##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to.
 Commission File number 0-935
 
 CYTOCORE, INC.
 (Exact Name of Small Business Issuer as Specified in Its Charter)
 Delaware
    
    36-4296006(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 (Address of Principal Executive Offices)
 (Issuers Telephone Number, including Area Code)
 
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
 o þ
   o þ




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##### 



CYTOCORE, INC.
 QUARTERLY REPORT ON FORM 10-QSB
 TABLE OF CONTENTS
 PagePART I.  FINANCIAL INFORMATIONItem 1. Financial Statementsa) Consolidated Balance Sheets  March 31, 2007 (unaudited) and December 31, 2006
    
    
    3b) Consolidated Statements of Operations  Three months ended March 31, 2007 and March 31, 2006
(unaudited)
    
    
    4c) Consolidated Statements of Cash Flows  Three months ended March 31, 2007 and March 31, 2006
(unaudited)
    
    
    5d)
Consolidated Statement of Stockholders Deficit  Three months ended March 31, 2007 (unaudited)
    
    
    6e) Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    14Item 3. Controls and Procedures
    
    
    18PART II.  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21SIGNATURES
    
    
    22EXHIBIT INDEX
    
    
    23Form of Warrant AmendmentSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 CertificationForm of Warrant AmendemntSection 302 Certification by Principal Executive OfficerSection 302 Certification by Principal Financial OfficerSection 906 Certification by Principal Executive OfficerSection 906 Certification by Principal Financial Officer
  2




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CYTOCORE, INC.
 
 CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    3,228
    
    
    $
    874Accounts receivable
    
    
    16
    
    
    
    24Prepaid expenses and other current assets
    
    
    95
    
    
    
    122Total current assets
    
    
    3,339
    
    
    
    1,020Fixed assets, net
    
    
    429
    
    
    
    242Licenses, patents and technology, net of amortization
    
    
    20
    
    
    
    20Total assets
    
    $
    3,788
    
    
    $
    1,282Liabilities and Stockholders Equity (Deficit)Current Liabilities:Accounts payable
    
    $
    1,228
    
    
    $
    1,434Accrued payroll costs
    
    
    21
    
    
    
    421Accrued expenses
    
    
    2,230
    
    
    
    1,825Deferred revenue
    
    
    25
    
    
    
    25Notes payable
    
    
    70
    
    
    
    425Total current liabilities
    
    
    3,574
    
    
    
    4,130Long-term liabilities:Convertible securities
    
    
    553
    
    
    
    567Stockholders Deficit:Preferred stock, $0.001 par value; 10,000,000 shares authorized; 440,735 and 574,642 shares issued and
outstanding at March 31, 2007 and December 31, 2006, respectively (Liquidation value of all
classes of preferred stock $3,217 at March 31, 2007)
    
    
    1,832
    
    
    
    2,920Common stock, $0.001 par value; 375,000,000 shares authorized; 341,332,279 and 312,429,579 shares
issued and 341,140,191 and 312,237,491 shares outstanding at March 31, 2007 and December 31,
2006, respectively
    
    
    341
    
    
    
    312Additional paid-in-capital
    
    
    77,833
    
    
    
    70,925Treasury stock: 192,088 shares at March 31, 2007 and December 31, 2006
    
    
    (327
    )
    
    
    (327
    )Accumulated deficit
    
    
    (79,943
    )
    
    
    (77,170
    )Accumulated comprehensive lossCumulative translation adjustment
    
    
    (75
    )
    
    
    (75
    )Total stockholders deficit
    
    
    (339
    )
    
    
    (3,415
    )Total liabilities and stockholders deficit
    
    $
    3,788
    
    
    $
    1,282
  3




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##### Table of Contents



CYTOCORE, INC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
 Three Months EndedMarch 31,2007
    
    
    2006(Unaudited)Net revenues
    
    $
    22
    
    
    $
    23Operating expensesCost of revenues (includes impairment charge of property assets of
$169 for the three months ended March 31, 2006)
    
    
    
    
    
    
    169Research and development (net of settlement of debt of $66
for the three months ended March 31, 2007)
    
    
    396
    
    
    
    66Selling, general, and administrative
    
    
    1,223
    
    
    
    804Total operating expenses
    
    
    1,619
    
    
    
    1,039Operating loss
    
    
    (1,597
    )
    
    
    (1,016
    )Other expense:Interest expense related party
    
    
    
    
    
    
    (2
    )Interest expense (net of interest settlement of $85 for the three
months ended March 31, 2007)
    
    
    (484
    )
    
    
    (164
    )Unrealized loss on convertible securities
    
    
    (379
    )
    
