    $
    2.05
    
    
    
    Warrants issued for officer,
director and
employee
compensation (2)
    
    
    635,000
    
    
    $
    1.91
    
    
    
    Total
    
    
    1,049,696
    
    
    $
    1.97
    
    
    
    
 
 1)
    
    We have 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.2)
    
    We have issued warrants in lieu of cash payment for employment services, for achieving
certain goals or for other corporate reasons. During fiscal year 2010, a non-executive
employee was issued 13,000 warrants. Equity Incentive Plan and Employee Stock Purchase Plan
 36




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Changes in Control
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 Board of Directors
  Robert F. McCullough, Jr., Chairman, Chief Executive Officer and Chief Financial Officer
    Related Person Transaction Approval Policy
 37




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##### Table of Contents




    
    the risks and benefits of such transaction to us;
    
    the extent of the related persons interest in the transaction;
    
    the impact on a directors independence in the event the related person involved in the
transaction is a director, an immediate family member or an affiliated entity;
    
    if applicable, the availability of other sources of comparable products and services;
and
    
    whether such transaction is on terms no less favorable than terms generally available to
an unaffiliated third party under the same or similar circumstances.
  Director Independence
  38




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Item 14. Principal Accountant Fees and Services
  Fees
  Services Performed
    
    2010
    
    
    2009Audit Fees(1)
    
    $
    95,000
    
    
    $
    128,000Audit-Related Fees(2)
    
    
    
    
    
    
    Tax Fees(3)
    
    $
    5,000
    
    
    
    All Other Fees(4)
    
    
    
    
    
    
    Total Fees
    
    $
    100,000
    
    
    $
    128,000
 
 (1)
    
    Audit fees represent fees billed for professional services rendered for the
audit of our annual financial statements and review of the financial statements
included in our quarterly reports or services that are normally provided in connection
with statutory and regulatory filings or engagements.(2)
    
    Audit-related fees represent fees billed for assurance and related services
reasonably related to the performance of the audit or review of our financial
statements not reported in (1) above, including those incurred in connection with
securities registration and/or other issues resulting from that process.(3)
    
    Tax fees represent fees billed for professional services rendered for tax
compliance, tax advice and tax planning services.(4)
    
    All other fees principally would include fees billed for products and services
provided by the accountant, other than the services reported under the three captions
above. Pre-Approval Policies
   
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  Exhibit No.
    
    Description3.1
    
    Certificate of Incorporation of the Company (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 the Company. (Incorporated herein by reference to
Appendix E to the 1999 Proxy Statement.)
 39




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##### Table of Contents



Exhibit No.
    
    Description3.3
    
    Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of the Company (Incorporated
herein by reference to Exhibit 3.5 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2000, as
filed with the SEC on March 29, 2001)3.4
    
    Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock of the Company (Incorporated
herein by reference to Exhibit 3.6 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2000, as
filed with the SEC on March 29, 2001)3.5
    
    Section 6 of Article VII of the By-laws of the Company, as
amended. (Incorporated herein by reference to Exhibit 3.3 to
the Companys registration statement on Form S-4 (Reg. #
333-61666), as filed with the SEC on May 25, 2000)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 (Reg. # 333-83578), as filed with the SEC on February 28,
2002)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
Companys registration statement on Form S-2 (Reg. #
333-83578), as filed with the SEC on February 28, 2002)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 Companys registration statement on Form S-2 (Reg.
# 333-83578), as filed with the SEC on February 28, 2002)3.9
    
    Certificate of Designations, Preferences and Rights of Series
D Convertible Preferred Stock. Incorporated herein by
reference to Exhibit 3.7 to the Companys registration
statement on Form S-2 (Reg. # 333-83578), as filed with the
SEC on February 28, 2002)3.10
    
    Certificate of Designation, Preferences and Rights of Series E
Convertible Preferred Stock. Incorporated herein by reference
to Exhibit 3.8 to the Companys registration statement on Form
S-2 (Reg. # 333-83578), as filed with the SEC on February 28,
2002)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 with
the SEC on August 16, 2004)3.12
    
