**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**______________**




**FORM
      10-K**


**______________**




(Mark
      One)




x ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the fiscal year ended December 31, 2006




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 **001-32518**


——————







**CYTOMEDIX,
      INC.**


(Exact
      Name of Registrant
      as Specified in Its Charter)




**Delaware**
            
            **23-3011702**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (IRS
                Employer
              Identification
                No.)




**416
      Hungerford Drive, Suite 330**


**Rockville,
      MD 20850**


(Address
      of Principal Executive Offices) (Zip Code)




**(240)
      499-2680**


(Registrant’s
      Telephone Number, Including Area Code)


——————


Securities
      registered under Section 12(b) of the Exchange Act: **None**





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


**Common
      Stock, par value $.0001**


(Title
      of
      class)




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes  ̈ No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes  ̈ No x




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




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
      be contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                Accelerated Filer ̈
            
            Accelerated
                Filerx
            
            Non-Accelerated
                Filer ̈




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




The
      aggregate market value of the voting stock (Common stock) held by non-affiliates
      of the registrant as of the close of business on June 30, 2006 was approximately
      $84 million based on the closing sale price of the Common stock on the American
      Stock Exchange on that date. The registrant does not have any non-voting common
      equity.









APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS


DURING
      THE PRECEDING FIVE YEARS




Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court. Yes ý No  ̈




APPLICABLE
      ONLY TO CORPORATE REGISTRANTS




Indicate
      the number of shares outstanding of each of the registrant’s classes of common
      stock, as of the latest practicable date. 28,998,248 shares of Common stock,
      par
      value $.0001, outstanding as of February 15, 2007.




DOCUMENTS
      INCORPORATED BY REFERENCE




None.









**CYTOMEDIX,
      INC.**




**TABLE
      OF CONTENTS**




**Page****PART
                  I**Item
                  1.
              
              Business
              1Item
                  1A.
              
              Risk
                  Factors
              10Item
                  1B.
              
              Unresolved
                  Staff Comments
              14Item
                  2
              
              Properties
              14Item
                  3.
              
              Legal
                  Proceedings
              14Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              14**PART
                  II**Item
                  5.
              
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters
                and
                  Issuer Purchases of Equity Securities
              16Item
                  6.
              
              Selected
                  Financial Data
              17Item
                  7.
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              17Item
                  7A.
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              23Item
                  8.
              
              Financial
                  Statements and Supplementary Data
              24Item
                  9.
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              52Item
                  9A.
              
              Controls
                  and Procedures
              52Item
                  9B.
              
              Other
                  Information
              54**PART
                  III**Item
                  10.
              
              Directors,
                  Executive Officers and Corporate Governance
              55Item
                  11.
              
              Executive
                  Compensation
              57Item
                  12.
              
              Security
                  Ownership of Certain Beneficial Owners and Management
                and
                  Related Stockholder Matters
              62Item
                  13.
              
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              63Item
                  14.
              
              Principal
                  Accounting Fees and Services
              64**PART
                  IV**Item
                  15.
              
              Exhibits
                  and Financial Statement Schedules
              64**Signatures**
              65**Exhibit
                  Index**
              66








**PART
      I**





**ITEM
      1. BUSINESS**





The
      terms
      "Cytomedix," and "Company," as used in this annual report, refer to Cytomedix,
      Inc.





You
      are
      cautioned that this Form 10-K contains "forward-looking statements" within
      the
      meaning of the Private Securities Litigation Reform Act of 1995. When the words
      "believes," "plans," "anticipates", "will likely result," "will continue,"
      "projects," "expects," and similar expressions are used in this Form 10-K,
      they
      are intended to identify "forward-looking statements," and such statements
      are
      subject to certain risks and uncertainties which could cause actual results
      to
      differ materially from those projected. Furthermore, the Company’s plans,
      strategies, objectives, expectations and intentions are subject to change at
      any
      time at the discretion of management and the Board of Directors.





These
      forward-looking statements speak only as of the date this report is filed.
      The
      Company does not intend to update the forward-looking statements contained
      in
      this report, so as to reflect events or circumstances after the date hereof
      or
      to reflect the occurrence of unanticipated events, except as may occur as part
      of its ongoing periodic reports filed with the SEC.








***GENERAL
      DEVELOPMENT OF THE BUSINESS***





Informatix
      Holdings, Inc. was incorporated in Delaware in 1998. In 1999, an unrelated
      Arkansas corporation, Autologous Wound Therapy, Inc. ("AWT"), merged with and
      into Informatix Holdings, Inc. and the name of the surviving corporation was
      changed to Autologous Wound Therapy, Inc. In 2000, AWT changed its name to
      Cytomedix, Inc. The principal offices are located in Rockville, Maryland.





In
      2001,
      the Company filed bankruptcy under Chapter 11 of the United States Bankruptcy
      Code, after which Cytomedix was authorized to continue to conduct its business
      as debtor and debtor-in-possession. A new board of directors was elected which
      then appointed a new management team. New management immediately began
      formulating a plan of reorganization that would enable the Company to reorganize
      and emerge quickly from Chapter 11 in order to preserve its value as a going
      concern. The Company emerged from bankruptcy in 2002 under a Plan of
      Reorganization. At that time, all of the Company’s securities or other claims
      against or equity interest in the Company were canceled and of no further force
      or effect. Holders of certain claims or securities were entitled to receive
      new
      securities from Cytomedix in exchange for their claims or equity interests
      prior
      to bankruptcy. All known and allowed claims and equity interests have been
      satisfied and resolved as of the filing of this form 10-K.








***FINANCIAL
      INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC REGIONS***





Cytomedix
      has only one operating segment and operates only in the United States. See
      Item
      8, Financial Statements and Supplementary Data.








***DESCRIPTION
      OF THE BUSINESS***





***Overview***





Cytomedix
      is a biotechnology company that develops and licenses autologous
      cellular therapies (i.e., therapies using the patient’s own body products),
      including Cytomedix’s proprietary AutoloGelTM Process to produce a platelet rich
      plasma gel (“AutoloGelTM”) for the treatment of wounds. To create AutoloGelTM, the
      patient’s own platelets and plasma are separated through centrifugation and
      combined with several reagents. This process releases multiple growth factors
      from the platelets, creates a fibrin matrix scaffold, and forms a gel that
      is
      topically applied to a wound (under the direction of a physician). Upon topical
      application, the Company believes that AutoloGelTM initiates a reaction that
      closely mimics the body’s natural healing process.





Company-sponsored
      studies indicate increased healing for AutoloGel TM as
      compared to enhanced traditional treatments as well as competing treatments
      for
      the treatment of diabetic foot ulcers, the Company’s initial focus within its
      target market.





Multiple
      growth factor therapies have not been widely used in the traditional commercial
      setting because such therapies have generally not been available or widely
      known
      by clinicians. Until a few years ago, the autologous process of securing
      multiple growth factors from a patient’s blood products was, substantially, an
      exclusive treatment available through outpatient wound care centers affiliated
      with Curative Health Services (“Curative”). In January 2001, the Company
      purchased certain technology, assets and intellectual property rights associated
      with autologous multiple growth factor therapies from Curative and has since
      refined the product to a more marketable state.




1




***Market***





Cytomedix’s
      primary target market is the multi-billion dollar, chronic, non-healing wound
      market. Such wounds typically arise from one of three etiologies: diabetic
      foot
      ulcers, venous leg ulcers, and pressure ulcers. The following table lists the
      prevalence of these wound types:




**Incidence** **of Chronic Wounds in the U.S.**


*(number
      of wounds in millions)*


*Source:
      Advanced Wound Management: Healing and Restoring Lives;*


*Advanced
      Medical Technology Association (AdvaMed), June 2006*




****
            
            ****
            **U.S.******Diabetic
                Foot
                Ulcers
            
            1.5Venous
                Leg Ulcers
            
            2.5Pressure
                Ulcers
            
            2.0Totals
            
            6.0





The
      prevalence of chronic wounds in the U.S. is linked directly to increased aging
      demographics, vascular diseases, venous insufficiency, and excessive pressure
      and diabetic neuropathy. The prevalence of worldwide chronic wounds is estimated
      to be 18 million (6).





Diabetic
      Foot Ulcers





According
      to the American Diabetes Association (“ADA”)(1), there are approximately 20.8
      million people with diabetes in the U.S., or 7% of the total population. It
      is
      estimated that 15-20% of these people with diabetes will develop a foot ulcer
      in
      their lifetime and that 14-24% of diabetic foot ulcers result in amputation.(2)
      Over 82,000 amputations per year have been documented.(3) Estimated amputation
      costs are between $20,000 and $60,000 per procedure (4), implying an aggregate
      cost of between $1.6 billion and $4.9 billion per year. The chances of a second
      amputation within 3-5 years may be as high as 50%, with a 5 year post-amputation
      mortality rate of 39-68%.(5)





Venous
      Stasis Leg Ulcers





Venous
      leg ulcers are the most frequently occurring type of chronic wound. The
      prevalence rises dramatically with age, increasing to 1% of the population
      over
      age 60. It is estimated that treatment costs total between $2.5 to $3.5 billion
      annually and a loss of 2 million workdays per year. (4)





Pressure
      Ulcers





Over
      2.0
      million pressure ulcers occur each year with an annual cost greater than $1.3
      billion. One study indicates that nearly 15% of hospitalized patients age 65
      or
      older developed a pressure ulcer during a 5-day or longer stay. Furthermore,
      up
      to one-fifth of all home health service visits involve care of a pressure ulcer,
      and more than one-third of people with spinal cord injuries develop pressure
      ulcers. (4)





References





*(1)* *www.diabetes.org**,
      2006*


*(2)*  *H.R
      3203 Submitted to the House of Representatives, Sept 30, 2003*


*(3)*  *National
      Diabetes Statistics, National Diabetes Information Clearinghouse, National
      Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), NIH,
      2004*


*(4)*  *Advanced
      Wound Management: Healing and Restoring Lives; Advanced Medical Technology
      Association (AdvaMed); June 2006*


*(5)*  *Reiber
      GE, Boyko EJ, Smith DG: Lower Extremity Foot Ulcers and Amputations in Diabetes.
      In Diabetes in America. 2nd ed., National Institutes of Health, NIDDK, NIH
      Pub
      No. 95-1468, 1995.*


*(6)*  *Growth
      Factors:* *Indications, Products, and Markets; Kalorama Publications; October
      2003*





2




**Strategy**




The
      Company has developed a three-pronged strategy to leverage its intellectual
      property and capitalize on the market for its AutoloGelTM:




·
            Obtain
                broad reimbursement from third-party
                payers




·
            Enforce
                rights under the Company’s patents




·
            Target
                the non-reimbursement sensitive
                market




In
      order
      to increase the prospects for securing broad reimbursement as well as enhance
      the sales and marketing efforts, the Company completed a well-controlled,
      prospective clinical trial and submitted a 510(k) Premarket Notification to
      the
      FDA.




***Clinical
      Trial and FDA Clearance***




In
      2005,
      the Company completed its prospective, randomized, blinded, controlled,
      multi-center clinical trial designed to prove the efficacy and safety of its
      AutoloGelTM System (see discussion in this section under “Government Approval”)
      for the treatment of non-healing diabetic foot ulcers. The audited results
      yielded 40 patients who met the trial protocol. Analysis of the size of wounds
      in the study shows that 35 out of the 40 patients (88%) had wounds that were
      less than or equal to 7 square centimeters in area and 2 cubic centimeters
      in
      volume. For these most common wound sizes in the study, the healing rate of
      the
      AutoloGelTM group was 81.3% and that for the control group was 42.1%. The
      difference of 39.2% between these groups is clearly statistically significant,
      with a p-value of 0.036. Within the full cohort of the 40 patients, 68.4% of
      the
      patients treated with AutoloGelTM achieved full wound closure versus 42.9% of
      those patients treated in the control group. The difference of 25.5% between
      the
      healing rate of the AutoloGelTM group versus the control group is approaching
      statistical significance with a p-value of 0.125. The Company believes that
      the
      healing rates of AutoloGelTM at 81.3% for the most common wound sizes in the
      study and 68.4% for all wound sizes appear to be better than any other wound
      care products cleared by the FDA and covered by Medicare reimbursement with
      which the Company is familiar, although this comparison is not as reliable
      as a
      head-to-head study. The control group patients were not on placebo; rather,
      they
      were treated using a saline gel cleared by the FDA for wound treatment. If
      the
      control group patients healed at the originally anticipated rate of 20-30%
      for
      standard treatments for diabetic foot ulcers, the difference between the healing
      rates in the AutoloGelTM group versus the control group would have been even more
      strongly statistically significant.




These
      data reflect the results following an independent audit of the data by a former
      FDA official responsible for Bio-Research Monitoring. During the audit,
      Cytomedix discovered that some patients originally included in the trial had
      not
      met the inclusion criteria or were not provided treatment according to the
      study
      protocol. This audit was conducted at the request of Cytomedix when preliminary
      data were inconsistent with independent and Company retrospective
      studies.




Based
      on
      the audited results of the trial, and other data compiled by the Company, in
      late January 2006 Cytomedix submitted a Premarket Notification (“510(k)”) to the
      FDA seeking clearance of its AutoloGelTM System for diabetic foot ulcers and
      other indications. While AutoloGelTM is regulated by FDA under the Medical Device
      Amendments of the Food, Drug and Cosmetic Act, the FDA Center for Biologics
      Evaluation and Research (“CBER”) has the jurisdiction for reviewing such
      products. FDA assigned CBER as the primary center that reviewed and approved
      the
      Investigational Device Exemption (“IDE”) under which this clinical trial was
      conducted. On October 13, 2006, the FDA denied Cytomedix’s claim that AutoloGelTM
is substantially equivalent to predicate devices, as asserted in the 510(k),
      and
      delivered to Cytomedix a Non-Substantial Equivalence (“NSE”) determination
      letter.




Based
      on
      the information contained in the NSE determination letter and conversations
      with
      the FDA, the Company believes that the primary grounds for rejecting the claim
      of substantial equivalence concern the use of bovine thrombin which is used
      to
      activate the platelet rich plasma (“PRP”) in the AutoloGelTM System. Bovine
      thrombin is a clotting agent derived from cows that has been used extensively
      on
      humans in surgery and other medical applications to stop bleeding. It is also
      used along with platelet gel therapy products that have been cleared by FDA
      for
      use in surgery. However, CBER cites published articles that contend that bovine
      thrombin creates antibodies that may decrease a patient’s Factor V count (a
      clotting agent naturally found within blood) which could cause a bleeding
      tendency. The analysis and clinical interpretation of the data in Cytomedix’s
      submission to the FDA had concluded that the data from the clinical trial does
      not demonstrate this complication. No statistically or clinically significant
      differences were noted between the PRP gel and control from baseline to endpoint
      laboratory shifts in hematology, clotting factors, and Factor V tests.
      Additionally, no clinically important changes in clotting factors that would
      cause concern about the effect of the PRP gel or control on Factor V activity
      were found during an independent medical expert review of the medical records,
      including clinical lab test data and concomitant medications.




3




FDA
      also
      raised concerns relating to the clinical trial and the number of protocol
      violations which resulted in a lack of statistical significance in the results
      of the “intent-to-treat” patient cohort and the subset analysis that showed full
      statistical significance in the results for 88% of the wounds which represented
      the per protocol majority wound group within the trial. The Company believed
      that, during face-to-face meetings with the FDA and in subsequent formal
      responses to FDA questions, it had addressed these concerns to the FDA’s
      satisfaction, although they were still listed in the NSE letter from the
      FDA.




The
      Company disagrees with the decision as expressed in the NSE determination letter
      and, in response to an offer made by the FDA, appealed the decision via an
      informal review with officials in the Office of the Center Director for CBER.
      The written appeal was submitted to the FDA in late December 2006 and then
      a
      face-to-face meeting was held in late January 2007 between Cytomedix, its
      outside experts, and various FDA personnel involved in the review process.
      Cytomedix presented additional expert analysis of the safety data gathered
      during the clinical trial, in particular that data relating to the use of bovine
      thrombin. In addition, Cytomedix clarified the grounds on which it is seeking
      marketing clearance for AutoloGel and argued the appropriateness of a reversal
      of the FDA’s original decision. A decision from the FDA regarding the Company’s
      appeal is pending.




The
      Company currently sells commercially AutoloGelTM process components, the
      AutoloGelTM Component Kit and Process Centrifuge for use in wound care and
      autologous wound therapy performed under the physicians’ practice of medicine
      doctrine. This approach represents the practice currently prevalent in the
      platelet gel therapy industry, both in the treatment of chronic wounds as well
      as the use of platelet gel therapies in the operating room in fields such as
      orthopedic and cardiovascular surgery. However, without FDA clearance, the
      Company’s ability to make claims for the AutoloGelTM System regarding its use to
      treat or heal wounds is limited. The Company believes this is a significant
      barrier to broad clinical and market acceptance of the Company’s product. It is
      also possible that at some point the FDA may require companies to conduct
      clinical trials on all specific clinical therapies and uses for which their
      products can be used, whether or not they make a specific labeled claim to
      that
      effect. Further, it is also possible that FDA could require companies to stop
      marketing platelet gel therapies until FDA clearance or approval for specific
      wound healing claims is obtained.




***Third-Party
      Reimbursement***




The
      Company believes the full market potential of AutoloGelTM cannot be achieved
      without broad third-party reimbursement from Medicare and commercial insurers.
      The Company has initiated efforts to obtain Medicare reimbursement through
      the
      Center for Medicare and Medicaid Services (“CMS”). This process involves three
      tracks which can be pursued simultaneously:




§
            Coverage
                - Coverage requires a determination by CMS that AutoloGelTM is “reasonable
                and necessary.” A National Non-Coverage Decision, issued in 1992 and
                amended in 2003, broadly disallows Medicare coverage for Autologous
                Blood-Derived Products for Chronic Non-Healing Wounds. This decision
                currently applies to AutoloGelTM. The primary basis cited for this
                non-coverage decision was a lack of specific evidence. The Company
                is
                planning to meet with CMS to discuss a reconsideration of that decision
                based on data from the controlled clinical trial and other recent
                evidence.