    
    Total other expense
    
    
    (863
    )
    
    
    (166
    )Net loss
    
    
    (2,460
    )
    
    
    (1,182
    )Preferred stock dividend
    
    
    (313
    )
    
    
    Net loss applicable to common stockholders
    
    $
    (2,773
    )
    
    $
    (1,182
    )Basic and diluted net loss per common share
    
    $
    (0.01
    )
    
    $
    (0.01
    )Basic and diluted weighed average number of common shares
outstanding
    
    
    319,534,267
    
    
    
    163,798,692
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CYTOCORE, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 Three Months EndedMarch 31,2007
    
    
    2006(Unaudited)Operating Activities:Net loss
    
    $
    (2,460
    )
    
    $
    (1,182
    )Adjustments to reconcile net loss to net cash used in operating activities:Amortization of debt discount
    
    
    
    
    
    
    14Depreciation and amortization
    
    
    5
    
    
    
    12Impairment charge of property asset
    
    
    
    
    
    
    169Amortization of fees
    
    
    
    
    
    
    11Gain on settlements of trade indebtedness
    
    
    (151
    )
    
    
    Notes issued in payment of an expense
    
    
    
    
    
    
    48Warrant related expenses issued in settlement of debt
    
    
    
    
    
    
    127Unrealized loss on convertible securities
    
    
    379
    
    
    
    Stock and warrants issued to non-employees for services
    
    
    256
    
    
    
    Non-cash compensation expense
    
    
    227
    
    
    
    Non-cash interest related to warrant modification
    
    
    566
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    8
    
    
    
    (23
    )Prepaid expenses and other current assets
    
    
    27
    
    
    
    (62
    )Accounts payable
    
    
    (140
    )
    
    
    (101
    )Accrued expenses
    
    
    91
    
    
    
    (43
    )Net cash used in operating activities
    
    
    (1,192
    )
    
    
    (1,030
    )Investing activities:Purchases of fixed assets
    
    
    (192
    )
    
    
    (1
    )Net cash used in investing activities
    
    
    (192
    )
    
    
    (1
    )Financing activities:Checks issued in excess of amounts on deposit
    
    
    
    
    
    
    92Proceeds from issuance of common stock
    
    
    2,190
    
    
    
    952Financing costs in connection with private placement of stock
    
    
    (169
    )
    
    
    Proceeds from exercise of warrants
    
    
    2,022
    
    
    
    Proceeds from exercise of options
    
    
    50
    
    
    
    Lease obligation
    
    
    
    
    
    
    (13
    )Payment of notes payable
    
    
    (355
    )
    
    
    Net cash provided by financing activities
    
    
    3,738
    
    
    
    1,031Net increase in cash and cash equivalents
    
    
    2,354
    
    
    
    Cash and cash equivalents at the beginning of period
    
    
    874
    
    
    
    Cash and cash equivalents at end of period
    
    $
    3,228
    
    
    $
    Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    48
    
    
    $
    Non-cash transactions during the period for:Convertible promissory notes and accrued interest converted into common stock
    
    $
    
    
    
    $
    288Preferred stock and cumulative dividends converted into common stock
    
    $
    1,401
    
    
    $
    Convertible securities
    
    $
    394
    
    
    $
    
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CYTOCORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
 (Dollars in thousands)
 (Unaudited)
 AccumulatedPreferred 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, 2007
    
    
    574,642
    
    
    $
    2,920
    
    
    
    312,429,579
    
    
    $
    312
    
    
    
    192,088
    
    
    $
    (327
    )
    
    $
    70,925
    
    
    $
    (77,170
    )
    
    $
    (75
    )
    
    $
    (3,415
    )Comprehensive Loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,460
    )
    
    
    
    
    
    
    (2,460
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,460
    )Series B preferred stock and
cumulative dividends
converted to common stock
    
    
    (103,250
    )
    
    
    (413
    )
    
    
    655,482
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    511
    
    
    
    (99
    )
    
    
    
    
    
    
    Series E preferred stock and
cumulative dividends
converted to common stock
    
    
    (30,657
    )
    
    
    (675
    )
    
    
    1,262,797
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    887
    
    
    
    (214
    )
    
    
    
    
    
    
    Sale of common stock, net of
financing costs of $169,698
    
    
    
    
    
    
    
    
    
    
    6,778,080
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    2,015
    
    
    
    
    
    
    
    
    
    
    
    2,021Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    19,930,025
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    2,002
    
    
    
    
    
    
    
    
    
    
    
    2,022Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Common stock issued for
services
    
    
    
    
    
    
    
    
    
    
    26,316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Warrant conversion exercise price
modification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    566
    
    
    