    Certificate of Amendment to Certificate of Incorporation,
dated 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 with the SEC on
August 21, 2006)3.13
    
    Certificate of Amendment to Certificate of Incorporation of
the Company, dated 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 with
the SEC on August 17, 2007.)3.14
    
    Certificate of Amendment to Certificate of Incorporation of
the Company, dated 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
with the SEC on April 2, 2008)4.1
    
    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
Companys Annual Report on Form 10-KSB for the year ended
December 31, 2007, as filed with the SEC on April 2, 2008)
 40




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##### Table of Contents



Exhibit No.
    
    Description4.2
    
    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 Companys Annual Report on
Form 10-KSB for the year ended December 31, 2007, as filed
with the SEC on April 2, 2008)10.1
    
    Service agreement with Cell Solutions, LLC. Dated October 9,
2009 (Incorporated herein by reference to Exhibit 10.25 to the
Companys annual report on Form 10-K for the year ended
December 31, 2009, filed with the SEC on May 15, 2010)10.2
    
    Distribution service agreement with Amsino International, Inc.
dated April 14, 2010(Incorporated herein by reference to
Exhibit 10.28 to the Companys annual report on Form 10-K for
the year ended December 31, 2009, filed with the SEC on May
15, 2010)10.3
    
    Consulting agreement with Dr. Mauro Scimia dated April 14,
2010 (Incorporated herein by reference to Exhibit 10.27 to the
Companys annual report on Form 10-K for the year ended
December 31, 2009, filed with the SEC on May 15, 2010)10.4
    
    Distribution service agreement with Guanngdong Prosper Channel
Medicine Company dated November 30, 2010 (Incorporated herein
by reference to Exhibit 10.1 to the Companys current report
on Form 8-K, filed with the SEC on December 3, 2010)14.1
    
    Code of Ethics and Business Conduct of Officers, Directors and
Employees of CytoCore, Inc. (Incorporated herein by reference
to Exhibit 99.1 to the Companys annual report on Form 10-KSB
for the year ended December 31, 2003, filed with the SEC on
April 14, 2004)21.1
    
    Subsidiaries of the Company (Incorporated herein by reference
to Exhibit 21 to the Companys annual report on Form 10-KSB
for the year ended December 31, 2007, filed with the SEC on
April 3, 2008)23.1*
    
    Consent of L J Soldinger Associates LLC31.1*
    
    Certification of the Chief Executive Officer and Chief
Financial Officer of the Company pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of the Chief Executive Officer and Chief
Financial Officer of the Company pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 41




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##### Table of Contents



SIGNATURES
  CYTOCORE, INC.By:
    /s/ Robert McCullough, Jr.Robert McCullough, Jr.Chief Executive Officer and
Chief Financial OfficerDate:
    April 11, 2011  Signature
    
    Title
    
    Date/s/ Robert McCullough, Jr.

Robert McCullough, Jr.
    
    Chief Executive Officer and Chief
Financial Officer
(Principal Accounting Officer and Director)
    
    April 11, 2011/s/ Alexander M. Milley

Alexander M. Milley
    
    Director
    
    April 11, 2011/s/ John Abeles, M.D.

John Abeles, M.D.
    