§
            Coding
                - Coding involves identifying an existing code or codes which aptly
                describe the AutoloGelTM System, or applying for new coding or modification
                of the definitions of existing coding to properly describe the Company’s
                offering. The Company is evaluating the Healthcare Common Procedure
                Coding
                System (“HCPCS”) codes, obtained through CMS and Current Procedural
                Terminology (“CPT”) codes, obtained through the American Medical
                Association, to determine the optimal reimbursement pathway for
                AutoloGelTM.




§
            Payment
                - Payment involves the establishment of a fee schedule associated
                with the
                Company’s product vis a vis the applicable
                codes.




The
      Company has had the results of its clinical trial published in a peer-reviewed
      journal. The article, entitled “A Prospective, Randomized, Controlled Trial of
      Autologous Platelet-Rich Plasma Gel for the Treatment of Diabetic Foot Ulcers,”
was published, as the feature article in the June 2006 issue of Ostomy/Wound
      Management (“OWM”). OWM is the premiere journal for information on wound care
      and the related, overlapping fields of skin care, ostomy care, incontinence
      care, and nutrition, and is the only peer-reviewed, multidisciplinary
      publication specifically targeted to the advanced wound care practitioner.
      The
      Company believes that publication in peer-reviewed journals is generally
      regarded as a necessary precursor to a favorable reimbursement decision from
      CMS
      and also is an important step toward building broad clinical awareness and
      acceptance of AutoloGelTM. The Company plans to present the results of its
      clinical trial and other recent evidence as support for its reimbursement
      pursuits with CMS. Additionally, Cytomedix requisitioned a pharmaco-economic
      study to evaluate the cost effectiveness of the AutoloGelTM System. Such studies
      are performed to present scientific, demographic and economic information to
      justify to CMS and other payor organizations that a particular product and
      therapy is clinically safe and effective and cost effective with respect to
      its
      alternatives. Preliminary results of the pharmaco-economic study suggest a
      favorable comparison of AutoloGelTM over competing treatments in both clinical
      and cost effectiveness. The final report should be available sometime in the
      first quarter of 2007 and would also be provided to CMS.




4




While
      not
      an official precondition for a reimbursement code, the Company believes that
      securing Food and Drug Administration (“FDA”) clearance of the AutoloGelTM System
      for specific clinical indications, such as for the treatment of non-healing
      diabetic foot ulcers, will be heavily weighed by CMS when making its decision.
      Should the Company’s appeal to the FDA ultimately prove unsuccessful, the
      Company would need to analyze the ultimate nature of the FDA’s determination and
      the potential impact on the efforts to secure CMS reimbursement for the
      AutoloGelTM System and components.




While
      commercial insurers are not required to follow CMS reimbursement decisions,
      the
      Company believes they generally weigh heavily the position taken by CMS.
      Therefore, the results of the Company’s efforts with CMS could likely influence
      the degree of success the Company achieves in securing reimbursement from other
      third-party payers such as commercial insurers.




Should
      the Company be successful in its efforts to obtain reimbursement, third-party
      payors, including CMS, would permit payment for the AutoloGelTM System for use in
      certain types of chronic wounds. If this is accomplished, AutoloGelTM could then
      be positioned as a reimbursed alternative treatment for the estimated 6.0
      million chronic wounds that occur each year in the United States.




In
      general, to raise the scientific awareness of the use of AutoloGelTM, posters and
      oral presentations of the clinical trial results have been presented at multiple
      scientific/medical meetings including: American Diabetes Association, American
      Podiatric Medical Association, and the Clinical Symposium on Advances in Skin
      and Wound Care.




***Patents
      and Licensing***




The
      Company has initiated a broad based patent and licensing strategy intended
      to
      (i) enforce the rights under the Company’s patents in order to ensure that
      Cytomedix shareholders derive economic benefit from the Company’s intellectual
      property, and (ii) assist the Company in establishing a dominant market position
      for the AutoloGelTM System within the market for autologous growth factor
      products used for the treatment of chronic wounds. In 2005 and 2006, the Company
      identified and successfully pursued numerous companies, both small and large,
      that market products similar to AutoloGelTM, that the Company believed were
      infringing or inducing infringement of its intellectual property rights.
      Settlements have been achieved and licenses have been granted to these companies
      resulting in a royalty stream for Cytomedix.




The
      primary license agreements are listed below:


**Licensee**
              
              **Date
                    of****Agreement**
              
              **Date
                    of****Expiration
                  (4)**
              
              **Initial**
                  **Licensing
                    Fee**
              
              **On-going Royalty****Percentage
                  (2)**DePuy
                  Spine, Inc. (1)
              
              
              3/19/2001
              
              
              11/24/2009
              
              $
              750,000
              
              
              6.5%3/4/2005Medtronic,
                  Inc.
              
              
              5/1/2005
              
              
              11/24/2009
              
              $
              680,000
              
              
              7.5%
                  on disposables1.5%
                  on hardwareHarvest
                  Technologies, Inc.
              
              
              6/30/2005
              
              
              11/24/2009
              
              $
              500,000
              
              
              7.5%
                  on disposables1.5%
                  on hardwarePerfusion
                  Partners, Inc.
              
              
              6/26/2005
              
              
              11/24/2009
              
              $
              250,000
              (3)
              
              10.0%COBE
                  Cardiovascular, Inc.
              
              
              10/7/2005
              
              
              11/24/2009
              
              $
              45,000
              
              
              7.5%
                  on disposables1.5%
                  on hardwareSafeBlood
                  Technologies, Inc.
              
              
              10/12/2005
              
              
              11/24/2009
              
              $
              50,000
              (3)
              
              8.0%
                  to 9.0%Biomet
                  Biologics, Inc. (5)
              
              
              5/19/2006
              
              
              11/24/2009
              
              $
              2,600,000
              
              
              noneCellMedix,
                  Inc.
              
              
              11/28/2006
              
              
              11/24/2009
              
              $
              30,000
              
              
              9.5%




(1)  Cytomedix
      has two license agreements with DePuy Spine, Inc.. The original license
      agreement was dated March 19, 2001, amended March 3, 2005, and provides for
      the
      use of applications under Cytomedix patents in the fields of diagnostic and
      therapeutic spinal, neurosurgery and orthopedic surgery. The second license
      agreement is dated March 4, 2005, and applies to all fields not covered in
      the
      original license agreement as amended.




(2)  Certain
      minimum royalties may apply to certain agreements and other royalty percentages
      may apply to future products covered under selected license
      agreements.




(3)  Some
      of
      these amounts are payable over a period of time as defined in executed notes
      payable to Cytomedix.




(4)  These
      dates reflect the expiration of the license in the U.S., which coincides with
      the expiration of the Knighton Patent in the U.S. In some cases, the licensing
      agreements applicable to territories outside the U.S. extend to the expiration
      of the patents in the respective foreign countries.




5




(5)  The
      Settlement and License Agreement with Biomet Biologics, Inc. (“Biomet”) called
      for a $2.6 million payout from Biomet to Cytomedix. This payout took the form
      of
      $1.4 million payable upon execution of the agreement and $100,000 payable at
      the
      end of each of 12 consecutive quarters beginning with the quarter ending
      September 2006. These payments are not tied to any performance commitments
      by
      Cytomedix and are not dependent on Biomet sales.




The
      Company’s ongoing patent enforcement strategy is being conducted on a full
      contingency basis by the law firms Fitch, Even, Tabin & Flannery and Robert
      F. Coleman and Associates, both based in Chicago, Illinois.




The
      Company expects to incur “Cost of royalties” (consisting of royalty expense and
      contingent legal fees) in the range of 30-50% of on-going royalty revenues
      relating to these and future settlements.




The
      Company intends to press forward aggressively in other instances of infringement
      with aggressive legal and business actions to defend its intellectual property
      and, where possible, arrive at equitable settlements with
      infringers.




***Non-Reimbursement
      Sensitive Market***




The
      Company is also working to penetrate the segment of the national market that
      is
      not sensitive to direct reimbursement for the Company’s product. This includes
      capitated environments such as long-term acute care facilities, health
      maintenance organizations, home health agencies, as well as government agencies,
      (e.g. the Veterans Administration).




The
      Company is addressing various parts of this market via distributors, independent
      sales representatives, and internal sales representatives.





***Sales
      and Marketing***





Given
      the
      Company’s status with respect to marketing clearance for its AutoloGelTM System,
      Cytomedix continues to maintain a limited sales and marketing infrastructure
      for
      the AutoloGelTM Component Kit and Process Centrifuge. The Company predominately
      distributes its products through a network of commission-based internal and
      independent sales representatives. At December 31, 2006, the Company was
      represented by three internal and one independent sales representative,
      servicing approximately a dozen states. The Company expects to expand this
      representation in 2007.





***Suppliers***





The
      Company outsources manufacturing for all the components of the
      AutoloGel TM process.
      While the Company utilizes single suppliers for several components of
      AutoloGel TM ,
      such
      components are readily available on the open market and therefore the Company
      believes that no dependencies exist from its current sourcing practices. The
      one
      exception is a reagent, bovine thrombin, available exclusively through King
      Pharmaceuticals.





***Competition***





Wound
      care products can be categorized into 3 general areas: passive, interactive,
      and
      active.





·
            Passive
                products -- such as gauze and bandages, cover the wound to protect
                it.





·
            Interactive
                products -- attempt to optimize the wound environment so it is more
                conducive for the body to enact the innate healing process. The wound
                care
                world recognizes that moist wound healing is more effective for cellular
                growth than dry wound healing, however excessive moisture can be
                detrimental to healing. In addition, wounds need to be free of infection,
                have adequate perfusion and tissue oxygenation, and reduced pressure.
                There are hundreds of wound dressings on the market, some provide
                a
                long-term moist wound environment, others absorb large amounts of
                exudates, and some provide topical antimicrobial agents. In addition,
                there are multiple devices that attempt to assist with creating the
                optimal wound environment. However, as a whole, none of them are
                positioned to actively direct cellular
                growth.





·
            Active
                wound products -- directly stimulate cellular growth and migration
                in the
                wound area. Growth factor products, such as AutoloGelTM, are a predominant
                product in this category. Science has documented that multiple growth
                factors cause cellular growth and migration to actively grow granulation
                tissue, capillaries, and epithelium. Tissue engineered grafts could
                also
                fall into this category because they contain live cells and secondarily,
                may have some growth factors in the
                tissue.





Thus,
      when identifying competitors, each product can be categorized in the above
      breakdown. Passive products are not a competitor for AutoloGelTM. While some of
      the interactive products can be competitors, others can be complimentary to
      AutoloGelTM. The other active products could be categorized as the major
      competitors.




6




The
      major
      competitors are other platelet gel companies, many of whom have licensing
      agreements with Cytomedix. To date, these companies are selling platelet gel
      mostly into the surgical market for dental, plastic, orthopedic, and general
      surgery purposes but may also try to sell into the wound care market. When
      compared to the other platelet gel companies, Cytomedix’s AutoloGelTM System has
      the smallest, most portable centrifuge with the fastest spin time (1.5 minutes
      compared to 13-20 minutes). This makes it possible to use in a greater variety
      of health care settings, i.e. hospital, outpatient clinics, physicians offices,
      or long term care, long term acute care, and home health settings. In addition,
      it is a user-friendly system so multiple health care providers can process
      the
      gel, rather than specialty technicians. Competitors’ systems generally require a
      larger blood draw, more detailed processing steps, and a longer spin time.
      While
      competitors claim a larger growth factor and platelet count than at baseline,
      no
      studies exist that prove this is efficacious. To date, Cytomedix’s AutoloGelTM
System is the only platelet gel system that has completed a prospective,
      randomized, controlled trial in humans. The Company believes this trial
      demonstrated both the safety and efficacy of the AutoloGelTM System.





Regranex,
      a prescription cream marketed by Ethicon, a division of Johnson & Johnson,
      Inc. ("J&J"), contains a single recombinant growth factor. Having been
      introduced after lengthy clinical trials several years ago, its revenues, based
      on the Company’s best estimate, have grown significantly. Cytomedix perceives
      the single growth factor Regranex as a less effective method of healing chronic
      wounds in comparison with autologous multiple growth factors. While Cytomedix
      acknowledges the success of the Regranex product in the marketplace, an
      excellent opportunity exists to capture market share from this product once
      reimbursement is available for AutoloGelTM. A recent CMS (Medicare) decision
      disallowed coverage for Regranex because it is self-administered.





The
      tissue-engineered products have changed extensively lately. Smith and Nephew,
      the manufacturer of Dermagraft, has taken the product off the market recently
      and has subsequently sold the technology to Advanced BioHealing. Ortec
      International, Inc.is continuing to conduct clinical trials on its product
      Orcel. Apligraf, manufactured by Organogenesis, is the only tissue engineered
      product on the market at this time.





The
      major
      competitor in the interactive area is a device called Vacuum Assisted Closure
      (“V.A.C.”) system produced by Kinetic Concepts, Inc. (“KCI”). During the year
      ended December 31, 2005, KCI worldwide revenues due to V.A.C. sales and rentals
      were reported as $908 million. Several of the sites that have used the V.A.C.
      system have now tried AutoloGelTM. It has been reported to the Company by several
      of these sites that AutoloGelTM was very competitive with the V.A.C. and may even
      be better in both clinical and cost effectiveness. This, however, was based
      on
      individual case reports and experience of physicians rather than any rigorous
      comparative studies. Yet the V.A.C's established position is substantially
      CMS
      reimbursed, which provides for a substantial current economic competitive
      advantage.





***Intellectual
      Property Rights***





Cytomedix
      regards its patents, trademarks, trade secrets, and other intellectual property
      (collectively, the “Intellectual Property Assets”) as critical to its success.
      Cytomedix relies on a combination of patents, trademarks, and trade secret
      and
      copyright laws, as well as confidentiality procedures, contractual provisions,
      and other similar measures, to establish and protect its Intellectual Property
      Assets. Cytomedix has in the past several years filed numerous patent
      applications worldwide seeking protection of its technologies. Cytomedix owns
      eight U.S. patents (including U.S. Patent No. 5,165,938 (the “Knighton Patent”)
      and U.S. Patent No. 6,303,112 (the “Worden Patent”)), various corresponding
      foreign patents, and various trademarks. Cytomedix has received, filed, or
      is in
      the process of filing trademarks for the names “Cytomedix,” “AutoloGel”, and a
      few variants thereof. In addition, Cytomedix has numerous pending trademark
      applications and foreign patent applications involving enriched platelet wound
      healant, platelet derived wound healant, angiogenic peptides, and
      anti-inflammatory peptides.





To
      prevent disclosure of its trade secrets, Cytomedix restricts access to its
      proprietary information. All of its employees, consultants, and other persons
      with access to Cytomedix's proprietary information execute confidentiality
      agreements with Cytomedix. Cytomedix has also pursued litigation against those
      persons believed to be infringing on the Company's Intellectual Property Assets
      seeking both damages and injunctive relief.





Despite
      these efforts, Cytomedix may not be able to prevent misappropriation of its
      technology or deter others from developing similar technology in the future.
      Furthermore, policing the unauthorized use of its Intellectual Property Assets
      is difficult. Litigation necessary to enforce Cytomedix's Intellectual Property
      Assets could result in substantial costs and diversion of
      resources.





The
      Company is party to certain royalty agreements relating to its intellectual
      property under which it pays certain fees. See Note 5 to the Financial
      Statements.




7




***Government
      Regulation***





Devices
      that the Company manufactures and distributes are subject to regulations by
      the
      Food and Drug Administration, including record-keeping requirements, good
      manufacturing practices and mandatory reporting of certain adverse experiences
      resulting from use of the devices, and certain state agencies. Labeling and
      promotional activities are also subject to regulation by the FDA and the Federal
      Trade Commission, in certain circumstances. Current FDA enforcement policy
      prohibits the marketing of approved medical devices for unapproved uses and
      the
      agency scrutinizes the labeling and advertising of medical devices to ensure
      that unapproved uses are not promoted.





Before
      a
      new medical device can be introduced to the market, the manufacturer must
      generally obtain FDA clearance or approval. In the United States, medical
      devices are classified into one of three classes - Class I, II or III. The
      controls applied by the FDA to the different classifications are those believed
      by the FDA to be necessary to provide reasonable assurance that the device
      is
      safe and effective. Class I devices are non-critical products that FDA believes
      can be adequately regulated by “general controls” that include provisions
      relating to labeling, manufacturer registration, defect notification, records
      and reports, and good manufacturing practices (“GMP”) based on the FDA’s Quality
      Systems Regulations. Most Class I devices are exempt from pre-market
      notification and some are also exempt from GMP requirements. Class II devices
      are products for which the general controls of Class I devices, by themselves,
      are not sufficient to assure safety and effectiveness and, therefore, require
      special controls. Additional special controls for Class II devices include
      performance standards, post-market surveillance patient registries, and the
      use
      of FDA guidelines. Standards may include both design and performance
      requirements. Class III devices have the most restrictive controls and require
      pre-market approval by the FDA. Generally, Class III devices are limited to
      life-sustaining, life-supporting or implantable devices. The FDA inspects
      medical device manufacturers and has a broad authority to order recalls of
      medical devices, to seize non-complying medical devices, and to criminally
      prosecute violators.





Section
      510(k) of the Federal Food, Drug and Cosmetic Act requires individuals or
      companies manufacturing most medical devices intended for human use to file
      a
      notice with the FDA at least ninety days before intending to introduce the
      device into the market. This notice, commonly referred to as a 510(k), must
      identify the type of classified device into which the product falls, the class
      of that type, and a specific product already being marketed or cleared by FDA
      and to which the product is “substantially equivalent.” In some instances, the
      510(k) must include data from human clinical studies in order to establish
      “substantial equivalence.” The FDA must agree with the claim of “substantial
      equivalence” before the device can be marketed. The statutory time frame for
      clearance of a 510(k) is 90 days, though it often takes longer.





If
      a
      product is Class III and does not qualify for the 510(k) process, then the
      FDA
      must approve a pre-market approval (“PMA”) application before marketing can
      begin. PMA applications must demonstrate, among other factors, that the device
      in question is safe and effective. Obtaining a PMA application approval can
      sometimes take several years, depending upon the complexity of the issues
      involved with the device. The statutory time frame for the review of a PMA
      by
      the FDA is 180 days and many devices are reviewed and approved within that
      time
      frame or within a few months afterward. Marketing approval based on a PMA is
      generally a longer process than the 510(k) clearance process that is typically
      obtained in comparatively less time.