    
    
    
    
    
    
    
    
    566Convertible securities in excess of
authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    394Warrants issued for compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    227Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250March 31, 2007
    
    
    440,735
    
    
    $
    1,832
    
    
    
    341,332,279
    
    
    $
    341
    
    
    
    192,088
    
    
    $
    (327
    )
    
    $
    77,833
    
    
    $
    (79,943
    )
    
    $
    (75
    )
    
    $
    (339
    )
  6




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CYTOCORE, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Organization
   2
   Note 2. Basis of Presentation
  7




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##### Table of Contents



Note 3. Summary of Significant Accounting Principles
  Principles of Consolidation.
 Use of Estimates.
 Revenue Recognition
 Research and Development Costs.
 Stock Based Compensation.
 Net Loss Per Share.
 Recently issued accounting pronouncements
 Accounting for Uncertainty in Income Taxes.
 Fair Value Measurements.
 8




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Fair Value Option for Financial Assets and Financial Liabilities.
 Fixed Assets
  March 31,
    
    
    December 31,2007
    
    
    2006Furniture and fixtures
    
    $
    124
    
    
    $
    124Laboratory equipment
    
    
    595
    
    
    
    595Computer and communications equipment
    
    
    331
    
    
    
    331Design and tooling
    
    
    393
    
    
    
    201Leasehold improvements
    
    
    28
    
    
    
    281,471
    
    
    
    1,279Less accumulated depreciation and amortization
    
    
    (1,042
    )
    
    
    (1,037
    )Total
    
    $
    429
    
    
    $
    242
 Note 5. Accrued Expenses
  March 31,
    
    
    December 31,2007
    
    
    2006Accrued interest
    
    $
    346
    
    
    $
    478Accrued settlement costs
    
    
    723
    
    
    
    438Accrued franchise and other taxes
    
    
    712
    
    
    
    589Accrued compensation
    
    
    180
    
    
    
    180Other accrued expenses
    
    
    269
    
    
    
    140Total
    
    $
    2,230
    
    
    $
    1,825
 Note 6. Notes Payable
  March 31,
    
    
    December 31,2007
    
    
    2006Bridge II Convertible Promissory Note; due July 31, 2004; interest rate
15% per annum; convertible into common stock at $0.15 per share;
with warrants at an exercise price of $0.20 per share. Principal and
interest totaling $78,109 fully paid in March 2007
    
    
    
    
    
    
    50MonoGen, Inc. $305,000 Promissory Note issued October 14, 2004; interest rate 14%
per annum; first installment of $25,000 due November 1, 2004 with monthly
principal and interest installments of $10,000 thereafter; due January 1, 2007.
Principal and interest totaling $325,000 paid in March 2007
    
    
    
    
    
    
    305
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March 31,
    
    
    December 31,2007
    
    
    2006Robert 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 rate 8% per annum payable after December 31, 2003
    
    
        21
    
    
    
    21Xillix Technologies Corporation $361,000 Promissory Note issued June 26, 1998; interest
rate Canadian Prime plus 6% per annum; represents a debt of AccuMed
    
    
    34
    
    
    
    34$
    70
    
    
    $
    425
 Defaults.
 Note 7. Stockholders Equity
 Earnings (loss) per share
  March 31,
    
    March 31,2007
    
    2006Basic and Diluted:Net loss applicable to common stockholder
    
    ($
    2,773
    )
    
    ($
    1,182
    )Weighted average common shares outstanding
    
    
    319,534,267
    
    
    
    163,798,692Net loss per common share
    
    ($
    0.01
    )
    
    ($
    0.01
    )
  Preferred Stock
  March 31,
    
    
    December 31,2007
    
    
    2006Shares Issued &
    
    
    Shares Issued &Offering
    
    Outstanding
    
    
    OutstandingSeries A convertible
    
    
    82,655
    
    
    
    82,655Series B convertible, 10% cumulative dividend
    
    
    122,486
    
    
    
    225,736Series C convertible, 10% cumulative dividend
    
    
    38,333
    
    
    
    38,333Series D convertible, 10% cumulative dividend
    
    
    175,000
    
    
    
    175,000Series E convertible, 10% cumulative dividend
    
    
    22,261
    
    
    
    52,918Total Preferred Stock
    
    
    440,735
    
    
    
    574,642
 Summary of Preferred Stock Terms
 Series A Convertible Preferred StockLiquidation Value:
    
    $4.50 per shareConversion Price:
    
    $10.3034 per shareConversion Rate:
    
    0.4367Liquidation Value divided by Conversion Price ($4.50/$10.3034)Voting Rights:
    
    NoneDividends:
    