    Director
    
    April 11, 2011/s/ Clint Severson

Clint Severson
    
    Director
    
    April 11, 2011
 42




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 F-1




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##### Table of Contents



CYTOCORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 December 31,2010
    
    
    2009AssetsCurrent Assets:Cash and cash equivalents
    
    $
    13
    
    
    $
    Accounts receivable
    
    
    9
    
    
    
    17Inventories. net of reserve for valuation of $400,000 for the years ended
December 31, 2010 and 2009
    
    
    108
    
    
    
    574Prepaid expenses and other current assets
    
    
    25
    
    
    
    44Total current assets
    
    
    155
    
    
    
    635Fixed assets, net
    
    
    1,055
    
    
    
    1,846Licenses, patents, and technology, net of amortization
    
    
    62
    
    
    
    62Inventories, non-current
    
    
    785
    
    
    
    325Total assets
    
    $
    2,057
    
    
    $
    2,868Liabilities and Stockholders Equity (Deficit)Current Liabilities:Checks issued in excess of amounts on deposit
    
    $
    
    
    
    $
    5Account payable
    
    
    1,765
    
    
    
    2,102Accrued payroll costs
    
    
    1,395
    
    
    
    818Accrued expenses
    
    
    597
    
    
    
    1,225Advances from related parties
    
    
    1,766
    
    
    
    763Notes payable
    
    
    175
    
    
    
    70Derivative liability
    
    
    99
    
    
    
    Total current liabilities
    
    
    5,797
    
    
    
    4,983Stockholders Equity (Deficit):Preferred stock; $0.001 par value; 10,000,000 shares authorized; 373,555 shares issued and outstanding at December 31,
2010 and 2009, respectively (Liquidation value of all classes of preferred stock of $2,876 at December 31, 2010).
    
    
    1,492
    
    
    
    1,492Common stock, $0.001 par value; 500,000,000 shares authorized; 48,379,042 and 42,173,810 shares issued and issuable and
48,359,833 and 42,154,601 shares outstanding at December 31, 2010 and 2009, respectively
    
    
    48
    
    
    
    42Additional paid-in capital
    
    
    92,572
    
    
    
    92,106Treasury stock at cost: 19,209 shares at December 31, 2010 and 2009
    
    
    (327
    )
    
    
    (327
    )Accumulated deficit
    
    
    (97,448
    )
    
    
    (95,351
    )Accumulated comprehensive lossCumulative translation adjustment
    
    
    (77
    )
    
    
    (77
    )Total stockholders equity
    
    
    (3,740
    )
    
    
    (2,115
    )Total liabilities and stockholders
    
    $
    2,057
    
    
    $
    2,868
  F-2




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##### Table of Contents



CYTOCORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except per share amounts)
 Year Ended December 31,2010
    
    
    2009Net Sales
    
    $
    30
    
    
    $
    44Operating ExpensesCost of revenues
    
    
    1
    
    
    
    3Research and development (net of settlement of
compensation expense of $64,000 for the year ended December
31, 2010 and the settlement of trade debt of $457,000 for the
year ended December 31, 2009)
    
    
    211
    
    
    
    (85
    )Provision for fixed asset impairment
    
    
    399
    
    
    
    Provision for inventory valuation
    
    
    
    
    
    
    400Selling, general and administrative (net of settlement of
trade debt of $71,000 for the year ended December 31, 2010)
    
    
    1,669
    
    
    
    3,022Total cost and expenses
    
    
    2,280
    
    
    
    3,340Operating Loss
    
    
    (2,250
    )
    
    
    (3,296
    )Other Income (Expense):Interest expense
    
    
    (72
    )
    
    
    (34
    )Interest expense  related party
    
    
    (109
    )
    
    
    Provision for legal settlement
    
    
    
    
    
    
    (222
    )Benefit from derivative liability
    
    
    334
    
    
    
    Total other income (expense)
    
    
    153
    
    
    
    (256
    )Loss from operations before income taxes
    
    
    (2,097
    )
    
    
    (3,552
    )Income taxes
    
    
    
    
    
    
    Net Loss
    
    
    (2,097
    )
    
    
    (3,552
    )Preferred stock dividends  unpaid and undeclared
    
    
    (266
    )
    
    
    (266
    )Net loss applicable to common stockholders
    
    $
    (2,363
    )
    
    $
    (3,818
    )Basic and fully diluted net loss per common share
    
    $
    (0.05
    )
    
    $
    (0.09
    )Weighted average number of common shares outstanding
    
    
    45,688,465
    
    
    