***Government
      Approval***





Cytomedix
      has sought to ensure compliance with the FDA regulations and policies for
      medical devices and, specifically, platelet gel therapies.





The
      Company currently markets the AutoloGelTM Process Centrifuge,the AutoloGelTM
Component Kit, and certain commercially available reagents (i.e. calcium
      chloride, ascorbic acid, and bovine thrombin). Each component is a
      legally-marketed product that either has been cleared by FDA for marketing
      or is
      exempt from pre-market notification and clearance. The AutoloGelTM Centrifuge,
      when used with the AutoloGelTM Component Kit and certain reagents, form the basis
      for the AutoloGel process and are used for wound care and for treating chronic
      wound, including diabetic ulcers, at the physician’s discretion. The Federal
      Food, Drug and Cosmetic Act does not authorize the FDA to limit or interfere
      with the “physician's practice of medicine” and use of legally-marketed devices
      for any condition or disease within a legitimate doctor-patient relationship
      as
      long as no specific claims are made for the product.





In
      2003,
      the Company conceptualized marketing an AutoloGelTM System, consisting of a
      centrifuge, a component kit, and reagents, for specific indications such as
      diabetic, pressure, and venous ulcers.





During
      2003, the Company made a business decision to undertake a prospective,
      randomized, blinded, controlled trial for the AutoloGelTM System. The objective
      of the trial was to demonstrate safety and efficacy of the AutoloGelTM System for
      treating diabetic foot ulcers to the scientific and reimbursement community,
      as
      well as to the FDA in order to obtain the agency’s marketing clearance of the
      AutoloGelTM System. In making this decision, the Company subjected itself to
      increased FDA oversight and its regulations governing the investigational use
      of
      medical devices, codified at 21 C.F.R. Part 812. To this end, the Company
      submitted an “Investigational Device Exemption” (“IDE”) application to the FDA
      under these rules and obtained approval on March 5, 2004, thus allowing the
      Company to begin its clinical trial.




8




Once
      the
      study was completed and clinical results analyzed, the Company submitted a
      510(k) requesting FDA’s clearance of the AutoloGelTM System in January 2006, as
      discussed above, under the caption *Clinical
      Trial and FDA Clearance* .





***Fraud
      and Abuse Laws***





The
      Company may also be indirectly subject to federal and state physician self
      referral laws. Federal physician self-referral legislation (commonly known
      as
      the “Stark Law”) prohibits, subject to certain exceptions, physician referrals
      of Medicare and Medicaid patients to an entity providing certain “designated
      health services” if the physician or an immediate family member has any
      financial relationship with the entity. A person who engages in a scheme to
      circumvent the Stark Law's referral prohibition may be fined up to $100,000
      for
      each such arrangement or scheme. The penalties for violating the Stark Law
      also
      include civil monetary penalties of up to $15,000 per referral and possible
      exclusion from federal health care programs such as Medicare and Medicaid.
      The
      Stark Law also prohibits the entity receiving the referral from billing any
      good
      or service furnished pursuant to an unlawful referral, and any person collecting
      any amounts in connection with an unlawful referral is obligated to refund
      such
      amounts. Various states have corollary laws to the Stark Law, including laws
      that require physicians to disclose any financial interest they may have with
      a
      health care provider to their patients when referring patients to that provider.
      Both the scope and exception for such laws vary from state to
      state.





The
      Company may also be subject to federal and state anti-kickback laws. Section
      1128B (b) of the Social Security Act, commonly referred to as the Anti-Kickback
      Law, prohibits persons from knowingly and willfully soliciting, receiving,
      offering or providing remuneration, directly or indirectly, to induce either
      the
      referral of an individual, or the furnishing, recommending, or arranging for
      a
      good or service, for which payment may be made under a federal health care
      program such as Medicare and Medicaid. The Anti-Kickback Law is broad, and
      it
      prohibits many arrangements and practices that are otherwise lawful in
      businesses outside of the health care industry. The U.S. Department of Health
      and Human Services (“DHHS”) has issued regulations, commonly known as safe
      harbors that set forth certain provisions which, if fully met, will assure
      health care providers and other parties that they will not be prosecuted under
      the federal Anti-Kickback Law. Although full compliance with these provisions
      ensures against prosecution under the Anti-Kickback Law, the failure of a
      transaction or arrangement to fit within a specific safe harbor does not
      necessarily mean that the transaction or arrangement is illegal or that
      prosecution under the federal Anti-Kickback Law will be pursued. The penalties
      for violating the Anti-Kickback Law include imprisonment for up to five years,
      fines of up to $250,000 per violation for individuals and up to $500,000 per
      violation for companies and possible exclusion from federal health care
      programs. Many states have adopted laws similar to the federal Anti-Kickback
      Law, and some of these state prohibitions apply to patients for health care
      services reimbursed by any source, not only federal health care programs such
      as
      Medicare and Medicaid.





In
      addition, there are two other health care fraud laws to which the Company may
      be
      subject, one which prohibits knowingly and willfully executing or attempting
      to
      execute a scheme or artifice to defraud any health care benefit program,
      including private payers (“fraud on a health benefit plan”) and one which
      prohibits knowingly and willfully falsifying, concealing or covering up a
      material fact or making any materially false, fictitious or fraudulent statement
      or representation in connection with the delivery of or payment for health
      care
      benefits, items or services. These laws apply to any health benefit plan, not
      just Medicare and Medicaid.





The
      Company may also be subject to other laws which prohibit submitting claims
      for
      payment or causing such claims to be submitted that are false. Violation of
      these false claims statutes may lead to civil money penalties, criminal fines
      and imprisonment, and/or exclusion from participation in Medicare, Medicaid
      and
      other federally funded state health programs. These statutes include the federal
      False Claims Act, which prohibits the knowing filing of a false claim (or
      causing the submission of a false claim) or the knowing use of false statements
      to obtain payment from the U.S. federal government. When an entity is determined
      to have violated the False Claims Act, it must pay three times the actual
      damages sustained by the government, plus mandatory civil penalties of between
      $5,500 and $11,000 for each separate false claim. Suits filed under the False
      Claims Act can be brought by an individual on behalf of the government (a “qui
      tam action”). Such individuals (known as “qui tam relators”) may share in the
      amounts paid by the entity to the government in fines or settlement. In addition
      certain states have enacted laws modeled after the False Claims Act. “Qui tam”
actions have increased significantly in recent years causing greater numbers
      of
      health care companies to have to defend false claim actions, pay fines or be
      excluded from the Medicare, Medicaid or other federal or state health care
      programs as a result of an investigation arising out of such
      action.





Several
      states also have referral, fee splitting and other similar laws that may
      restrict the payment or receipt of remuneration in connection with the purchase
      or rental of medical equipment and supplies. State laws vary in scope and have
      been infrequently interpreted by courts and regulatory agencies, but may apply
      to all health care products and services, regardless of whether Medicaid or
      Medicare funds are involved.




9




***Research
      and Development***





The
      Company is currently focusing its limited resources on broadly commercializing
      AutoloGel TM .
      It
      therefore expends only very minor amounts on research and development activities
      (“R&D”). The Company currently focuses its R&D activities on the
      improvement of its current product offering, but, in the future, intends to
      develop the technology underlying its broader patent portfolio.





***Employees***





At
      December 31, 2006, the Company had twelve full-time employees. These include
      three executive officers, Dr. Kshitij Mohan as Chief Executive Officer, Mr.
      Andrew S. Maslan as Chief Financial Officer and Ms. Carelyn P. Fylling as Vice
      President of Professional Services. The remaining personnel consist of sales
      and
      marketing, clinical, accounting, and regulatory professionals.





***AVAILABLE
      INFORMATION***





Cytomedix
      files periodic reports and all amendments thereto pursuant to Section 13(a)
      or
      15(d) of the Securities and Exchange Act of 1934. These reports are available,
      free of charge, through the Company’s website at www.cytomedix.com.








**ITEM
      1A. RISK FACTORS**





Cytomedix
      cautions the readers not to place undue reliance on any forward-looking
      statements, which are based on certain assumptions and expectations that may
      or
      may not be valid or actually occur. The risk factors that follow may cause
      actual results to differ materially from those expressed or implied by any
      forward-looking statement. The risks described below are not to be deemed an
      exhaustive list of all potential risks.





***The
      FDA Denied the Company’s Claims in its 510(k) Pre-Market Notification and the
      Company’s Appeal May Not Be Successful***





The
      FDA
      denied the Company’s claims in its 510(k). The Company has appealed this
      decision and currently awaits a final ruling from the FDA. There is no assurance
      that the Company’s efforts to have the original decision reversed or amended to
      the Company’s satisfaction will be successful. A lack of FDA clearance may make
      it more difficult to obtain reimbursement codes and/or adversely affect the
      Company’s ability to implement a significant portion of its business plan.
      Specifically, the Company may be unable to obtain a significant share of the
      chronic wound care market. Even with FDA clearance, the Company can provide
      no
      assurance that it will be able to obtain Medicare or other third party
      reimbursement.





***The
      Company Has Limited Sources of Working Capital***





Because
      the Company was in bankruptcy in 2002, the Company will not be able to obtain
      debt financing. All working capital required to implement the Company’s business
      plan will be provided by funds obtained through offerings of its equity
      securities, and revenues generated by the Company. No assurance can be given
      that the Company will have revenues sufficient to support and sustain its
      operations through 2007.





If
      the
      Company does not have sufficient working capital and is unable to generate
      revenues or raise additional funds, the following may occur: delaying the
      completion of the Company’s current business plan or significantly reducing the
      scope of the business plan; delaying some of its development and clinical or
      marketing testing; delaying its plans to pursue government regulatory and
      reimbursement approval and/or clearance for its wound treatment technologies;
      postponing the hiring of new personnel; or, in an extreme situation, ceasing
      operations.





***The
      Company Has a History of Losses***





The
      Company has a history of losses, is not currently profitable, and expects to
      incur substantial losses and negative operating cash flows for the foreseeable
      future. The Company may never achieve or maintain profitability. The Company
      will need to generate significant revenues to achieve and maintain
      profitability. The Company cannot guarantee that it will be able to generate
      these revenues, and it may never achieve profitability.




10




***The
      Company Has a Short Operating History and Limited Operating
      Experience***





The
      Company must be evaluated in light of the uncertainties and complexities
      affecting an early stage biotechnology company. The Company has only recently
      begun to implement its current business plan. Thus, the Company has a very
      limited operating history. Continued operating losses, together with the risks
      associated with the Company’s ability to gain new customers for its product
      offerings may have a material adverse effect on the Company’s liquidity. The
      Company may also be forced to respond to unforeseen difficulties, such as
      decreasing demand for its products and services, regulatory requirements and
      unanticipated market pressures.





Since
      emerging from bankruptcy and continuing through today, the Company is developing
      a business model that includes protecting its patent position, addressing its
      third-party reimbursement issues, and developing a sales and marketing program.
      There can be no assurance that its business model in its current form can
      accomplish the Company’s stated goals.





***The
      Company’s Intellectual Property Assets Are Critical to Its
      Success***





The
      Company regards its patents, trademarks, trade secrets, and other intellectual
      property assets as critical to its success. The Company relies on a combination
      of patents, trademarks, and trade secret and copyright laws, as well as
      confidentiality procedures, contractual provisions, and other similar measures,
      to establish and protect its intellectual property. The Company attempts to
      prevent disclosure of its trade secrets by restricting access to sensitive
      information and requiring employees, consultants, and other persons with access
      to the Company’s sensitive information to sign confidentiality agreements.
      Despite these efforts, the Company may not be able to prevent misappropriation
      of its technology or deter others from developing similar technology in the
      future. Furthermore, policing the unauthorized use of its intellectual property
      assets is difficult and expensive. Litigation has been necessary in the past
      and
      may likely be necessary in the future in order to protect the Company’s
      intellectual property assets. Litigation could result in substantial costs
      and
      diversion of resources. The Company cannot guarantee that it will be successful
      in any litigation matter relating to its intellectual property assets.
      Continuing litigation or other challenges could result in one or more of its
      patents being declared invalid. In such a case, any royalty revenues from the
      affected patents would be adversely affected although the Company may still
      be
      able to continue to develop and market its products.





The
      Company’s patent covering the specific gel formulation that is applied as part
      of the AutoloGelTM System (the “Worden Patent”) expires no earlier than February
      2019. The Company’s U.S. Knighton Patent (which is the subject of license
      agreements between the Company and Medtronic, Inc., DePuy Spine, Inc., Biomet
      Biologics, Inc., COBE Cardiovascular, Inc., and Harvest Technologies
      Corporation, among others) expires in November 2009. The Company is pursuing
      a
      strategy to obtain FDA clearance and CMS reimbursement, but there can be no
      assurance that the Company will be able to establish such a significantly
      increased share of the wound care market prior to the expiration of the U.S.
      Knighton Patent in 2009, after which the Company may be more vulnerable to
      competitive factors because third parties will not then need a license from
      the
      Company to perform the methods claimed in the Knighton Patent.





***The
      AutoloGelTM Components are Subject to Governmental
      Regulation***





The
      Company’s success is also impacted by factors outside of the Company’s control.
      The Company’s current therapies may be subject to extensive regulation by
      numerous governmental authorities in the United States, both federal and state,
      and in foreign countries by various regulatory agencies.





Specifically,
      the Company’s devices are subject to regulation by the FDA and state regulatory
      agencies. The FDA regulates drugs, medical devices and biologics that move
      in
      interstate commerce and requires that such products receive pre-marketing
      approval based on evidence of safety and efficacy. The regulations of government
      health ministries in foreign countries are analogous to those of the FDA in
      both
      application and scope. In addition, any change in current regulatory
      interpretations by, or positions of, state regulatory officials where the
      AutoloGelTM process is practiced could materially and adversely affect the
      Company’s ability to sell products in those states.





The
      FDA
      could require the Company to stop selling the components used to prepare
      AutoloGelTM until it obtains clearance or approval of a specific wound healing
      claim. While the Company believes that all of said components are legally
      marketed, the FDA could take the position that the Company cannot market the
      AutoloGelTM Component Kit or Process Centrifuge for wound healing until the
      Company has a specific approval or clearance to do so from the FDA.





Further,
      as the Company expands and offers additional products in the United States
      and
      in foreign countries, approval from the FDA and comparable foreign regulatory
      authorities prior to introduction of any such products into the market may
      be
      required. The Company has no assurance that it will be able to obtain all
      necessary approvals from the FDA or comparable regulatory authorities in foreign
      countries for these products. Failure to obtain the required approvals would
      have a material adverse impact on the Company’s business and financial
      condition.




11




Compliance
      with FDA and other governmental requirements imposes significant costs and
      expenses. Further, the Company’s failure to comply with these requirements could
      result in sanctions, limitations on promotional or other business activities,
      or
      other adverse effects on the Company’s business. Further, recent efforts to
      control healthcare costs could negatively effect demand for the Company’s
      products and services.





***The
      Company Could Be Adversely Affected if Customers Cannot Obtain
      Reimbursement***





The
      AutoloGelTM Component Kit and Process Centrifuge are marketed to healthcare
      providers. Some of these providers, in turn, seek reimbursement from third-party
      payers such as Medicare, Medicaid, and other private insurers. Many foreign
      countries also have comprehensive government managed healthcare programs that
      provide reimbursement for healthcare products. Under such healthcare systems,
      reimbursement is often a determining factor in predicting a product’s success,
      with some physicians and patients strongly favoring only those products for
      which they will be reimbursed.





In
      order
      to achieve a viable reimbursement pathway for the AutoloGelTM process components,
      the Company has conducted a prospective, randomized, blinded, controlled,
      multi-site clinical trial as approved by the FDA to provide the necessary data
      as required by CMS, formerly known as the Healthcare Financing Agency. In
      addition, the 2003 CMS non-coverage decision for “Autologous Blood-Derived
      Products for the Treatment of Chronic Wounds”, which builds on the 1992 HCFA
      ruling may have to be dismissed or a carve-out would need to be created in
      order
      to make national coverage by Medicare possible. The Company cannot assure that
      its efforts in this area will be successful and therefore, a significant
      obstacle to broad third-party reimbursement may remain. Further, even if the
      Non-Coverage Decision is reversed, the Company cannot guarantee that third-party
      payers will elect to reimburse treatments using the Company’s products or
      processes or, if such reimbursement is approved, that the level of reimbursement
      granted will be sufficient to cover the cost of the product or process to the
      physician or to the patient.





Healthcare
      providers’ inability to obtain third-party reimbursement for the treatment could
      have an adverse effect on the Company’s success.





***Royalty
      Revenues Are Unpredictable***





While
      the
      Company currently has several primary licensing agreements that are expected
      to
      generate on-going royalty revenues, the Company cannot currently reasonably
      predict the magnitude of those revenues. Because Cytomedix’s licensing
      activities are recent, it is premature to predict the resulting royalty streams
      from these licensing agreements. Furthermore, royalty streams from these
      agreements are entirely dependent on the sales of its licensees and are
      therefore outside the control of Cytomedix. Past levels of royalty revenues
      from
      these agreements are not necessarily an indication of future
      activity.





***The
      Success of the AutoloGelTM System Is Dependent on Acceptance by the Medical
      Community***





The
      commercial success of the Company’s products and processes will depend upon the
      medical community and patients accepting the therapies as safe and effective.
      If
      the medical community and patients do not ultimately accept the therapies as
      safe and effective, the Company’s ability to sell the products and processes
      will be materially and adversely affected. While acceptance by the medical
      community may be fostered by broad evaluation via peer-reviewed literature,
      the
      Company may not have the resources to facilitate sufficient
      publication.





***The
      Company May Be Unable to Attract and Retain Key
      Personnel***





The
      future success of the Company depends on the ability to attract, retain and
      motivate highly skilled management, including sales representatives. The Company
      has retained a team of highly qualified officers and consultants, but the
      Company cannot provide assurance that it will be able to successfully integrate
      these officers and consultants into its operations, retain all of them, or
      be
      successful in recruiting additional personnel as needed. The Company’s inability
      to do so will materially and adversely affect the business prospects, operating
      results and financial condition.