    NoneConversion Period:
    
    Any time
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Series B Convertible Preferred StockLiquidation Value:
    
    $4.00 per shareConversion Price:
    
    $1.00 per shareConversion Rate:
    
    4.00Liquidation Value divided by Conversion Price ($4.00/$1.00)Voting Rights:
    
    NoneDividends:
    
    10%QuarterlyCommencing March 31, 2001Conversion Period:
    
    Any timeCumulative and undeclared dividends in arrears at March 31, 2007 were $299,000Series C Convertible Preferred StockLiquidation Value:
    
    $3.00 per shareConversion Price:
    
    $0.60 per shareConversion Rate:
    
    5.00Liquidation Value divided by Conversion Price ($3.00/$0.60)Voting Rights:
    
    NoneDividends:
    
    10%QuarterlyCommencing March 31, 2002Conversion Period:
    
    Any timeCumulative and undeclared dividends in arrears at March 31, 2007 were $62,000Series D Convertible Preferred StockLiquidation Value:
    
    $10.00 per shareConversion Price:
    
    $1.00 per shareConversion Rate:
    
    10.00Liquidation Value divided by Conversion Price ($10.00/$1.00)Voting Rights:
    
    NoneDividends:
    
    10%QuarterlyCommencing April 30, 2002Conversion Period:
    
    Any timeCumulative and undeclared dividends in arrears at March 31, 2007 were $948,000Series E Convertible Preferred StockLiquidation Value:
    
    $22.00 per shareConversion Price:
    
    $0.80 per shareConversion Rate:
    
    27.50Liquidation Value divided by Conversion Price ($22.00/$0.80)Voting Rights:
    
    Equal in all respects to holders of common sharesDividends:
    
    10%QuarterlyCommencing May 31, 2002Conversion Period:
    
    Any timeCumulative and undeclared dividends in arrears at March 31, 2007 were $268,000
 Conversion of Certain Preferred Shares for Common Shares
  Issuance of Common Shares for Cash
   11




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Issuance of Stock and Warrants as Payment for Services
   Issuance of Warrants as Payment for Employee Compensation
   Application of Black-Scholes Valuation Model
  2007
    
    2006Expected volatility
    
    
    120
    %
    
    
    206
    %Expected term (years)
    
    
    1.5
    
    
    
    3.5  5Risk-free interest rate
    
    
    4.25
    %
    
    
    5.07
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    0
    %
    
    
    0
    %Resulting weighted average grant date fair value
    
    $
    0.32
    
    
    $
    0.12
 12




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Note 8. Equity Incentive Plan and Employee Stock Purchase Plan and other Share-Based Employee
Payments
  Note 9. Convertible Securities
  Note 10. Legal Proceedings
  Lawsuit s
 Peter Gombrich.
 The Regents of the University of California
 13




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Attorney General of Illinois
 Other claims
  Other Creditors.
  Note 11. Subsequent Events
   
 Item 2. Managements Discussion and Analysis or Plan of Operation
 Forward-Looking Statements
  14




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Overview of CytoCore, Inc.
   2
 Critical Accounting Policies and Changes to Accounting Policies
   15




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Results of Operations
  Three Months Ended March 31, 2007 as compared to Three Months Ended March 31, 2006
 Revenue
  Costs and Expenses
 Cost of Revenues
  Research and Development
   Selling, General and Administrative
  Other Expense
  16




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Net Loss
   Liquidity and Capital Resources
     17




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##### Table of Contents



Off-Balance Sheet Arrangements
  
 Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
  Lawsuit s
 Peter Gombrich.
 The Regents of the University of California
 18




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Attorney General of Illinois
 Other claims
  Other Creditors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered Sales of Equity Securities
 Common Stock
    Issuance of Stock and Warrants as Payments for Services
   19




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Issuance of Warrants as Payment for Employee Compensation
  Conversion of Certain Preferred Shares for Common Shares
    Company Repurchases of Securities
  
 Item 3. Defaults upon Senior Securities
   
 Item 4. Submission of Matters to Vote of Security Holders
  
 Item 5. Other Information
  20




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Item 6. Exhibits
  21




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SIGNATURES
  CytoCore, Inc./s / Dr. Augusto Ocana .Dr. Augusto OcanaChief Executive Officer/s/ Robert F. McCullough, Jr.Robert F. McCullough, Jr.Date:  May 14, 2007
    Chief Financial Officer 22




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Form of warrant amendment31.1
    
    Section 302 certification by principal executive officer.31.2
    
    Section 302 certification by principal financial officer.32.1
    
    Section 906 certification by principal executive officer.32.2
    
    Section 906 certification by principal financial officer.
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