    41,874,890
  F-3




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##### Table of Contents



CYTOCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 Year Ended December 31,2010
    
    
    2009Operating Activities:Net loss
    
    
    (2,097
    )
    
    $
    (3,552
    )Noncash charge for legal settlement
    
    
    
    
    
    
    222Depreciation
    
    
    392
    
    
    
    379Amortization of license
    
    
    100
    
    
    
    100(Decrease) increase in allowance for doubtful accounts
    
    
    
    
    
    
    (7
    )Interest expense imputed upon related party advances
    
    
    109
    
    
    
    Provision for inventory valuation
    
    
    
    
    
    
    400Provision for fixed asset impairment
    
    
    399
    
    
    
    Amortization of discount
    
    
    55
    
    
    
    Non-cash interest related to warrant modification
    
    
    
    
    
    
    21Stock issued for compensation
    
    
    36
    
    
    
    Stock and warrants issued to non-employees for services
    
    
    36
    
    
    
    5Non-cash compensation expense
    
    
    1
    
    
    
    2Stock issued to directors for compensation
    
    
    
    
    
    
    350Gain on settlements of trade indebtedness and accrued liability
    
    
    (135
    )
    
    
    (457
    )Benefit from derivative liability
    
    
    (334
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    8
    
    
    
    26Inventories
    
    
    6
    
    
    
    (131
    )Prepaid expenses and other current assets
    
    
    19
    
    
    
    14Checks issued in excess of deposits
    
    
    (5
    )
    
    
    5Accounts payable
    
    
    (264
    )
    
    
    61Accrued expenses
    
    
    553
    
    
    
    925Net cash used for operating activities
    
    
    (1,121
    )
    
    
    (1,637
    )Investing activities:Purchase of license
    
    
    (36
    )
    
    
    (61
    )Capital purchases
    
    
    
    
    
    
    (10
    )Net cash used for investing activities
    
    
    (36
    )
    
    
    (71
    )Financing activities:Proceeds from issuance of common stock
    
    
    100
    
    
    
    Proceeds from the issuance of convertible debt
    
    
    75
    
    
    
    Proceeds from related parties
    
    
    1,013
    
    
    
    885Proceeds from exercise of warrants and options
    
    
    
    
    
    
    270Payments on note
    
    
    (18
    )
    
    
    Net cash provided by financing activities
    
    
    1,170
    
    
    
    1,155Net increase (decrease) increase in cash and cash equivalents
    
    
    13
    
    
    
    (553
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    553Cash and cash equivalents at end of year
    
    $
    13
    
    
    $
    Supplemental disclosure of cash flow information:Non-cash transaction during the year for:Issuance of common stock and warrants in settlement of a lawsuit
    
    $
    538
    
    
    $
    Payment of accrued wages with common stock
    
    $
    36
    
    
    $
    31Warrant exercised with debt in satisfaction of related party advances and other liabilities
    
    $
    
    
    
    $
    168Note Payable issued in payment of account payable resulting in a gain of $71,000
    
    $
    69
    
    
    $
    Conversion of note payable in to common stock
    
    $
    20
    
    
    $
    The Company recorded a derivative liability resulting from potential excess shares and
a reduction in additional paid in capital
    
    $
    378
    
    
    $
    Common stock issued for advances from related party
    
    $
    10
    
    
    $
    Common stock issued for accrued expenses
    
    $
    36
    
    
    $
    Payment of director fees with common stock
    
    $
    
    
    
    $
    195




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##### Table of Contents



CYTOCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Dollars in thousands)
 AccumalatedPreferred 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
    
    
    DeficitJanuary 1, 2009
    
    
    373,559
    
    
    $
    1,492
    
    
    
    41,226,903
    
    
    $
    41
    
    
    
    19,209
    
    
    $
    (327
    )
    
    $
    91,065
    
    
    $
    (91,799
    )
    