The
      Company’s ability to maintain and provide additional services to its existing
      customers depends upon its ability to hire and retain business development
      and
      scientific and technical personnel with the skills necessary to keep pace with
      continuing changes in cellular therapy technologies. Competition for such
      personnel is intense; the Company competes with pharmaceutical, biotechnology
      and healthcare companies. The Company’s inability to hire additional qualified
      personnel may lead to higher recruiting, relocation and compensation costs
      for
      such personnel. These increased costs may reduce the Company’s profit margins or
      make hiring new personnel impractical.




12




***Legislative
      and Administrative Action May Have an Adverse Effect on the
      Company***





Political,
      economic and regulatory influences are subjecting the health care industry
      in
      the United States to fundamental change. The Company cannot predict what other
      legislation relating to its business or to the health care industry may be
      enacted, including legislation relating to third-party reimbursement, or what
      effect such legislation may have on the Company’s business, prospects, operating
      results and financial condition. The Company expects federal and state
      legislators to continue to review and assess alternative health care delivery
      and payment systems and possibly adopt legislation affecting fundamental changes
      in the health care delivery system. Such laws may contain provisions that may
      change the operating environment for its targeted customers including hospitals
      and managed care organizations.





Health
      care industry participants may react to such legislation by curtailing or
      deferring expenditures and initiatives, including those relating to the
      Company’s products. Future legislation could result in modifications to the
      existing public and private health care insurance systems that would have a
      material adverse effect on the reimbursement policies discussed
      above.





***The
      Company Could Be Affected by Malpractice Claims***





Providing
      medical care entails an inherent risk of professional malpractice and other
      claims. The Company does not control or direct the practice of medicine by
      physicians or health care providers who use the products and does not assume
      responsibility for compliance with regulatory and other requirements directly
      applicable to physicians. The Company cannot guarantee that claims, suits or
      complaints relating to the use of the AutoloGelTM components and treatment
      administered by physicians will not be asserted against the Company in the
      future.





The
      production, marketing and sale, and use of the AutoloGelTM Component Kit and
      Process Centrifuge entail risks that product liability claims will be asserted
      against the Company. These risks cannot be eliminated, and the Company could
      be
      held liable for any damages that result from adverse reactions or infectious
      disease transmission. Such liability could materially and adversely affect
      the
      Company’s business, prospects, operating results and financial
      condition.





The
      Company currently maintains professional and product liability insurance
      coverage, but the Company cannot give assurance that the coverage limits of
      this
      insurance would be adequate to protect against all potential claims. The Company
      cannot guarantee that it will be able to obtain or maintain professional and
      product liability insurance in the future on acceptable terms or with adequate
      coverage against potential liabilities.





***AutoloGel*** *TM* ***Has
      Existing Competition in the Marketplace***





In
      the
      market for biotechnology products, the Company faces competition from
      pharmaceutical companies, biopharmaceutical companies and other competitors.
      Other companies have developed or are developing products that may be in direct
      competition with the AutoloGelTM process. Biotechnology development projects are
      characterized by intense competition. Thus, the Company cannot assure any
      investor that it will be the first to the market with any newly developed
      products or that it will successfully be able to market these products. If
      the
      Company is not able to participate and compete in the cellular therapy market,
      the Company’s financial condition will be materially and adversely affected. The
      Company cannot guarantee that it will be able to compete effectively against
      such companies in the future. Many of these companies have substantially greater
      capital resources, larger marketing staffs and more experience in
      commercializing products. Recently developed technologies, or technologies
      that
      may be developed in the future, may be the basis for developments that will
      compete with the Company’s products.





***Risks
      Related to the Company’s Common Stock***





The
      average daily trading volume in Cytomedix Common stock is relatively low. As
      long as this condition continues, it could be difficult or impossible to sell
      a
      significant number of shares of Common stock at any particular time at the
      market prices prevailing immediately before such shares are offered. In
      addition, sales of substantial amounts of Common stock could lower the
      prevailing market price of the Company’s Common stock. This would limit or
      perhaps prevent the Company’s ability to raise capital through the sale of
      securities. Additionally, the Company has significant numbers of outstanding
      warrants and options that, if exercised and sold, could put additional downward
      pressure on the Common stock price.





***The
      Company is Subject to Anti-Takeover Provisions and Laws.***





Provisions
      in Cytomedix’s Restated Certificate of Incorporation and Restated Bylaws and
      applicable provisions of the Delaware General Corporation Law may make it more
      difficult for a third party to acquire control of the Company without the
      approval of the board of directors. These provisions may make it more difficult
      or expensive for a third party to acquire a majority of the Company’s
      outstanding voting Common stock or delay, prevent or deter a merger,
      acquisition, tender offer or proxy contest, which may negatively affect the
      Common stock price.




13




***Purchases
      of the Company’s Common Stock Are Subject to the SEC's Penny Stock
      Rules.***





Generally,
      any non-NASDAQ equity security that has a market price of less than $5.00 per
      share is defined as a Penny Stock. Penny Stocks are subject to special rules
      and
      regulations under the Securities Exchange Act of 1934. These rules require
      additional disclosure by broker-dealers in connection with any trades involving
      Penny Stock. Cytomedix Common stock is currently defined as a Penny Stock,
      and
      the Company is uncertain if the market price of its common stock will ever
      be
      above $5.00 per share. As a result of its characterization as a Penny Stock,
      the
      market liquidity for the Company’s Common stock may be adversely affected by the
      Penny Stock rules and regulations. This could restrict an investor's ability
      to
      sell the common stock in a secondary market. The rules governing Penny Stock
      require the delivery, prior to any Penny Stock transaction, of a disclosure
      schedule explaining the Penny Stock market and the risks associated therewith,
      and impose various sales practice requirements on broker-dealers who sell Penny
      Stocks to persons other than established customers and accredited investors
      (generally defined as an investor with a net worth in excess of $1,000,000
      or
      annual income exceeding $200,000, $300,000 together with a spouse). For these
      types of transactions, the broker-dealer must make a special suitability
      determination for the purchaser and have received the purchaser's written
      consent to the transaction prior to sale. The broker-dealer also must disclose
      the commissions payable to the broker-dealer, current bid and offer quotations
      for the Penny Stock and, if the broker-dealer is the sole market-maker, the
      broker-dealer must disclose this fact and the broker-dealer's presumed control
      over the market. Such information must be provided to the customer orally or
      in
      writing prior to effecting the transaction and in writing before or with the
      customer confirmation. Monthly statements must be sent disclosing recent price
      information for the Penny Stock held in the account and information on the
      limited market in Penny Stock. The additional burdens imposed on broker-dealers
      may discourage them from effecting transactions in the Company’s Common stock,
      which could severely limit the liquidity of the Common stock and the ability
      of
      shareholders to sell the Common stock in the secondary market.








**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None.








**ITEM
      2. PROPERTIES**





The
      Company does not own any real property and does not intend to invest in any
      real
      property.





The
      Company’s principal executive offices are located in Rockville, Maryland.
      Cytomedix occupies facilities consisting of 3,100 square feet under an operating
      lease expiring July 31, 2008, subject to an early termination option available
      to Cytomedix. See Note 16 to the Financial Statements.








**ITEM
      3. LEGAL PROCEEDINGS**





At
      present, the Company is not engaged in or the subject of any legal
      proceedings.








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





The
      Company held its annual meeting of shareholders on November 3, 2006, at the
      Company’s offices in Rockville, Maryland. At the meeting, the shareholders
      re-elected James S. Benson, David P. Crews, Arun K. Deva, David F. Drohan,
      Mark
      T. McLoughlin, and Kshitij Mohan as Directors to hold office until the next
      annual meeting of shareholders and until their successors are duly elected.
      A
      summary of votes cast follows below:




14


**NOMINEE**
              
              
              **VOTES
                  FOR**
              
              
              **VOTES**
                **WITHHELD**
              
              
              **ABSTENTIONS***James
                  S. Benson
              
              
              21,816,240
              
              
              196,940
              
              
              —David
                  P. Crews
              
              
              21,815,308
              
              
              197,872
              
              
              —Arun
                  K. Deva
              
              
              21,810,640
              
              
              202,540
              
              
              —David
                  F. Drohan
              
              
              21,815,308
              
              
              197,872
              
              
              —Mark
                  T. McLoughlin
              
              
              21,816,240
              
              
              196,940
              
              
              —Dr.
                  Kshitj Mohan
              
              
              21,794,443
              
              
              218,737
              
              
              —





*  Pursuant
      to the terms of the Proxy Statement, proxies received were voted, unless
      authority was withheld, in favor of the election of the six
      nominees.





Shareholders
      also voted to ratify the appointment of L J Soldinger Associates, LLC as the
      Company’s independent registered accountant for the fiscal year ending December
      31, 2006 with 21,969,431 votes for, 24,235 votes against, and 19,514
      abstentions.





Shareholders
      also voted to ratify an amendment to the Long-Term Incentive Plan making Awards
      available representing up to 5,000,000 shares of Common stock with 6,056,251
      votes for, 2,401,658 votes against, and 86,838 abstentions.





Further
      information regarding the meeting and the proposals submitted to a vote of
      the
      shareholders may be found in the Company’s definitive proxy statement filed with
      the Securities and Exchange Commission on September 22, 2006.




15




**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITES**





Since
      June 2005, the Company’s Common stock has been listed on the American Stock
      Exchange under the symbol GTF. Prior to this listing the Company’s Common stock
      was traded in the Over-the-Counter (“OTC”) market and quoted on the OTC bulletin
      board under the symbol CYME. Set forth below are the high and low closing sale
      prices for the Common stock for each quarter since the quarter beginning January
      1, 2004, as reported by NASDAQ and AMEX as appropriate. The prices prior to
      June
      30, 2005 are over-the-counter market quotations and reflect inter-dealer prices,
      without retail mark-up, mark-down or commission and may not represent actual
      transactions.


**Quarter
                  ended**
              
              **High**
              
              **Low**December
                  31, 2006
              
              $
              2.76
              
              $
              0.91September
                  30, 2006
              
              $
              3.34
              
              $
              2.60June
                  30, 2006
              
              $
              3.20
              
              $
              2.25March
                  31, 2006
              
              $
              2.90
              
              $
              2.23December
                  31, 2005
              
              $
              3.36
              
              $
              2.01September
                  30, 2005
              
              $
              6.85
              
              $
              1.68June
                  30, 2005
              
              $
              5.07
              
              $
              3.12March
                  31, 2005
              
              $
              3.50
              
              $
              2.35





There
      were approximately 658 shareholders of record of Common stock as of February
      15,
      2007.





Cytomedix
      did not pay dividends to holders of Common stock in 2006 or 2005. The Company
      is
      prohibited from declaring dividends on Common stock if any dividends are due
      on
      shares of Series A, B, or C Convertible Preferred stock. If there are no unpaid
      dividends on shares of Series A, B, or C Convertible Preferred stock, any
      decision to pay cash dividends on Common stock will depend on the Company’s
      ability to generate earnings, need for capital, and overall financial condition,
      and other factors the Board deems relevant. Cytomedix does not anticipate paying
      cash dividends on Common stock in the foreseeable future, but instead will
      retain any earnings for reinvestment in the business.





***RECENT
      SALES OF UNREGISTERED SECURITIES***





The
      Company issued 1,062,500 shares of Common stock during the fourth quarter of
      2006. The following table lists the sources of and the proceeds from those
      issuances:


**Source**
              
              
              **#
                  of Shares**
              
              **Total**
                **Exercise**
                **Price**Exercise
                  of unit offering warrants
              
              
              
              287,500
              
              $
              431,250Exercise
                  of other warrants (1)
              
              
              
              775,000
              
              $
              775,000Totals
              
              
              
              1,062,500
              
              $
              1,206,250





(1)
            These
                warrants reflect consultant warrants held by one party. Upon exercise,
                the
                Company accepted $75,000 in cash and a Negotiable Term Promissory
                Note and
                related Security Agreement (the “Note”). The Note, which was amended in
                February 2007, provides for the remaining exercise proceeds to be
                delivered to the Company in installment payments ending on April
                30, 2007.
                The Note bears interest on the outstanding balance at 6% per year.
                As of
                February 15, 2007, the maker of the Note was current in making all
                required principal and interest payments and the principal balance
                remaining was $426,250.





The
      Company has used the cash proceeds from these issuances for general corporate
      purposes. All shares were issued in private offerings exempt from registration
      pursuant to Section 4(2) of the Securities Act.





See
      Note
      11 to the Financial Statements for further information on the Company’s capital
      structure.




16




***PERFORMANCE
      GRAPH***





Below
      is
      a line graph comparing total cumulative return on an investment of $100 invested
      on January 27, 2003 in: (i) the Company’s Common Stock, (ii) an industry index,
      namely the AMEX Biotechnology Index, and (iii) a broad market index, namely
      the
      Russell Microcap Index. All values assume reinvestment of the full amount of
      all
      dividends, where applicable, and are calculated as of the last trading day
      of
      each fiscal year.





**Comparison
      of 47 Month Cumulative Total ReturnAmong Cytomedix, Inc., Amex Biotechnology
      Index,**


**and
      Russell Microcap Index**














**ITEM
      6. SELECTED FINANCIAL DATA**


**2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002***Revenues
              
              $
              1,948,155
              
              $
              1,514,425
              
              $
              1,145,591
              
              $
              1,086,923
              
              $
              666,183Loss
                  from operations
              
              $
              (4,159,264
              )
              $
              (7,446,134
              )
              $
              (8,188,360
              )
              $
              (4,131,705
              )
              $
              (2,018,465
              )Net
                  loss
              
              $
              (2,262,956
              )
              $
              (6,503,485
              )
              $
              (8,139,326
              )
              $
              (4,124,889
              )
              $
              (2,016,961
              )Basic
                  and diluted net loss percommon
                  share
              
              $
              (0.08
              )
              $
              (0.27
              )
              $
              (0.62
              )
              $
              (0.37
              )
              $
              (0.22
              )Total
                  assets
              
              $
              10,233,774
              
              $
              7,877,917
              
              $
              8,186,472
              
              $
              5,740,920
              
              $
              6,153,709Long-term
                  obligations and redeemablepreferred
                  stock
              
              $
              376,520
              
              $
              263,787
              
              $
              356,630
              
              $
              438,081
              
              $
              519,507Cash
                  dividends declared per common share
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —





*  On
      July
      1, 2002, the Company emerged from bankruptcy under a plan of reorganization.
      The
      2002 periodic information included in the table above reflects results of the
      six months ended December 31, 2002.








**ITEM
      7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**





Management's
      Discussion and Analysis and other parts of this report contain forward-looking
      statements that involve risks and uncertainties. All forward-looking statements
      included in this report are based on information available to the Company on
      the
      date hereof, and the Company assumes no obligation to update any such
      forward-looking statements. The following should be read in conjunction with
      the
      audited financial statements and the notes thereto included elsewhere
      herein.




17




In
      2006,
      Cytomedix submitted its 510(k) to, received a denial from, and prepared its
      appeal to the FDA for specific indications for its AutoloGel TM System.
      The Company realized a 29% increase in revenues driven by increased licensing
      royalties. The Company also realized a 65% reduction to net loss driven by
      a
      major patent litigation settlement agreement as well as reduced equity-based
      compensation and clinical trial related expenses and the increased royalty
      revenues noted above. Following is a discussion of Cytomedix’s Results of
      Operations for the years ended December 31, 2006, 2005, and 2004. This
      discussion should be read together with the audited financial statements and
      notes thereto contained in Item 8 of this document.








***COMPARATIVE
      RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND
      2005***





***Revenues***





Revenues
      rose $434,000 (29%) to $1,948,000 comparing the year ended December 31, 2006,
      to
      the same period last year. Revenues are normally generated from two sources:
      the
      sale of disposable kits and reagents and royalties received from licensing
      activities. In the third quarter of 2006, the Company also recognized $117,000
      in revenue related to comprehensive wound services provided for a government
      agency under a limited term contract. This service revenue is not expected
      to
      continue. The
      increase was attributable to increased royalties of $496,000 and increased
      sales
      of $117,000 related to the services mentioned above, partially offset by a
      $179,000 decrease in product sales. Increases in royalties were due to six
      new
      license agreements entered into during 2005. Product sales decreased primarily
      due to decreased sales to nursing homes, government agencies, and Medicaid
      customers.





***Gross
      Profit***





Gross
      profit rose $300,000 (47%) to $934,000 comparing the year ended December 31,
      2006, to the same period last year. For the same periods, gross margins rose
      to
      48% from 42%.





The
      increase in gross profits is primarily attributable to the licensing agreements
      entered into after March 31, 2005 which carry a greater gross margin than
      previously existing licensing agreements.





Royalties
      from the licensing agreements with DePuy Spine, Inc., inclusive of the
      amortization of deferred revenue associated with the initial deposit of
      $750,000, generates a gross margin of approximately 20%. The Company expects
      gross margins generated from all other licensing agreements to be in the range
      of 50-70%.