    $
    (74
    )
    
    $
    398Comprehensive Loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,552
    )
    
    
    
    
    
    
    (3,552
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Total net comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,555
    )Series E preferred stock and
cumulative dividends
converted to common stock
    
    
    (4
    )
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    869,614
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    
    
    
    
    
    
    
    
    438Common stock issued for
compensation
    
    
    
    
    
    
    
    
    
    
    61,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    576
    
    
    
    
    
    
    
    
    
    
    
    576Common stock issued for
services
    
    
    
    
    
    
    
    
    
    
    16,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Warrants issued for compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21December 31, 2009
    
    
    373,555
    
    
    $
    1,492
    
    
    
    42,173,810
    
    
    $
    42
    
    
    
    19,209
    
    
    $
    (327
    )
    
    $
    92,106
    
    
    $
    (95,351
    )
    
    $
    (77
    )
    
    $
    (2,115
    )Comprehensive Loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,097
    )
    
    
    
    
    
    
    (2,097
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,097
    )Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    485,000
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Sale of common stock
    
    
    
    
    
    
    
    
    
    
    1,333,333
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    100Charge for derivative liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (378
    )
    
    
    
    
    
    
    
    
    
    
    (378
    )Common stock issued for
compensation
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Common stock issued for
services
    
    
    
    
    
    
    
    
    
    
    150,806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Common stock issued for
settlement of lawsuit
    
    
    
    
    
    
    
    
    
    
    2,658,800
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    
    
    
    
    
    
    
    
    505Common stock issued for debt
    
    
    
    
    
    
    
    
    
    
    66,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Conversion of note for Common
Stock
    
    
    
    
    
    
    
    
    
    
    1,060,626
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    20Interest imputed on related party
advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    109Warrants issued settlement of
lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Warrants issued compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1December 31, 2010
    
    
    373,555
    
    
    $
    1,492
    
    
    
    48,379,042
    
    
    $
    48
    
    
    
    19,209
    
    
    $
    (327
    )
    
    $
    92,572
    
    
    $
    (97,448
    )
    
    $
    (77
    )
    
    $
    (3,740
    )
  F-5




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##### Table of Contents



CYTOCORE, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except per share amounts)
 Note 1. The Company and Basis of Presentation
   CytoCore Solutions ® CytoCore Solutions CytoCore Solutions CytoCore Solutions
 Going Concern
   Note 2. Summary of Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
 F-6




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##### Table of Contents



SoftPAP®
 Revenue Recognition
  Cash and Cash Equivalents
  Inventory
  Property and Equipment
  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
  F-7




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##### Table of Contents



Impairment or Disposal of Long-Lived Assets
  Research and Development Costs
  Stock Based Compensation
  Foreign Currency Translation
  Fair Value of Financial Instruments
  Other Comprehensive Income (Loss)
  Net Loss Per Share
   Income Taxes
  F-8




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Risks from Concentrations
  Recent Accounting Pronouncements
     F-9




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##### Table of Contents



Note 3. Fixed Assets
  2010
    
    
    2009(in thousands)Furniture and fixtures
    
    $
    47
    
    
    $
    47Laboratory equipment
    
    
    508
    
    
    
    508Computer and communications equipment
    
    
    261
    
    
    
    261Design and tooling
    
    
    1,204
    
    
    
    1,204Machinery and equipment
    
    
    777
    
    
    
    777Construction in progress
    
    
    
    
    
    
    3992,797
    
    
    
    3,196Less accumulated depreciation and amortization
    
    
    (1,742
    )
    
    
    (1,350
    )Total
    
    $
    1,055
    
    
    $
    1,846
 F-10




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During 2010 when the Company tested its fixed assets for recoverability, it determined that
the value associated with its construction in progress was diminished and recorded an impairment of
$399,000 to adjust the value to zero.
  Note 4. Licenses, Patents, and Technology
  2010
    
    
    2009(in thousands)Licenses
    
    $
    320
    
    
    $
    220Patent costs
    
    
    133
    
    
    
    133LabCorp Technology Agreement
    
    
    260
    
    
    
    260Subtotal
    
    
    713
    
    
    
    613Less accumulated amortization
    
    
    (651
    )
    
    
    (551
    )Total
    
    $
    62
    
    
    $
    62
  Note 5. Accrued Expenses
  2010
    
    
    2009(in thousands)Accrued interest
    
    $
    60
    
    
    $
    363Reserve for legal settlement
    
    
    
    
    
    
    220Accrued taxes
    
    
    268
    
    
    
    214Accrued compensation
    
    
    90
    
    
    
    40Other accrued expenses
    
    
    179
    
    
    
    388Total
    
    $
    597
    
    
    $
    1,225
 F-11




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##### Table of Contents



Note 6. Notes Payable
  2010
    
    
    2009(in thousands)Asher Enterprises, Inc., $75,000 Convertible Promissory Note issued March 9, 2010;
interest rate 8% per annum, due December 10, 2010
    
    $
    56
    
    
    $
    White White & Van Etten PC, $68,750 non-interest bearing Promissory Note issued
September 30, 2010; payable in eleven equal payments of $6,250; due
August 24, 2011
    
    
    49
    
    
    
    Xillix 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$
    175
    
    
    $
    70
     Note 7. Stockholders Equity
 Earnings (loss) per share
  For the Years Ended December 31,2010
    
    
    2009Basic and Diluted:Reported net loss (in thousands)
    
    $
    (2,097
    )
    
    $
    (3,552
    )Less unpaid and undeclared preferred stock dividends
    
    
    (266
    )
    
    
    (266
    )Net loss applicable to common stockholder
    
    $
    (2,363
    )
    
    $
    (3,818
    )Weighted average common shares outstanding
    
    
    45,688,465
    
    
    
    41,874,890Net loss per common share
    
    $
    (.05
    )
    
    $
    (.09
    )
 F-12




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Preferred Stock
   Shares Issued &
    
    
    Preferred Stock DividendsOutstanding
    
    
    Undeclared and UnpaidSharesOffering
    
    Authorized
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Series A convertible
    
    
    590,197
    
    
    
    47,250
    
    
    
    47,250
    
    
    
    
    
    
    
    Series B convertible, 10%
cumulative
    
    
    1,500,000
    
    
    
    93,750
    
    
    
    93,750
    
    
    
    37,500
    
    
    
    37,500Series C convertible, 10%
cumulative
    
    
    1,666,666
    
    
    
    38,333
    
    
    
    38,333
    
    
    
    11,500
    
    
    
    11,500Series D convertible, 10%
cumulative
    
    
    300,000
    
    
    
    175,000
    
    
    
    175,000
    
    
    
    175,000
    
    
    
    175,000Series E convertible, 10%
cumulative
    
    
    800,000
    
    
    
    19,222
    
    
    
    19,222
    
    
    
    42,173
    
    
    
    42,173Undesignated Preferred Series
    
    
    5,143,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Preferred Stock
    
    
    10,000,000
    
    
    
    373,555
    
    
    
    373,555
    
    
    
    266,173
    
    
    
    266,173
 Summary of Preferred Stock Terms
 Series A Convertible Preferred Stock
 Liquidation Value:
    
    $4.50 per share, $212,625Conversion Price:
    
    $103.034 per shareConversion Rate:
    
    0.04367Liquidation Value divided by Conversion Price ($4.50/$103.034)Voting Rights:
    
    NoneDividends:
    
    NoneConversion Period:
    
    Any time
 Series B Convertible Preferred Stock
 Liquidation Value:
    
    $4.00 per share, $375,000Conversion 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, 2010 were $370,000
 Series C Convertible Preferred Stock
 Liquidation Value:
    
    $3.00 per share, $115,000Conversion 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, 2010 were $105,000
 F-13