***Operating
      Expenses***





Operating
      expenses fell $2,986,000 (37%) to $5,093,000 comparing the year ended December
      31, 2006, to the same period last year. The Company relies heavily on the use
      of
      equity-based compensation to various employees, consultants and other parties
      that provide services to the Company. Due to the magnitude of this non-cash
      expense, the exhibits below highlight the impact of this equity-based
      compensation on the Company’s operating expenses. These exhibits present the
      Company’s operating expenses in accordance with generally accepted accounting
      principles (“GAAP”), the amount of equity-based compensation expense included in
      the respective line items, and then the operating expenses without the
      equity-based compensation, which is not in accordance with GAAP (“NON-GAAP”).
      The following exhibit is presented as an additional tool to evaluate the
      Company’s operating expenditures between years:




18




**Operating
      Expense Information Not in Conformity with Generally Accepted Accounting
      Principles**


**Year
                  Ended December 31,
                  2006**
              
              
              **Year
                  Ended December 31,
                  2005****ACCOUNT**
              
              
              **GAAP**
                **AS
                  REPORTED**
              
              
              **NET**
                **EQUITY
                  BASED**
                **COMPENSATION**
              
              
              **NON-GAAP**
                **OPERATING**
                **EXPENSES**
                **WITHOUT**
                **EQUITY
                  BASED**
                **COMPENSATION**
              
              
              **GAAP**
                **AS
                  REPORTED**
              
              
              **NET**
                **EQUITY
                  BASED**
                **COMPENSATION**
              
              
              **NON-GAAP**
                **OPERATING**
                **EXPENSES**
                **WITHOUT**
                **EQUITY
                  BASED**
                **COMPENSATION**Salaries
                  and wages
              
              $
              2,190,737
              
              $
              (692,250
              )
              $
              1,498,487
              
              $
              2,970,036
              
              $
              (1,352,448
              )
              $
              1,617,588Consulting
                  expenses
              
              
              180,157
              
              
              (8,344
              )
              
              171,813
              
              
              145,739
              
              
              (29,444
              )
              
              116,295Consulting
                  expenses - related party
              
              
              35,000
              
              
              —
              
              
              35,000
              
              
              185,764
              
              
              (77,764
              )
              
              108,000Professional
                  fees
              
              
              763,912
              
              
              —
              
              
              763,912
              
              
              1,018,779
              
              
              —
              
              
              1,018,779Royalty
                  expenses - related party
              
              
              75,000
              
              
              —
              
              
              75,000
              
              
              75,000
              
              
              —
              
              
              75,000Clinical
                  trial related expenses
              
              
              62,052
              
              
              —
              
              
              62,052
              
              
              1,588,916
              
              
              —
              
              
              1,588,916General
                  and administrative expenses
              
              
              1,785,976
              
              
              (502,330
              )
              
              1,283,646
              
              
              2,095,001
              
              
              (556,999
              )
              
              1,538,002Total
                  operating expenses
              
              $
              5,092,834
              
              $
              (1,202,924
              )
              $
              3,889,910
              
              $
              8,079,235
              
              $
              (2,016,655
              )
              $
              6,062,580







***Salaries
      and Wages***





Salaries
      and wages fell $779,000 (26%) to $2,191,000 comparing the year ended December
      31, 2006, to the same period last year. The decrease was primarily due to lower
      non-cash equity-based compensation ($660,000) and fewer employees.





***Consulting
      and Related Party Consulting Expenses***





Consulting
      and related party consulting expenses fell $116,000 (35%) to $215,000 comparing
      the year ended December 31, 2006, to the same period last year. The decrease
      was
      primarily due to lower non-cash equity-based compensation ($99,000) and the
      overall reduction in use of outside consultants.





***Professional
      Fees***





Professional
      fees fell $255,000 (25%) to $764,000 comparing the year ended December 31,
      2006,
      to the same period last year. Professional fees consist primarily of legal
      and
      accounting services.





The
      decrease was primarily due to decreases in patent litigation related
      expenditures ($315,000) due to the successful completion of several patent
      infringement actions in 2005, decreases in fees to securities and general
      counsel attorneys ($90,000) due primarily to reduced current period activity
      related to the Company’s listing on the American Stock Exchange, and decreases
      in accounting fees ($55,000), partially offset by increases in audit fees
      ($75,000) driven by compliance with Section 404 of the Sarbanes-Oxley Act and
      increased attorneys fees ($175,000) related to the appeal of the FDA’s decision
      regarding the Company’s 510(k) Premarket Notification for AutoloGel TM System.





***Clinical
      Trial Related Expenses***





Clinical
      trial related expenses fell $1,527,000 (96%) to $62,000 comparing the year
      ended
      December 31, 2006, to the same period last year. The Company completed the
      active phase of the trial in 2005 and in the first two quarters of 2006 incurred
      only limited expenses associated with the close out of the trial.





***General
      and Administrative Expenses***





General
      and administrative expenses fell $309,000 (15%) to $1,786,000 comparing the
      year
      ended December 31, 2006, to the same period last year. The decrease was due
      primarily to decreases in travel related expenditures ($163,000), AMEX filing
      fees ($52,000), investor services ($43,000), and depreciation of fixed assets
      ($35,000), partially offset by increases in marketing related activities
      ($30,000).





***Other
      Income/Expenses***





Other
      income rose $954,000 (101%) to $1,896,000 comparing the year ended December
      31,
      2006, to the same period last year. The
      increase was primarily due to increased interest income ($143,000) as a result
      of higher interest rates and larger cash balances, increased patent settlement
      income ($600,000, net), and a one time charge ($228,000) in 2005 recorded for
      the issuance of 65,000 shares of the Company’s Common stock in return for a full
      settlement and release of all claims from a lawsuit brought against the Company
      relating to its emergence from bankruptcy.





19





***COMPARATIVE
      RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND
      2004***





***Revenues***





Revenues
      rose $369,000 (32%) to $1,514,000 comparing the year ended December 31, 2005
      to
      the same period in 2004. Revenues are normally generated from two sources:
      the
      sale of disposable kits and reagents and royalties received from licensing
      activities.





The
      increase in revenue is attributable to increased royalties of $547,000 from
      five
      new licensing agreements entered into during 2005, primarily those with
      Medtronic, Inc. and Harvest Technologies, Inc., entered into during the second
      quarter. This increase was partially offset by a $178,000 decrease in AutoloGelTM
kit sales. AutoloGelTM kit sales decreased due to reduced sales to two large
      nursing home customers and difficulty qualifying patients for commercial
      insurance reimbursement, partially offset by an increase in sales to the
      non-reimbursement sensitive market.





***Gross
      Profit***





Gross
      profit rose $199,000 (46%) to $633,000 comparing the year ended December 31,
      2005 to the same period in 2004. For the same periods, gross margins rose to
      42%
      from 38%.





The
      increase in gross profit is primarily attributable to the Medtronic and Harvest
      licensing agreements which carry a greater gross margin than previously existing
      licensing agreements. This increase in gross profit was partially offset by
      a
      decrease in gross profit from AutoloGelTM kit sales. This decrease was primarily
      attributable to increased costs for educational treatments used in an effort
      to
      penetrate more profitable segments of the market, as well as the write-off
      of
      obsolete inventory.





The
      DePuy
      royalties, inclusive of the amortization of deferred revenue associated with
      the
      initial deposit of $750,000, generates a gross margin of approximately 20%.
      The
      Company expects gross margins generated from all other licensing agreements
      to
      be in the range of 50-70%.





***Operating
      Expenses***





Operating
      expenses fell $543,000 (6%) to $8,079,000 comparing the year ended December
      31,
      2005 to the same period in 2004. The Company relies heavily on the use of
      equity-based compensation to various employees, consultants and other parties
      that provide services to the Company. Due to the magnitude of this non-cash
      expense, the following exhibit highlights the impact of this equity-based
      compensation on the Company’s operating expenses. The exhibit below presents the
      Company’s operating expenses in accordance with generally accepted accounting
      principles (“GAAP”) and presents the amount of equity-based compensation expense
      included in the respective line items and then reflects the operating expenses
      without the equity-based compensation, which is not in accordance with GAAP
      (“NON-GAAP”). The following exhibit is presented to provide an additional tool
      to evaluate the Company’s operating expenditures between years:





**Operating
      Expense Information Not In Conformity With Generally Accepted Accounting
      Principles**


**Year
                  Ended December 31, 2005**
              
              **Year
                  Ended December 31, 2004****ACCOUNT**
              
              **GAAP****ASREPORTED**
              
              **NET****EQUITYBASED****COMPENSATION**
              
              **NON-GAAP****OPERATING****EXPENSES****WITHOUT****EQUITY
                    BASED****COMPENSATION**
              
              **GAAP****ASREPORTED**
              
              **NET****EQUITYBASED****COMPENSATION**
              
              **NON-GAAP****OPERATING**
                      **EXPENSES**
                      **WITHOUT****EQUITYBASED****COMPENSATION**Salaries
                  and wages
              
              $
              2,970,036
              
              $
              (1,352,448
              )
              $
              1,617,588
              
              $
              1,769,170
              
              $
              (578,492
              )
              $
              1,190,678Consulting
                  expenses
              
              
              145,739
              
              
              (29,444
              )
              
              116,295
              
              
              1,023,255
              
              
              (837,975
              )
              
              185,280Consulting
                  expenses - related party
              
              
              185,764
              
              
              (77,764
              )
              
              108,000
              
              
              789,189
              
              
              (529,085
              )
              
              260,104Professional
                  fees
              
              
              1,018,779
              
              
              —
              
              
              1,018,779
              
              
              867,928
              
              
              (10,250
              )
              
              857,678Royalty
                  expenses - related party
              
              
              75,000
              
              
              —
              
              
              75,000
              
              
              75,000
              
              
              —
              
              
              75,000Clinical
                  trial related expenses
              
              
              1,588,916
              
              
              —
              
              
              1,588,916
              
              
              1,385,120
              
              
              —
              
              
              1,385,120General
                  and administrative expenses
              
              
              2,095,001
              
              
              (556,999
              )
              
              1,538,002
              
              
              2,712,462
              
              
              (1,141,454
              )
              
              1,571,008Total
                  operating expenses
              
              $
              8,079,235
              
              $
              (2,016,655
              )
              $
              6,062,580
              
              $
              8,622,124
              
              $
              (3,097,256
              )
              $
              5,524,868




20




***Salaries
      and Wages***





Salaries
      and wages rose $1,201,000 (68%) to $2,970,000 comparing the year ended December
      31, 2005 to the same period in 2004.





The
      increase was primarily due to increased non-cash equity-based compensation,
      primarily a result of $798,000 related to the revaluation and expense associated
      with the change in terms to existing options, pursuant to the separation
      agreement with the Company’s former CFO dated July 15, 2005, and increased bonus
      accrual ($216,000). The remainder of the increase is due to additional
      employees, and severance costs for the former CFO.





***Consulting
      and Related Party Consulting Expenses***





Consulting
      and related party consulting expenses fell $1,481,000 (82%) to $332,000
      comparing the year ended December 31, 2005 to the same period in
      2004.





The
      decrease was primarily due to a $1,260,000 decrease in non-cash equity-based
      compensation. The remaining change was due to decreases in other compensation
      and expenses relating to these consultants. During 2004, the Company relied
      upon
      the issuance of stock options and warrants to attract and retain senior level
      consultants to assist in all phases of its operations. This included strategic
      planning, financing related support, governmental support and lobbying, and
      on-going managerial support. Most of these activities were significantly
      curtailed or eliminated in 2005.





***Professional
      Fees***





Professional
      fees rose $151,000 (17%) to $1,019,000 comparing the year ended December 31,
      2005 to the same period in 2004. Professional fees consist primarily of legal
      and accounting services.





The
      increase was primarily due to increased patent litigation related expenditures
      and auditing/accounting fees, partially offset by decreases in fees to
      securities and general counsel attorneys.





***Clinical
      Trial Related Expenses***





Clinical
      trial related expenses rose $204,000 (15%) to $1,589,000 comparing the year
      ended December 31, 2005 to the same period in 2004. During 2005, the trials
      were
      in the active treatment phase.





The
      increase was primarily due to greater expenditures ($268,000) for the various
      clinical sites participating in the trials and higher fees from its contract
      research organization and for consultants, partially offset by reduced costs
      for
      equipment and supplies.





***General
      and Administrative Expenses***





General
      and administrative expenses fell $617,000 (23%) to $2,095,000 comparing the
      year
      ended December 31, 2005 to the same period in 2004.





The
      decrease was primarily due to a decrease in non-cash equity-based compensation
      for the board of directors and outside service providers
      ($619,000).





***Other
      Income/Expenses***





Other
      income rose $894,000 (1,822%) to $943,000 comparing the year ended December
      31,
      2005 to the same period in 2004.





The
      increase was primarily attributable to patent litigation settlements (net of
      related costs) in the amount of $1,047,000, with a lesser impact from higher
      interest income. These increases were partially offset by expenses ($227,500)
      recorded for the issuance of 65,000 shares of the Company’s Common stock in
      return for a full settlement and release of all claims from a lawsuit brought
      against the Company in its emergence from bankruptcy.





21





***MODIFIED
      EBITDA INFORMATION NOT IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES***





Throughout
      this report, the Company has presented income statement items in conformity
      with
      GAAP, except where otherwise noted. Given the magnitude of the non-cash
      expenses, the Company utilizes a modified EBITDA (earnings before income taxes,
      depreciation and amortization and other non-cash items) to evaluate and monitor
      the results of operations. Although EBITDA is a NON-GAAP financial measure,
      the
      Company believes that this information will allow for an additional
      clarification of the Company’s performance and provides the readers of the
      Company’s financial statements an additional tool to evaluate the comparative
      performance of the Company. Following, is a reconciliation of the comparative
      net (loss) to Common shareholders to modified EBITDA utilized by the
      Company:


**Year
                  Ended**
                **December
                  31,****2006**
              
              **2005**
              
              **2004**Net
                  loss to common stockholders,as
                  stated (GAAP)
              
              $
              (2,299,317
              )
              $
              (6,588,387
              )
              $
              (11,259,187
              )Adjustments
                  to reconcile net lossto
                  common stockholders to EBITDA:Preferred
                  dividends
              
              
              36,361
              
              
              84,902
              
              
              319,861Series
                  C Preferred stock dividendattributable
                  to below marketbeneficial
                  conversion features
              
              
              —
              
              
              —
              
              
              2,800,000Depreciation
                  and amortization
              
              
              197,194
              
              
              224,274
              
              
              218,954Stock-based
                  compensation
              
              
              1,202,924
              
              
              2,016,655
              
              
              3,097,256Other
                  expense (1)
              
              
              —
              
              
              262,500
              
              
              —MODIFIED
                  EBITDA – NON-GAAP
              
              $
              (862,838
              )
              $
              (4,000,056
              )
              $
              (4,823,116
              )





(1)
            Consists
                of 65,000 shares of the Company’s Common stock (market value $227,500)
                issued in return for a full settlement and release of all claims
                from a
                lawsuit brought against the Company in its emergence from bankruptcy
                and
                8,673 shares of the Company’s Common stock (market value $35,000) issued
                for executive search fees.








***CONTRACTUAL
      OBLIGATIONS***





The
      Company had the following contractual obligations as of December 31,
      2006:


Payments
                  Due by PeriodContractual
                  Obligations
              
              
              Total
              
              
              Less
                  than 1 Year
              
              
              1-3
                  Years
              
              
              4-5
                  Years
              
              
              More
                  than 5 YearsOperating
                  Leases
              
              $
              103,027
              
              $
              64,658
              
              $
              38,369
              
              $
              —
              
              $
              —Other
                  Liabilities (1)
              
              
              329,000
              
              
              144,000
              
              
              185,000
              
              
              —
              
              
              —Total
              
              $
              432,027
              
              $
              208,658
              
              $
              223,369
              
              $
              —
              
              $
              —


___________


(1)
      Amounts less than one year are included in the "Accounts
      payable and accrued expenses" line of the Balance Sheet.





***LIQUIDITY
      AND CAPITAL RESOURCES***





In
      the years ended December 31, 2006, 2005, and 2004, the Company's operating
      revenues did not cover the costs of its operations. The cash position of the
      Company at December 31, 2006 was $4,662,000. The Company believes that it will
      have adequate cash on hand to fund operations for the year ending December
      31,
      2007. However, additional cash may be required if operating revenues do not
      materialize, the cost of operations increases, or if the Company’s efforts to
      appeal the FDA’s NSE determination letter prove unsuccessful and a change in
      strategy requires significant short-term funding.




22




The
      Company has no material commitments for capital expenditures.





Because
      the Company was in bankruptcy in 2002, the Company may not be able to obtain
      debt financing. All working capital required to implement the Company’s business
      plan will be provided by funds obtained through offerings of its equity
      securities, and revenues generated by the Company.








***PROSPECTS
      FOR THE FUTURE***





Cytomedix’s
      success is directly dependent on the success of AutoloGelTM, and the Company
      believes that AutoloGelTM has a reasonable chance for success in the marketplace.
      First and foremost, the Company believes that, based on the results of the
      Company’s clinical trial and other historical data as well as the preliminary
      results of a pharmaco-economic study, AutoloGelTM has higher healing rates for
      diabetic foot ulcers and is more cost effective than most other wound
      treatments. The Company owns the patents on the process for utilizing platelet
      gel for wound healing, the basis of its license agreements, through 2009 and
      for
      the specific formulation of AutoloGelTM, which provides several competitive
      advantages, through 2019.





However,
      Cytomedix is currently facing a regulatory hurdle. Specifically, it is seeking
      a
      reversal, or acceptable amendment, to the FDA’s NSE determination letter. If the
      Company is successful in this effort, then its current strategic plan remains
      completely in tact. If efforts are unsuccessful, the Company would likely
      implement one or more contingent strategies. These contingent strategies are
      currently being evaluated and refined.





Although
      it is premature to narrow these strategies, they are currently being considered
      independently and in combinations. Each strategy offers its own unique set
      of
      opportunities and challenges.





Significant
      challenges still exist in implementing the Company’s plans; whether FDA
      clearance is obtained and the Company pursues its current strategy, or the
      Company pursues an alternative strategic plan. Management continues to focus
      its
      efforts on leveraging the strength of its intellectual property and successes
      to
      date.








**ITEM
      7A.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      Company does not enter into financial instruments for speculation or trading
      purposes. In accordance with the Company’s investment policy, cash is to be
      invested in bank and institutional money market funds, or in T-Bills or
      short-term T-Notes. At December 31, 2006, the Company’s cash balance of
      approximately $4.7 million was maintained primarily in bank and institutional
      money market accounts. These accounts are sensitive to changes in the general
      level of interest rates. Based on the Company’s cash balances at December 31,
      2006, a 100 basis point increase or decrease in interest rates would have an
      approximately $47,000 impact on the Company’s annual interest income and net
      loss. Actual changes in rates may differ from the hypothetical assumption used
      in computing this exposure.




23




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Board of Directors and Shareholders
  Cytomedix,
        Inc.
 Rockville,
        Maryland
 
 We
        have
        audited the accompanying balance sheets of Cytomedix, Inc. as of December
        31,
        2006 and 2005, and the related statements of operations, stockholders' equity,
        and cash flows for each of the years in the three-year period ended December
        31,
        2006. These financial statements are the responsibility of the Company's
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of' Cytomedix, Inc. as of December
        31,
        2006 and 2005 and its results of operations, changes in stockholders' equity
        and
        its cash flows for each of the years in the three-year period ended December
        31,
        2006 in conformity with. accounting principles generally accepted in the
        United
        States of America.
 