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Series D Convertible Preferred Stock
 Liquidation Value:
    
    $10.00 per share, $1,750,000Conversion 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, 2010 were $1,605,000
 Series E Convertible Preferred Stock
 Liquidation Value:
    
    $22.00 per share, $422,888Conversion 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, 2010 were $391,000
 Issuance of Securities
 Common Stock
     F-14




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Warrants
   Conversions of Preferred Stock
 F-15




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Application of Black-Scholes Valuation Model
  2010
    
    
    2009Expected volatility
    
    
    141% - 265
    %
    
    
    171% - 250
    %Expected term (years)
    
    
    .21 - 3
    
    
    
    1 1/2Risk-free interest rate
    
    
    1.00
    %
    
    
    1.00
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    0
    %
    
    
    0
    %Resulting weighted average grant date fair value
    
    $
    0.15
    
    
    $
    0.16
  Warrants
  Total Warrant
    
    
    Warrant Shares
    
    
    Exercise Price
    
    
    Weighted AverageShares Outstanding
    
    
    Exercisable
    
    
    (not weighted)
    
    
    Years until Expiration4,000
    
    
    
    4,000
    
    
    $
    0.03
    
    
    
    2.78418,667
    
    
    
    418,667
    
    
    $
    0.06
    
    
    
    2.752,000
    
    
    
    2,000
    
    
    $
    0.09
    
    
    
    1.62259,000
    
    
    
    259,000
    
    
    $
    0.10
    
    
    
    2.892,000
    
    
    
    2,000
    
    
    $
    0.17
    
    
    
    0.869,000
    
    
    
    9,000
    
    
    $
    0.20
    
    
    
    1.39217,000
    
    
    
    217,000
    
    
    $
    0.50
    
    
    
    2.147,000
    
    
    
    7,000
    
    
    $
    0.61
    
    
    
    0.6825,000
    
    
    
    25,000
    
    
    $
    1.00
    
    
    
    0.165,000
    
    
    
    5,000
    
    
    $
    1.45
    
    
    
    0.33490,833
    
    
    
    490,833
    
    
    $
    1.50
    
    
    
    0.325,000
    
    
    
    5,000
    
    
    $
    1.70
    
    
    
    0.25240,095
    
    
    
    240,095
    
    
    $
    1.80
    
    
    
    0.9210,000
    
    
    
    10,000
    
    
    $
    1.89
    
    
    
    0.532,000
    
    
    
    2,000
    
    
    $
    1.90
    
    
    
    0.432,092,417
    
    
    
    2,092,417
    
    
    $
    2.00
    
    
    
    0.331,000
    
    
    
    1,000
    
    
    $
    2.23
    
    
    
    0.25283,266
    
    
    
    283,266
    
    
    $
    2.25
    
    
    
    0.2910,000
    
    
    
    10,000
    
    
    $
    3.25
    
    
    
    0.251,431
    
    
    
    1,431
    
    
    $
    3.50
    
    
    
    0.25Total
    
    
    4,084,709
    
    
    
    4,084,709
 F-16




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##### Table of Contents



Note 8. Equity Incentive Plan and Employee Stock Purchase Plan
         2010
    
    
    2009Expected volatility
    
    
    141% - 265
    %
    
    
    171% - 250
    %Expected term (years)
    
    
    .21 -3
    
    
    
    1 1/22Risk-free interest rate
    
    
    1.00
    %
    
    
    1.00Expected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    0
    %
    
    
    0
    %Resulting weighted average grant date fair value
    
    $
    0.09
    
    
    $
    0.16
  F-17




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1999 Stock Option Plan
 WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingExercise
    
    
    Intrinsic
    
    
    ContractualOptions
    
    
    Price
    
    
    Value
    
    
    Life (Years)Outstanding at December 31, 2008
    
    
    110,786
    
    
    $
    2.974
    
    
    $
    0.00
    
    
    
    0.15Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (100,786
    )
    