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United Sates), the effectiveness of Cytomedix, Inc. internal
        control over financial reporting as of December 31, 2006, based on criteria
        established in Internal Control - Integrated Framework issued by the Committee
        of Sponsoring Organizations of the Treadway Commission (COSO), and our report
        dated February 23, 2007 expressed an unqualified opinion on management's
        assessment of internal control over financial reporting and an adverse opinion
        on the effectiveness of internal control over financial reporting.
 
 L
        J
        SOLDINGER ASSOCIATES, LLC
   Deer
        Park, Illinois, USA
 February
        23, 2007


24




**CYTOMEDIX,
      INC.**


**Balance
      Sheets**


**December
                    31,****2006**
              
              **December
                    31,****2005****ASSETS**Current
                  assetsCash
              
              $
              4,662,199
              
              $
              3,123,927Accounts
                  and royalties receivable, net
              
              
              548,269
              
              
              430,167Patent
                  settlements receivable, current portion
              
              
              437,112
              
              
              15,562Prepaid
                  expenses, inventory, and other current assets
              
              
              155,356
              
              
              222,187Total
                  current assets
              
              
              5,802,936
              
              
              3,791,843Patent
                  settlements receivable
              
              
              574,072
              
              
              31,962Property
                  and equipment, net
              
              
              11,759
              
              
              74,594Patents,
                  net
              
              
              1,823,384
              
              
              1,957,895Goodwill
              
              
              2,021,623
              
              
              2,021,623Total
                  assets
              
              $
              10,233,774
              
              $
              7,877,917**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilitiesAccounts
                  payable and accrued expenses
              
              $
              1,208,077
              
              $
              1,109,860Deferred
                  revenues, current portion
              
              
              99,900
              
              
              89,900Dividends
                  payable on Series A, Series B and Series C preferred stock
              
              
              18,236
              
              
              28,142Total
                  current liabilities
              
              
              1,326,213
              
              
              1,227,902Deferred
                  revenues
              
              
              191,475
              
              
              263,745Other
                  liabilities
              
              
              185,000
              
              
              —Total
                  liabilities
              
              
              1,702,688
              
              
              1,491,647Commitments
                  and contingenciesStockholders'
                  equitySeries
                  A Convertible preferred stock; $.0001 par value, authorized
                  5,000,000shares;
                  2006 and 2005 issued and outstanding - 365,970 and 347,856
                  shares,respectively,
                  liquidation preference of $365,970 and $347,856,
                  respectively
              
              
              37
              
              
              34Series
                  B Convertible preferred stock; $.0001 par value, authorized 5,000,000shares;
                  2006 and 2005 issued and outstanding - 83,431 and 84,604
                  shares,respectively,
                  liquidation preference of $83,431 and $84,604,
                  respectively
              
              
              8
              
              
              8Series
                  C Convertible preferred stock; $.0001 par value, authorized
                  1,000,000shares;
                  2006 and 2005 issued and outstanding - 0.0 shares
              
              
              —
              
              
              —Common
                  stock; $.0001 par value, authorized 65,000,000 shares; 2006 and
                  2005issued
                  and outstanding - 28,987,670 and 26,158,778 shares,
                  respectively
              
              
              2,899
              
              
              2,617Subscriptions
                  receivable
              
              
              (620,000
              )
              
              —Additional
                  paid-in capital
              
              
              35,779,380
              
              
              30,954,333Deferred
                  compensation
              
              
              —
              
              
              (238,801
              )Accumulated
                  deficit
              
              
              (26,631,238
              )
              
              (24,331,921
              )Total
                  stockholders' equity
              
              
              8,531,086
              
              
              6,386,270Total
                  liabilities and stockholders' equity
              
              $
              10,233,774
              
              $
              7,877,917





*The
      accompanying notes are an integral part of these financial
      statements.*




25




**CYTOMEDIX,
      INC.**


**Statements
      of Operations**


**Year
                    Ended****December31,****2006**
              
              **2005**
              
              **2004**RevenuesSales
              
              $
              204,525
              
              $
              266,876
              
              $
              444,932Royalties
              
              
              1,743,630
              
              
              1,247,549
              
              
              700,659Total
                  revenues
              
              
              1,948,155
              
              
              1,514,425
              
              
              1,145,591Cost
                  of revenuesCost
                  of sales
              
              
              94,258
              
              
              115,956
              
              
              140,247Cost
                  of royalties
              
              
              920,327
              
              
              765,368
              
              
              571,580Total
                  cost of revenues
              
              
              1,014,585
              
              
              881,324
              
              
              711,827Gross
                  profit
              
              
              933,570
              
              
              633,101
              
              
              433,764Operating
                  expensesSalaries
                  and wages
              
              
              2,190,737
              
              
              2,970,036
              
              
              1,769,170Consulting
                  expenses
              
              
              180,157
              
              
              145,739
              
              
              1,023,255Consulting
                  expenses - related party
              
              
              35,000
              
              
              185,764
              
              
              789,189Professional
                  fees
              
              
              763,912
              
              
              1,018,779
              
              
              867,928Royalty
                  expenses - related party
              
              
              75,000
              
              
              75,000
              
              
              75,000Clinical
                  trial related expenses
              
              
              62,052
              
              
              1,588,916
              
              
              1,385,120General
                  and administrative expenses
              
              
              1,785,976
              
              
              2,095,001
              
              
              2,712,462Total
                  operating expenses
              
              
              5,092,834
              
              
              8,079,235
              
              
              8,622,124Loss
                  from operations
              
              
              (4,159,264
              )
              
              (7,446,134
              )
              
              (8,188,360
              )Other
                  income (expenses)Interest
                  income (expense), net
              
              
              244,595
              
              
              101,564
              
              
              54,049Contract
                  settlement and other gain (expense)
              
              
              4,406
              
              
              (206,159
              )
              
              (5,015
              )Patent
                  litigation settlements, net
              
              
              1,647,307
              
              
              1,047,244
              
              
              --Total
                  other income (expenses)
              
              
              1,896,308
              
              
              942,649
              
              
              49,034Loss
                  before provision for income taxes
              
              
              (2,262,956
              )
              
              (6,503,485
              )
              
              (8,139,326
              )Income
                  tax provision
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              
              (2,262,956
              )
              
              (6,503,485
              )
              
              (8,139,326
              )Preferred
                  dividend on:Series
                  A preferred stock
              
              
              29,052
              
              
              43,769
              
              
              122,740Series
                  B preferred stock
              
              
              7,131
              
              
              18,882
              
              
              117,926Series
                  C preferred stock
              
              
              178
              
              
              22,251
              
              
              2,879,195Net
                  loss to common stockholders
              
              $
              (2,299,317
              )
              $
              (6,588,387
              )
              $
              (11,259,187
              )Loss
                  per common share —Basic
                  and diluted
              
              $
              (0.08
              )
              $
              (0.27
              )
              $
              (0.62
              )Weighted
                  average shares outstanding —Basic
                  and diluted
              
              
              27,470,781
              
              
              24,428,653
              
              
              18,085,769





*The
      accompanying notes are an integral part of these financial
      statements.*




26




**CYTOMEDIX,
      INC.**


**Statements
      of Stockholders’ Equity**


**Common
                  Stock**
              
              **Series
                  A Preferred**
              
              **Series
                  B Preferred**
              
              **Series
                  C Preferred****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Additional****Paid-in****Capital**
              
              **Deferred****Compensation**
              
              **Subscriptions****Receivable**
              
              **Accumulated****Deficit**
              
              **Total****Stockholders****Equity****Balance
                  at December 31, 2003**
              
              
              13,211,453
              
              $
              1,323
              
              
              1,475,471
              
              $
              147
              
              
              1,514,862
              
              $
              151
              
              
              —
              
              $
              —
              
              $
              12,378,878
              
              $
              (1,438,070
              )
              $
              —
              
              $
              (6,484,347
              )
              $
              4,458,082Private
                  placement of 4,500,000 commonshares
                  with warrants, net of directcommissions
                  and expensese
              
              
              4,500,000
              
              
              450
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              4,011,175
              
              
              —
              
              
              (2,312,500
              )
              
              —
              
              
              1,699,125Private
                  placement of 280 shares ofSeries
                  C Convertible Preferred stockwith
                  warrants, net of direct commissionsand
                  expensese
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              280
              
              
              —
              
              
              2,474,193
              
              
              —
              
              
              —
              
              
              —
              
              
              2,474,193Beneficial
                  conversion feature recordedas
                  a preferred stock dividend relatedto
                  the Series C stock
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,800,000
              
              
              —
              
              
              —
              
              
              —
              
              
              2,800,000Receipt
                  of subscriptions
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,501,908
              
              
              —
              
              
              1,501,908Interest
                  earned on subscriptions
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (21,007
              )
              
              —
              
              
              (21,007
              )Common
                  stock issued upon conversion ofSeries
                  A stock
              
              
              5,999
              
              
              1
              
              
              (17,999
              )
              
              (2
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1
              
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon conversion ofSeries
                  B stock
              
              
              88,736
              
              
              9
              
              
              —
              
              
              —
              
              
              (250,212
              )
              
              (25
              )
              
              —
              
              
              —
              
              
              16
              
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon conversion ofSeries
                  C stock
              
              
              1,960,500
              
              
              196
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (196
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              196Dividend
                  issued on Series A andSeries
                  B stock
              
              
              —
              
              
              —
              
              
              118,312
              
              
              12
              
              
              122,392
              
              
              12
              
              
              —
              
              
              —
              
              
              240,679
              
              
              —
              
              
              —
              
              
              —
              
              
              240,703Common
                  stock issued upon exercise ofClass
                  A warrants
              
              
              659,418
              
              
              66
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              659,352
              
              
              —
              
              
              —
              
              
              —
              
              
              659,418Common
                  stock issued upon cashless exerciseof
                  268,945 Class A warrants
              
              
              93,500
              
              
              9
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (9
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon exercise ofClass
                  B warrants
              
              
              51,898
              
              
              5
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              77,842
              
              
              —
              
              
              —
              
              
              —
              
              
              77,847Common
                  stock issued upon exercise ofClass
                  C-1 warrants
              
              
              99,500
              
              
              10
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              149,240
              
              
              —
              
              
              —
              
              
              —
              
              
              149,250Common
                  stock issued upon exercise ofClass
                  C-2 warrants
              
              
              85,000
              
              
              8
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              127,491
              
              
              —
              
              
              —
              
              
              —
              
              
              127,499Common
                  stock issued upon exercise ofemployee
                  stock options
              
              
              55,000
              
              
              5
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              82,495
              
              
              —
              
              
              —
              
              
              —
              
              
              82,500Common
                  stock issued upon exercise ofother
                  warrants
              
              
              517,455
              
              
              52
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              542,403
              
              
              —
              
              
              —
              
              
              —
              
              
              542,455Common
                  stock issued upon cashless exerciseof
                  292,397 other warrants
              
              
              160,078
              
              
              16
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (21
              )
              
              —
              
              
              —
              
              
              —
              
              
              (5
              )Common
                  stock issued in lieu of cash forcommissions
                  earned in private placement
              
              
              12,300
              
              
              1
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              15,374
              
              
              —
              
              
              —
              
              
              —
              
              
              15,375Record
                  other legal and accounting expensesassociated
                  with the private placements
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (67,234
              )
              
              —
              
              
              —
              
              
              —
              
              
              (67,234
              )Options
                  issued and issuable toDr.
                  Kshitij Mohan per his employmentagreement
                  dated April 20, 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              740,000
              
              
              (740,000
              )
              
              —
              
              
              —
              
              
              —Revaluation
                  of options issued to BDR, Inc.in
                  connection with consulting servicesagreement
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              244,459
              
              
              (244,459
              )
              
              —
              
              
              —
              
              
              —Warrants
                  issued in connection with ageneral
                  business consulting contractwith
                  Nadine C. Smith dated April 2003
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              647,300
              
              
              (647,300
              )
              
              —
              
              
              —
              
              
              —Options
                  issued and issuable toCarmen
                  Group in connection with aservices
                  contract dated October 1, 2003
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              84,440
              
              
              (84,440
              )
              
              —
              
              
              —
              
              
              —Warrants
                  issued to Burnham-Hill inMarch
                  2004
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              111,430
              
              
              (111,430
              )
              
              —
              
              
              —
              
              
              —Termination
                  options issued toMark
                  E. Cline and Nadine C. Smith
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              319,938
              
              
              (319,938
              )
              
              —
              
              
              —
              
              
              —Other
                  options issued
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              34,646
              
              
              (34,646
              )
              
              —
              
              
              —
              
              
              —Amortization
                  of deferred compensationrelated
                  to options and warrants issuedfor
                  services rendered by—Related
                  parties
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              787,550
              
              
              —
              
              
              vv
              
              
              787,550Terminated
                  parties
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              319,938
              
              
              —
              
              
              —
              
              
              319,938Other
                  parties
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,945,007
              
              
              —
              
              
              —
              
              
              1,945,007Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (11,259,187
              )
              
              (11,259,187
              )**Balance
                  at December 31, 2004**
              
              
              21,500,837
              
              $
              2,151
              
              
              1,575,784
              
              $
              157
              
              
              1,387,042
              
              $
              138
              
              
              84
              
              $
              —
              
              $
              25,674,088
              
              $
              (567,788
              )
              $
              (831,599
              )
              $
              (17,743,534
              )
              $
              6,533,613
  The
        accompanying notes are an integral part of
        these financial statements.
  27
  **CYTOMEDIX,
          INC.**
 **Statements
          of Stockholders’ Equity**
  **Common
                  Stock**
              
              
              **Series
                  A Preferred**
              
              
              **Series
                  B****Preferred**
              
              
              **Series
                  C Preferred****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Additional****Paid-in****Capital**
              
              
              **Deferred****Compensation**
              
              
              **Subscriptions****Receivable**
              
              
              **Accumulated****Deficit**
              
              
              **Total****Stockholders****Equity**Receipt
                  of subscriptions
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              832,465
              
              
              —
              
              
              832,465Interest
                  earned on subscriptions
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (866
              )
              
              —
              
              
              (866
              )Common
                  stock issued upon conversion ofSeries
                  A stock
              
              
              418,219
              
              
              42
              
              
              (1,253,046
              )
              
              (125
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              83
              
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon conversion ofSeries
                  B stock
              
              
              435,380
              
              
              44
              
              
              —
              
              
              —
              
              
              (1,308,773
              )
              
              (131
              )
              
              —
              
              
              —
              
              
              87
              
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon conversion ofSeries
                  C stock
              
              
              839,500
              
              
              84
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (84
              )
              
              —
              
              
              (84
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Dividend
                  issued on Series A and Series Bstock
                  (paid in Common stock on thosepreferred
                  shares converted during the year)
              
              
              27,871
              
              
              3
              
              
              25,118
              
              
              2
              
              
              6,335
              
              
              1
              
              
              —
              
              
              —
              
              
              166,061
              
              
              —
              
              
              —
              
              
              —
              
              
              166,067Common
                  stock issued upon exercise ofClass
                  A warrants
              
              
              42,500
              
              
              4
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              42,496
              
              
              —
              
              
              —
              
              
              —
              
              
              42,500Common
                  stock issued upon exercise ofClass
                  B warrants
              
              
              449,233
              
              
              45
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              673,805
              
              
              —
              
              
              —
              
              
              —
              
              
              673,850Common
                    stock issued upon cashless exercise of 94,171, Class B
                    warrants
              
              
              57,775
              
              
              6
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (6
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon exercise ofClass
                  C-1 warrants
              
              
              462,900
              
              
              46
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              694,304
              
              
              —
              
              
              —
              
              
              —
              
              
              694,350Common
                  stock issued upon exercise ofClass
                  C-2 warrants
              
              
              478,700
              
              
              48
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              718,002
              
              
              —
              
              
              —
              
              
              —
              
              
              718,050Common
                  stock issued upon exercise ofLong-term
                  Incentive Plan options
              
              
              252,000
              
              
              25
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              367,475
              
              
              —
              
              
              —
              
              
              —
              
              
              367,500Common
                  stock issued upon exercise ofUnit
                  Offering warrants
              
              
              250,000
              
              
              25
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              374,975
              
              
              —
              
              
              —
              
              
              —
              
              
              375,000Common
                  stock issued upon exercise ofother
                  warrants
              
              
              202,975
              
              
              20
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              327,955
              
              
              —
              
              
              —
              
              
              —
              
              
              327,975Common
                    stock issued upon cashless exercise of
                    958,732 other warrants
              
              
              667,215
              
              
              67
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (67
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued for settlement ofbankruptcy-related
                  lawsuit
              
              
              65,000
              
              
              6
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              227,494
              
              
              —
              
              
              —
              
              
              —
              
              
              227,500Common
                  stock issued in lieu of cash forfees
                  earned by executive recruiters
              
              
              8,673
              
              
              1
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              34,999
              
              
              —
              
              
              —
              
              
              —
              
              
              35,000Options
                  granted under the Long-TermIncentive
                  Plan to Management, Board ofDirectors,
                  and Advisors
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              377,669
              
              
              (377,669
              )
              
              —
              
              
              —
              
              
              —Revaluation
                  of options issued toWilliam
                  Allender in connection withseverance
                  agreement
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              798,262
              
              
              (798,262
              )
              
              —
              
              
              —
              
              
              —Warrants
                  granted to consultants
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              476,735
              
              
              (476,735
              )
              
              —
              
              
              —
              
              
              —Amortization
                  of deferred compensationrelated
                  to options and warrants issuedfor
                  services rendered by—Related
                  parties
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,615,533
              
              
              —
              
              
              —
              
              
              1,615,533Other
                  parties
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              366,120
              
              
              —
              
              
              —
              
              
              366,120Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (6,588,387
              )
              
              (6,588,387
              )**Balance
                  at December 31, 2005**
              
              
              26,158,778
              
              $
              2,617
              
              
              347,856
              
              $
              34
              
              
              84,604
              
              $
              8
              
              
              —
              
              $
              —
              
              $
              30,954,333
              
              $
              (238,801
              )
              $
              —
              
              $
              (24,331,921
              )
              $
              6,386,270
  The
        accompanying notes are an integral part of
        these financial statements.
  28
  **CYTOMEDIX,
          INC.**
 **Statements
          of Stockholders’ Equity**
  **Common
                  Stock**
              
              
              **Series
                  A Preferred**
              
              
              **Series
                  B****Preferred**
              
              
              **Series
                  C Preferred****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Additional****Paid-in****Capital**
              
              
              **Deferred****Compensation**
              
              
              **Subscriptions****Receivable**
              
              
              **Accumulated****Deficit**
              
              
              **Total****Stockholders****Equity**Correction
                  of share balance
              
              
              —
              
              
              —
              
              
              (9,115
              )
              
              —
              
              
              743
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Reclassification
                  pursuant to adoption ofSFAS
                  No. 123R
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (238,801
              )
              
              238,801
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon conversion ofSeries
                  A stock
              
              
              303
              
              
              —
              
              
              (909
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued upon conversion ofSeries
                  B stock
              
              
              3,003
              
              
              —
              
              
              —
              
              
              —
              
              
              (9,010
              )
              
              (1
              )
              
              —
              
              
              —
              
              
              1
              
              
              —
              
              
              —
              
              
              —
              
              
              —Dividend
                  issued on Series A and Series Bstock
              
              
              —
              
              
              —
              
              
              28,138
              
              
              3
              
              
              7,094
              
              
              1
              
              
              —
              
              
              —
              
              
              35,228
              
              
              —
              
              
              —
              
              
              —
              
              
              35,232Common
                  stock issued upon exercise ofClass
                  B warrants
              
              
              22,500
              
              
              2
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              33,748
              
              
              —
              
              
              —
              
              
              —
              
              
              33,750Common
                  stock issued upon exercise ofClass
                  C-1 warrants
              
              
              548,900
              
              
              55
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              823,295
              
              
              —
              
              
              —
              
              
              —
              
              
              823,350Common
                  stock issued upon exercise ofClass
                  C-2 warrants
              
              
              21,750
              
              
              2
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              32,623
              
              
              —
              
              
              —
              
              
              —
              
              
              32,625Common
                  stock issued upon exercise ofLong-term
                  Incentive Plan options
              
              
              79,200
              
              
              8
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              118,792
              
              
              —
              
              
              —
              
              
              —
              
              
              118,800Common
                  stock issued upon exercise ofUnit
                  Offering warrants
              
              
              1,355,166
              
              
              135
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,032,615
              
              
              —
              
              
              —
              
              
              —
              
              
              2,032,750Common
                  stock issued upon exercise ofother
                  warrants
              
              
              23,070
              
              
              2
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              23,068
              
              
              —
              
              
              —
              
              
              —
              
              
              23,070Common
                  stock to be released upon fullpayment
                  of other warrants exercised
              
              
              775,000
              
              
              78
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              774,922
              
              
              —
              
              
              (697,500
              )
              
              —
              
              
              77,500Collections
                  on subscriptions receivable
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              77,500
              
              
              —
              
              
              77,500Expiration
                  of Series C-1 andUnit
                  Offering warrants, payable at$0.01
                  per called warrant not exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (13,368
              )
              
              —
              
              
              —
              
              
              —
              
              
              (13,368
              )Stock-based
                  compensation related tooptions
                  and warrants issued forservices
                  rendered by—Employees
                  and Directors
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,073,130
              
              
              —
              
              
              —
              
              
              —
              
              
              1,073,130Other
                  parties
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              129,794
              
              
              —
              
              
              —
              
              
              —
              
              
              129,794Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2,299,317
              )
              
              (2,299,317
              )**Balance
                  at December 31, 2006**
              
              
              28,987,670
              
              $
              2,899
              
              
              365,970
              
              $
              37
              
              
              83,431
              
              $
              8
              
              
              —
              
              $
              —
              
              $
              35,779,380
              
              $
              —
              
              $
              (620,000
              )
              $
              (26,631,238
              )
              $
              8,531,086





*The
      accompanying notes are an integral part of these financial
      statements.*




29




**CYTOMEDIX,
      INC.**


**Statements
      of Cash Flows**


**Year
                    Ended****December
                  31,****2006**
              
              **2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (2,262,956
              )
              $
              (6,503,485
              )
              $
              (8,139,326
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
                  and amortization
              
              
              197,194
              
              
              224,274
              
              
              218,954Stock-based
                  compensation - consultants and other
              
              
              129,794
              
              
              455,565
              
              
              2,518,764Stock-based
                  compensation - employees and directors
              
              
              1,073,130
              
              
              1,526,088
              
              
              578,492Stock
                  issued for contract settlement
              
              
              —
              
              
              227,500
              
              
              —Stock
                  issued for consulting services
              
              
              —
              
              
              35,000
              
              
              —(Gain)
                  Loss on disposal of assets
              
              
              (4,348
              )
              
              (16,609
              )
              
              4,655Interest
                  earned on stock subscriptions outstanding
              
              
              —
              
              
              (866
              )
              
              (21,008
              )Change
                  in current assets
              
              
              (472,821
              )
              
              (78,305
              )
              
              (193,210
              )Change
                  in patent settlements receivable
              
              
              (542,110
              )
              
              (31,962
              )
              
              —Change
                  in accounts payable and accrued expenses
              
              
              98,217
              
              
              94,678
              
              
              400,752Change
                  in deferred revenues
              
              
              (62,270
              )
              
              (84,138
              )
              
              (81,448
              )Change
                  in other liabilities
              
              
              185,000
              
              
              —
              
              
              —Net
                  cash used in operating activities
              
              
              (1,661,170
              )
              
              (4,152,260
              )
              
              (4,713,375
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of equipment
              
              
              —
              
              
              —
              
              
              (56,563
              )Proceeds
                  from sale of equipment
              
              
              4,500
              
              
              38,775
              
              
              —(Increase)
                  Decrease in restricted cash
              
              
              —
              
              
              21,375
              
              
              (600
              )Net
                  cash provided by (used in) investing activities
              
              
              4,500
              
              
              60,150
              
              
              (57,163
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from sale of common and preferred stock, net
              
              
              —
              
              
              832,465
              
              
              5,608,188Repayment
                  of note payable
              
              
              —
              
              
              —
              
              
              (13,066
              )Proceeds
                  from option and warrant exercises
              
              
              3,219,345
              
              
              3,199,227
              
              
              1,638,965Payment
                  for expiration of called warrants
              
              
              (13,368
              )
              
              —
              
              
              —Dividends
                  paid
              
              
              (11,035
              )
              
              (90,589
              )
              
              —Net
                  cash provided by financing activities
              
              
              3,194,942
              
              
              3,941,103
              
              
              7,234,087Net
                  increase (decrease) in cash
              
              
              1,538,272
              
              
              (151,007
              )
              
              2,463,549Cash,
                  beginning of period
              
              
              3,123,927
              
              
              3,274,934
              
              
              811,385Cash,
                  end of period
              
              $
              4,662,199
              
              $
              3,123,927
              
              $
              3,274,934




*The
      accompanying notes are an integral part of these financial
      statements.*




30




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




**NOTE
      1 - DESCRIPTION OF THE BUSINESS**




Cytomedix
      is a biotechnology company that develops and licenses autologous
      cellular therapies (i.e., therapies using the patient’s own body products),
      including Cytomedix’s proprietary process to produce a platelet rich plasma gel
      (“AutoloGelTM”) for the treatment of wounds. To create AutoloGelTM, the patient’s
      own platelets and plasma are separated through centrifugation and combined
      with
      several reagents. This process releases multiple growth factors from the
      platelets, creates a fibrin matrix scaffold, and forms a gel that is topically
      applied to a wound (under the direction of a physician). Upon topical
      application, the Company believes that AutoloGelTM initiates a reaction that
      closely mimics the body’s natural healing process. Cytomedix sells its products
      primarily to health care providers in the United States and licenses its patents
      to medical device and product suppliers in the United States. The Company was
      incorporated in the State of Delaware on April 29, 1998, and has its
      headquarters in Rockville, Maryland.








**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





***Basis
      of Presentation***





The
      Company's financial statements are prepared on the accrual basis of accounting
      in accordance with accounting principles generally accepted in the United States
      of America. Certain financial information is based on fresh-start accounting
      utilized upon the Company’s emergence from bankruptcy in July 2002.





***Use
      of Estimates***





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the amounts reported in the financial
      statements and the accompanying notes. Actual results could differ from those
      estimates.





***Concentration
      of Risk***





Approximately
      $1.5 million, $1.1 million and $0.7 million, or 77%, 76% and 61% of the
      Company’s revenue in the years ended December 31, 2006, 2005 and 2004
      respectively, were generated from royalties from three, three and one licensees,
      respectively. Should any of these licensees experience a significant decrease
      in
      the sales of products covered by its license agreement with Cytomedix, there
      may
      be a material adverse effect on Cytomedix’s results of future
      operations.




As
      of
      December 31, 2006 and 2005, the Company maintained approximately $225,000 and
      $340,000 respectively, in financial institutions in excess of Federal Deposit
      Insurance Corporation (“FDIC”) insurance. In addition, $3,973,000 and $2,323,000
      held in money market accounts at brokerage firms were in excess of the $500,000
      Securitites Investor Protection Corporation (“SIPC”) coverage as of December 31,
      2006 and 2005, respectively. These amounts not covered by SIPC were insured
      by
      the Company’s brokerage firm through the Customer Asset Protection Company
      (“CAPCO”).




The
      Company currently has one product that is presently marketed. Significant
      changes in technology could lead to new products or services that compete with
      the product offered by the Company. These changes could materially affect the
      price of the Company’s product or render it obsolete.





The
      Company outsources manufacturing for all the components of its offerings. While
      the Company utilizes single suppliers for several components of the AutoloGel
      offering, such components are readily available on the open market and therefore
      no dependency exists. The one exception is a reagent, bovine thrombin, available
      exclusively through King Pharmaceuticals.





31




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**


***Cash
      Equivalents***





The
      Company considers all highly liquid instruments purchased with an original
      maturity of three months or less to be cash equivalents.





***Accounts
      and Royalties Receivable***





Cytomedix
      generates accounts receivable from the sale of its products. Cytomedix provides
      for a reserve against receivables for estimated losses that may result from
      a
      customer’s inability or unwillingness to pay. The allowance for doubtful
      accounts is estimated primarily based upon historical write-off percentages,
      known problem accounts, and current economic conditions. Accounts are written
      off against the allowance for doubtful accounts when the Company determines
      that
      amounts are not collectable. Recoveries of previously written-off accounts
      are
      recorded when collected.





Royalties
      receivable represent current royalties earned on sales of covered product by
      licensees.





***Inventory***





Inventory
      is stated at the lower of cost or net realizable value. Cost is determined
      on a
      first-in-first-out (FIFO) basis. The Company's primary product is a kit that
      is
      composed of multiple items that expire at different periods with the earliest
      item in the kit being the determining factor in its classification as a salable
      item. Kits with expired components are segregated and used for demonstration
      purposes only; the Company maintains a full reserve on these kits.





***Property
      and Equipment***





Property
      and equipment is stated at cost less accumulated depreciation and is
      depreciated, using the straight-line method, over their estimated useful lives
      ranging from three to seven years. Maintenance and repairs are charged to
      operations as incurred. When assets are sold, or otherwise disposed of, the
      cost
      and related accumulated depreciation are removed from the accounts and any
      gain
      or loss is included in other income and expense.





***Intangible
      Assets***





The
      Company capitalizes the costs of purchased and internally developed patents.
      This cost is amortized via the straight-line method over the remaining life
      of
      the patents.





The
      Company accounts for finite-lived intangibles under SFAS No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets,” and therefore reviews the
      recoverability of long-lived and finite-lived intangible assets when
      circumstances indicate that the carrying amount of assets may not be
      recoverable.





The
      Company follows the guidance of SFAS No. 142, “Goodwill and Other Intangible
      Assets,” with regard to its indefinite-lived intangibles. SFAS No. 142 requires
      that goodwill be assessed at least annually for impairment by applying a fair
      value based test. This evaluation has been independently performed for 2006,
      2005 and 2004 and is generally based on various analyses including cash flow
      projections. In the event these analyses indicate an impairment, the Company
      would record an impairment loss, if any, based on the fair value of the
      assets.





No
      impairment of intangible assets was recorded in 2006, 2005 or 2004.





***Income
      Taxes***





Deferred
      income taxes reflect the net tax effects of net operating loss carryforwards
      and
      temporary differences between the carrying amounts of assets and liabilities
      for
      financial reporting purposes and the amounts used for income tax purposes,
      using
      enacted tax rates in effect for the year in which the differences are expected
      to reverse. A full valuation allowance has been established, reducing deferred
      tax assets to zero, as management has determined that realization of this
      benefit is not assured.




32




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**


***Revenue
      Recognition***





The
      Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
      No.
      101, “Revenue Recognition in Financial Statements” (“SAB 101”), as amended. SAB
      101 requires that four basic criteria must be met before revenue can be
      recognized: (1) persuasive evidence of an arrangement exists; (2) delivery
      has
      occurred or services rendered; (3) consideration is fixed and determinable;
      and
      (4) collectibility is reasonably assured.





Revenue
      from the sale of the Company’s products to distributors and caregivers is
      recognized upon delivery. Revenue from the sale of the Company’s products to
      patients is recognized upon use of the product on the patient or acknowledgement
      from a patient's insurer authorizing treatment, whichever is later.





Revenue
      from the licensing of patents (royalty revenue) is generally recognized as
      products are sold by licensees. Certain up-front license fees are amortized
      over
      the life of the license agreement. Lump sum payments, considered by the Company
      to be discharges of past obligations, are reflected net of their associated
      costs as “Patent litigation settlements, net” in the Statements of Operations.
      Such amounts are recorded at their present value. The Company records revenue
      and settlement income related to its agreement with Perfusion Partners
      Associates, Inc. (“PPAI”) on the cash basis due to PPAI’s recent emergence from
      bankruptcy.





***Stock-Based
      Compensation***





The
      Company adopted SFAS No. 123R, “Share-Based Payment,” as of January 1, 2006,
      using the modified prospective application. Under this method, all equity-based
      compensation awarded after the adoption date has been determined under the
      fair
      value provisions of SFAS No. 123R. Additionally, for all equity-based
      compensation awarded prior to the adoption date, compensation for the portion
      of
      awards for which the requisite service is performed after the adoption date
      is
      recognized as service is rendered.





The
      Company’s policy is to issue new shares of its Common stock when employees
      exercise options awarded under its Long-Term Incentive Plan. See Note 12 to
      the
      Financial Statements.





As
      permitted under SFAS No. 123, the Company applied the intrinsic value method
      of
      accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations, in
      accounting for its stock-based grants to employees and directors in 2005 and
      2004. Under the “intrinsic value” method, an option’s value is the excess of the
      market price of the underlying stock on the date of grant over the exercise
      price of the option. No value is attributed to the option if its exercise price
      is greater than the stock’s market price. Had the Company continued to use the
      intrinsic value provisions under APB Opinion No. 25, employee and director
      stock-based compensation would have been $115,833, net of income taxes, for
      the
      year ended December 31, 2006. The change increased reported net loss and
      basic and diluted loss per share for the year ended December 31, 2006 by
      $957,297 and $0.03, respectively. The change had no effect on the Company’s cash
      flow from operating, investing or financing activities.





Under
      the
      fair value method prescribed by SFAS 123R, the Company recorded $1,073,130,
      net
      of income taxes, in employee and director stock-based compensation for the
      year
      ended December 31, 2006. Had compensation expense for the years ended December
      31, 2005 and 2004 been determined under the fair value provisions of SFAS No.
      123 as amended by SFAS No. 148, “Accounting for Stock-Based Compensation -
      Transition and Disclosure, an amendment of FASB Statement No. 123,” the
      Company’s net loss and net loss per share to Common shareholders would have
      differed as follows:




33


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**


**2005**
              
              **2004**Net
                  loss to common stockholders, as reported
              
              $
              (6,588,387
              )
              $
              (11,259,187
              )Add:Stock-based
                  employee compensationexpense
                  included in reported net lossdetermined
                  under APB No. 25,net
                  of related tax effects
              
              
              698,380
              
              
              258,464Deduct:Stock-based
                  employee compensationexpense
                  determined under fair valuebased
                  method for all awards,net
                  of related tax effects
              
              
              (2,139,046
              )
              
              (793,792
              )Pro
                  forma net loss
              
              $
              (8,029,053
              )
              $
              (11,794,515
              )Loss
                  per share:Basic
                  and diluted - as reported
              
              $
              (0.27
              )
              $
              (0.62
              )Basic
                  and diluted - pro forma
              
              $
              (0.33
              )
              $
              (0.65
              )





These
      pro
      forma amounts may not be representative of future disclosures since the
      estimated fair value of stock options would be amortized to expense over the
      vesting period and additional options may be issued in future
      years.





The
      fair
      value of each option award is estimated on the date of grant using the
      Black-Scholes option valuation model. The weighted-average assumptions used
      in
      the model are summarized in the following table:


**2006**
              
              **2005**
              
              **2004**Risk
                  free rate
              
              
              4.73
              %
              
              4.40
              %
              
              3.90
              %Expected
                  years until exercise
              
              
              10.0
              
              
              8.1
              
              
              9.3Expected
                  stock volatility
              
              
              113
              %
              
              114
              %
              
              100
              %Dividend
                  yield
              
              
              —
              
              
              —
              
              
              —





Expected
      volatilities are based on historical volatility of the Company’s stock. The
      Company uses historical data to estimate option exercise and employee
      termination within the valuation model. The expected years until exercise
      represents the period of time that options are expected to be outstanding.
      The
      risk-free rate for periods within the contractual life of the option is based
      on
      the U.S. Treasury yield curve in effect at the time of grant. The Company
      estimated that the dividend rate on its Common stock will be zero.





***Loss
      Per Share***





Loss
      per
      share is calculated in accordance with SFAS No. 128, “Earnings Per Share.” Basic
      loss per share is computed based upon the weighted average number of shares
      of
      Common stock outstanding for the period and excludes any potential dilution.
      Diluted earnings per share reflects potential dilution from the exercise of
      securities into Common stock. Outstanding options and warrants to purchase
      Common stock are not included in the computation of diluted earnings per share
      because the effect of these instruments would be anti-dilutive (i.e. would
      reduce the loss per share).