    $
    2.000Outstanding at December 31, 2009
    
    
    10,000
    
    
    $
    11.940
    
    
    $
    0.00
    
    
    
    1.42Granted
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    Outstanding at December 31, 2010
    
    
    10,000
    
    
    $
    11.940
    
    
    $
    0.00
    
    
    
    0.42
 Warrants and options issued outside of the Plan for employee compensation
 WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingOptions and
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualWarrants
    
    
    Price
    
    
    Value
    
    
    Life (Years)Outstanding at December 31, 2008
    
    
    1,384,000
    
    
    $
    1.80
    
    
    $
    7,000Granted
    
    
    13,000
    
    
    $
    0.16Exercised
    
    
    (595,000
    )
    
    $
    1.60Forfeited
    
    
    Outstanding at December 31, 2009
    
    
    802,000
    
    
    $
    2.05
    
    
    
    Granted
    
    
    13,000
    
    
    $
    0.10Exercised
    
    
    Forfeited
    
    
    (180,000
    )Outstanding at December 31, 2010
    
    
    635,000
    
    
    $
    1.91
    
    
    
    
    
    
    
    0.78
  Note 9. Leases
  F-18




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OperatingYear
    
    Leases(in thousands)2011
    
    $
    1412012
    
    
    1452013
    
    
    1242014
    
    
    2015
    
    
    Total
    
    $
    410
 Note 10. Income Taxes
  2010
    
    
    2009Federal
    
    $
    
    
    
    $
    State and local
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    Total income tax expense
    
    $
    
    
    
    $
    
 2010
    
    
    2009Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    Total Income Tax Expense
    
    
    
    
    
    
    
  2010
    
    
    2009Statutory U.S. federal rate
    
    
    (34.0
    )%
    
    
    (34.0)
    %Permanent differences
    
    
    
    
    
    
    Valuation allowance
    
    
    34.0
    %
    
    
    34.0
    %Provision for income tax
expense(benefit)
    
    
    0.0
    %
    
    
    0.0
    %
  2010
    
    
    2009(in thousands)Deferred Tax Assets:Net Operating Loss Carryforwards
    
    $
    29,527
    
    
    $
    29,000Non-cash compensation
    
    
    189
    
    
    
    156Writedown of intangibles
    
    
    38
    
    
    
    9Provision for inventory adjustment
    
    
    136
    
    
    
    136Provision for fixed asset impairment
    
    
    136
    
    
    
    
 F-19




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2010
    
    
    2009(in thousands)Accrued Liabilities
    
    
    (11
    )
    
    
    24Allowance and reserves
    
    
    
    
    
    
    5Total Deferred Tax Assets
    
    
    30,015
    
    
    
    29,330Deferred Tax Liabilities:Total Deferred Tax Liabilities
    
    
    
    
    
    
    Net Deferred Tax Asset
    
    
    30,015
    
    
    
    29,330Valuation Allowance
    
    
    (30,015
    )
    
    
    (29,330
    )Net Deferred Tax Asset
    
    $
    
    
    
    $
    
   Tax Uncertainties
    AmountGross Unrecognized tax benefits at December 31, 2009
    
    $
    Increases in tax positions for current year
    
    
    Settlements
    
    
    Lapse in statute of limitations
    
    
    Gross Unrecognized tax benefits at December 31, 2010
    
    $
    
  F-20




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##### Table of Contents



Note 11. Derivative Liability
  Note 12. Commitments and contingencies
 Legal Proceedings
 Settled in 2010
 NeoMed Innovation III L.P.
  Wildman, Harrold, Allen & Dixon LLP.
 Pending as of December 31, 2010
 MedPlast Elkhorn, Inc.
 F-21




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##### Table of Contents



Securities and Exchange Commission
 SEC Civil Action.
  Other claims
 Other Creditors.
   Commitments
   Note 13 Related Party Transactions
     F-22




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##### Table of Contents



Note 13.
   F-23