34




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**


The
      Common shares potentially issuable upon the exercise of these instruments,
      were
      as follows at December 31:


**2006**
              
              **2005**
              
              **2004**Options
              
              
              3,202,377
              
              
              2,782,077
              
              
              2,516,577Warrants
              
              
              4,745,301
              
              
              8,528,988
              
              
              11,253,200Series
                  A Preferred Stock
              
              
              121,990
              
              
              115,580
              
              
              525,261Series
                  B Preferred Stock
              
              
              27,810
              
              
              28,458
              
              
              462,347Series
                  C Preferred Stock
              
              
              —
              
              
              —
              
              
              839,0008,097,478
              
              
              11,455,103
              
              
              15,596,385





***Fair
      Value of Financial Instruments***





The
      carrying value of current assets and liabilities approximates fair value due
      to
      their relatively short maturities.





***Reclassifications***





Certain
      reclassifications have been made to conform prior year's data to the current
      presentation. These reclassifications had no effect on reported
      earnings.





***Registration
      Payment Arrangements***





The
      Company is party to a registration rights agreement and a related warrant
      agreement with one of its former consultants. The registration rights agreement
      provides for liquidated damages, at the discretion of the warrantholder, in
      the
      event that the registration statement relating to the shares underlying the
      warrants becomes ineffective. The Company’s obligations under this agreement run
      through the earlier of April 1, 2012 or two years after the exercise of the
      related warrants. At the discretion of the warrantholder, the liquidated damages
      may take the form of cash or additional shares of the Company’s Common stock. As
      of December 31, 2006, the Company has estimated the maximum undiscounted
      liquidated damages at $171,000. However, pursuant to FASB Staff Position No.
      EITF 00-19-2, which the Company adopted in the fourth quarter of 2006, the
      Company has determined that it is unlikely that circumstances allowing for
      the
      aforementioned liquidated damages would arise, and therefore no contingent
      liability has been recorded.





***Recent
      Accounting Pronouncements***





In
      July
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109,” which seeks to reduce the diversity in practice associated with
      the accounting and reporting for uncertainty in income tax positions. This
      Interpretation prescribes a comprehensive model for the financial statement
      recognition, measurement, presentation and disclosure of uncertain tax positions
      taken or expected to be taken in income tax returns. FIN 48 is effective
      for fiscal years beginning after December 15, 2006 and the Company will
      adopt the new requirements in its fiscal first quarter of 2007. The Company
      does
      not expect the adoption of this statement in fiscal year 2007 to have a material
      impact on the Company’s financial position or results of operations





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance on
      measuring the fair value of assets and liabilities. SFAS 157 will apply to
      other
      accounting pronouncements that require or permit assets or liabilities to be
      measured at fair value but does not expand the use of fair value to any new
      circumstances. This standard will also require additional disclosures in both
      annual and quarterly reports. SFAS 157 will be effective for financial
      statements issued for fiscal years beginning after November 15, 2007. The
      Company is currently determining the effect, if any, the adoption of SFAS 157
      will have on its financial statements.





In
      September 2006, the SEC staff issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements
      when Quantifying Misstatements in Current Year Financial Statements”
(“SAB 108”). The intent of SAB 108 is to reduce diversity in practice
      for the method companies use to quantify financial statement misstatements,
      including the effect of prior year uncorrected errors. SAB 108 establishes
      an approach that requires quantification of financial statement errors using
      both an income statement and a cumulative balance sheet approach. SAB 108
      is effective for fiscal years beginning after November 15, 2006, and the
      Company will adopt the new requirements in 2007. The adoption of SAB 108 is
      not currently expected to have a significant impact on the Company’s financial
      statements.





35




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**


**NOTE
      3 - WORKING CAPITAL**





The
      Company’s operating revenues do not cover the costs of its operations. The cash
      position of the Company at December 31, 2006 was approximately $4.7 million.
      The
      Company believes that it will have adequate cash on hand to fund operations
      for
      the year ending December 31, 2007. However, additional cash may be required
      if
      operating revenues do not materialize, the cost of operations increases, or
      if
      the Company’s efforts to appeal the FDA’s NSE determination letter prove
      unsuccessful and a change in strategy requires significant short-term
      funding.





The
      Company has no material commitments for capital expenditures.





Because
      the Company was in bankruptcy in 2002, the Company may not be able to obtain
      debt financing. All working capital required to implement the Company’s business
      plan will be provided by funds obtained through offerings of its equity
      securities, and revenues generated by the Company.








**NOTE
      4 - LICENSING AGREEMENTS**





During
      2006 and 2005, the Company entered into several separate settlement and license
      Agreements. Under the terms of the respective agreements, payments of
      approximately $4,905,000 were due to the Company for the discharge of past
      obligations or as upfront fees. Additionally, certain licensees are required
      to
      pay on-going royalties on defined classes of sales.





Patent
      settlements are one-time, non-recurring transactions. Amounts related to these
      settlements that are payable to the Company over time are reflected as “Patent
      settlements receivable, current portion” and “Patent settlements receivable” on
      the Balance Sheet for their current and long-term portions respectively.
      Associated costs, consisting of royalty and contingent legal fees payable upon
      the collection of such receivables, are reflected in “Accounts payable and
      accrued expenses” and “Other liabilities” on the Balance Sheet, for their
      current and long-term portions, respectively. Income related to the settlement
      of past obligations, net of associated costs, are reflected as “Patent
      litigation settlements, net” on the Statements of Operations as
      follows:


**2006**
              
              **2005**
              
              **2004**Income
              
              $
              2,479,000
              
              $
              1,388,000
              
              $
              —Costs
              
              
              (832,000
              )
              
              (341,000
              )
              
              —Net
                  settlement income
              
              $
              1,647,000
              
              $
              1,047,000
              
              $
              —




Due
      to
      PPAI’s recent emergence from bankruptcy, the Company records incomes when
      payments are received from PPAI. As of December 31, 2006, the Company had
      received and recorded $139,000 of the agreed $250,000 settlement for past
      obligations from PPAI.





Royalties
      earned after the effective dates of these agreements and amortization of
      deferred revenue from up front fees, together with the related costs, are
      included in the Statements of Operations as “Royalties” and “Cost of royalties,”
respectively.





Since
      2003, the Company has incurred expenses of $690,000 (excluding royalty and
      contingent legal fees) for patent enforcement actions. Of this amount,$1,000,
      $479,000, and $197,000 were incurred during 2006, 2005 and 2004, respectively.
      These fees have primarily been included in Professional fees. The Company’s
      patent enforcement strategy is being conducted on a full contingency
      basis.





The
      Company’s primary license agreements, based on its ownership of the “Knighton
      Patent” (US Patent No. 5,165,938), are listed below:




36


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**   **Licensee**
                
                **Date
                    of**
                  **Agreement**
                
                **Date
                    of**
                  **Expiration
                    (4)**
                
                **Initial**
                    **Licensing
                      Fee**
                
                
                **On-going Royalty****Percentage
                    (2)**DePuy
                    Spine, Inc. (1)
                
                
                3/19/2001
                
                
                11/24/2009
                
                $
                750,000
                
                
                
                6.5%3/4/2005Medtronic,
                    Inc.
                
                
                5/1/2005
                
                
                11/24/2009
                
                $
                680,000
                
                
                
                7.5%
                    on disposables1.5%
                    on hardwareHarvest
                    Technologies, Inc.
                
                
                6/30/2005
                
                
                11/24/2009
                
                $
                500,000
                
                
                
                7.5%
                    on disposables1.5%
                    on hardwarePerfusion
                    Partners, Inc.
                
                
                6/26/2005
                
                
                11/24/2009
                
                $
                $
                    250,000
                (3)
                
                
                10.0%COBE
                    Cardiovascular, Inc.
                
                
                10/7/2005
                
                
                11/24/2009
                
                $
                45,000
                
                
                
                7.5%
                    on disposables1.5%
                    on hardwareSafeBlood
                    Technologies, Inc.
                
                
                10/12/2005
                
                
                11/24/2009
                
                $
                $
                    50,000
                (3)
                
                
                8.0%
                    to 9.0%Biomet
                    Biologics, Inc. (5)
                
                
                5/19/2006
                
                
                11/24/2009
                
                $
                2,600,000
                
                
                
                noneCellMedix,
                    Inc.
                
                
                11/28/2006
                
                
                11/24/2009
                
                $
                30,000
                
                
                
                9.5%





(1)  Cytomedix
      has two license agreements with DePuy Spine, Inc. The original license agreement
      was dated March 19, 2001, amended March 3, 2005, and provides for the use of
      applications under Cytomedix patents in the fields of diagnostic and therapeutic
      spinal, neurosurgery and orthopedic surgery. The second license agreement is
      dated March 4, 2005 and applies to all fields not covered in the original
      license agreement as amended.




(2)  Certain
      minimum royalties may apply to certain agreements and other royalty percentages
      may apply to future products covered under selected license
      agreements.




(3)  Some
      of
      these amounts are payable over a period of time as defined in executed notes
      payable to Cytomedix.




(4)  These
      dates reflect the expiration of the license in the U.S., which coincides with
      the expiration of the Knighton Patent in the U.S. In some cases, the licensing
      agreements applicable to territories outside the U.S. extend to the expiration
      of the patents in the respective foreign countries.




(5)  The
      Settlement and License Agreement with Biomet Biologics, Inc. (“Biomet”) called
      for a $2.6 million payout from Biomet to Cytomedix. This payout took the form
      of
      $1.4 million payable upon execution of the agreement and $100,000 payable at
      the
      end of each of 12 consecutive quarters beginning with the quarter ending
      September 2006. These payments are not tied to any performance commitments
      by
      Cytomedix and are not dependent on Biomet sales.







**NOTE
      5 - ROYALTY AGREEMENTS**





The
      Company is party to a Royalty Agreement with Curative Health Services, Inc.
      Under this agreement as amended, Curative is to receive 92% of licensing
      receipts from DePuy Spine, Inc. (a division of Johnson & Johnson, Inc.) and
      10% of the total other amounts received by the Company in connection with
      upfront, milestone and other similar payments relating to the Knighton
      Patent.





The
      Company is also party to a Royalty Agreement with Mr. Charles Worden. The
      primary terms of this agreement are discussed in Note 15 - Related Party
      Transactions.





37




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




**NOTE
      6 - RECEIVABLES**





Accounts
      and royalties receivable, net consisted of the following at December
      31:


**2006**
              
              **2005**Trade
                  receivables
              
              $
              168,477
              
              $
              197,982Royalty
                  receivables
              
              
              491,250
              
              
              304,250Other
                  receivables
              
              
              25,393
              
              
              17,828685,120
              
              
              520,060Less
                  allowance for doubtful accounts
              
              
              (136,851
              )
              
              (89,893
              )$
              548,269
              
              $
              430,167





Bad
      debt expense was approximately $62,000 for each of the years ended December
      31,
      2006 and 2005.





Patent
      settlements are one-time, non-recurring transactions. Patent settlements
      receivable consist of amounts owed to the Company for the discharge of past
      obligations pursuant to settlement and licensing agreements with various
      licensees. The amounts are reflected at their net present value using discount
      rates between 8.00% and 8.25%. The current portions are due within one year
      and
      long-term portion are due at various periods through June 2009.








**NOTE
      7 - PREPAID EXPENSES, INVENTORY, AND OTHER CURRENT ASSETS**





Prepaid
      expenses, other current assets and inventory consisted of the following at
      December 31:


**2006**
              
              **2005**Prepaid
                  insurance
              
              $
              131,406
              
              $
              117,880Prepaid
                  fees and rent
              
              
              12,113
              
              
              67,266Travel
                  advances
              
              
              —
              
              
              5,655Deposits
              
              
              3,190
              
              
              3,811Inventory
              
              
              8,647
              
              
              27,575$
              155,356
              
              $
              222,187




38




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




**NOTE
      8 - PROPERTY AND EQUIPMENT**





Property
      and equipment consisted of the following at December 31:


**2006**
              
              **2005**Medical
                  equipment
              
              $
              279,660
              
              $
              281,610Office
                  equipment
              
              
              74,559
              
              
              74,559354,219
              
              
              356,169Less
                  accumulated depreciation
              
              
              (342,460
              )
              
              (281,575
              )$
              11,759
              
              $
              74,594


Depreciation
      expense was approximately $63,000, $98,000, and $93,000 for the years ended
      December 31, 2006, 2005, and 2004, respectively.





**NOTE
      9 - INTANGIBLE ASSETS**





Cytomedix
      owns eight U.S. patents (including U.S. Patent No. 5,165,938 (the “Knighton
      Patent”) and U.S. Patent No. 6,303,112 (the “Worden Patent”), various
      corresponding foreign patents, and various trademarks. The Knighton Patent
      and
      Worden Patent expire in November 2009 and February 2019,
      respectively.





Patents
      and related accumulated amortization at December 31 was as
      follows:


**2006**
              
              **2005**Patents
              
              $
              2,400,000
              
              $
              2,400,000Less
                  accumulated amortization
              
              
              (576,616
              )
              
              (442,105
              )$
              1,823,384
              
              $
              1,957,895





Amortization
      expense was approximately $135,000 for the year ended December 31, 2006 and
      $126,000 for each of the years ended December 31, 2005 and 2004. The Company
      is
      amortizing the patents over the remaining lives of the patents and the Company
      expects amortization expense to be approximately $151,000 in each of the next
      five years.





Goodwill
      represents the excess reorganization value over the amounts allocable to
      identifiable assets upon the Company’s emergence from bankruptcy in
      2002.





39




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




**NOTE
      10 - INCOME TAXES**





Income
      tax (expense) benefit for the years ended December 31, 2006, 2005 and 2004
      consisted of the following:


**2006**
              
              **2005**
              
              **2004**Current:Federal
              
              $
              —
              
              $
              —
              
              $
              —State
              
              
              —
              
              
              —
              
              
              —Deferred:Federal
              
              
              459,000
              
              
              784,000
              
              
              1,138,000State
              
              
              98,000
              
              
              133,000
              
              
              182,000Net
                  operating loss carryforward
              
              
              389,000
              
              
              1,794,000
              
              
              1,815,000Valuation
                  allowance
              
              
              (946,000
              )
              
              (2,711,000
              )
              
              (3,135,000
              )Total
                  income tax (expense) benefit
              
              $
              —
              
              $
              —
              
              $
              —





Significant
      components of Cytomedix’s deferred tax assets and liabilities consisted of the
      following at December 31:


**2006**
              
              **2005**Deferred
                  tax assets:Stock-based
                  compensation
              
              $
              3,071,000
              
              $
              2,564,000Other
              
              
              166,000
              
              
              158,000Total
                  deferred tax assets
              
              
              3,237,000
              
              
              2,722,000Deferred
                  tax liabilities:Amortization
                  of patents
              
              
              (594,000
              )
              
              (631,000
              )Other
              
              
              (16,000
              )
              
              (21,000
              )Net
                  deferred tax assets
              
              
              2,627,000
              
              
              2,070,000Net
                  operating loss carryforwards
              
              
              7,903,000
              
              
              7,514,00010,530,000
              
              
              9,584,000Less
                  valuation allowance
              
              
              (10,530,000
              )
              
              (9,584,000
              )Total
                  deferred tax assets
              
              $
              —
              
              $
              —




40


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




The
      following table presents a reconciliation between the U.S. federal statutory
      income tax rate and the Company's effective tax rate:


**2006**
              
              **2005**
              
              **2004**U.S.
                  Federal statutory income tax
              
              
              35.0%
              
              
              35.0%
              
              
              35.0%State
                  and local income tax benefits
              
              
              6.6%
              
              
              7.2%
              
              
              2.5%Other
              
              
              (1.7%)
              
              
              (0.4%)
              
              
              1.1%Nondeductible
                  expenses
              
              
              (0.1%)
              
              
              (0.1%)
              
              
              (0.1%)Valuation
                  allowance for deferredincome
                  tax assets
              
              
              (39.8%)
              
              
              (41.7%)
              
              
              (38.5%)Effective
                  income tax rate
              
              
              (0.0%)
              
              
              0.0%
              
              
              0.0%





The
      Company had loss carryforwards of approximately $21,578,000 as of December
      31,
      2006 that may be offset against future taxable income. The carryforwards will
      expire between 2021 and 2026. Utilization of these carryforwards may be subject
      to annual limitations based upon previous significant changes in stock
      ownership. Management has determined that realization of this benefit is not
      assured and accordingly has established a valuation allowance of $10,530,000
      and
      $9,584,000 at December 31, 2006 and 2005, respectively.








**NOTE
      11 - CAPITAL STOCK**





The
      Company has several classes of stock as described below.





***Common
      Stock***





Common
      stock has a par value of $.0001 per share and is limited to a maximum of
      65,000,000 shares. It is subordinate to both Series A Convertible Preferred
      stock and Series B Convertible Preferred stock and to all other classes and
      series of equity securities of the Company which by their terms rank senior
      to
      it, in the event of a liquidation, dissolution, or winding up of the Company
      or
      with regard to any other rights, privileges or preferences. Each share of Common
      stock represents the right to one vote. Holders of Common stock are entitled
      to
      receive dividends as may be declared by the Board of Directors, subject to
      the
      limitations in the terms of the Series A and B Convertible Preferred stock
      described below.





***Series
      A Convertible Preferred Stock***





Series
      A
      Convertible Preferred stock (“Series A”) has a par value of $.0001 per share and
      is limited to a maximum of 5,000,000 shares. It has a stated liquidation
      preference of $1.00 per share and preference over and rank senior to (i) Series
      B Convertible Preferred stock, (ii) Common stock, and (iii) all other classes
      and series of equity securities of the Company which by its terms do not rank
      senior to the Series A stock. The Series A contains a negative covenant
      prohibiting the Company from granting any security interest in the Company's
      patents and/or future royalty streams ("Intellectual Property"). The holders
      of
      record of shares are entitled to receive cumulative dividends at the rate of
      8%
      of the stated liquidation preference amount per share per annum, payable
      quarterly in arrears. These dividends are prior and in preference to any
      declaration or payment of any distribution on any outstanding shares of Common
      stock or any other equity securities of the Company ranking junior as to the
      payment of dividends. Dividends are to be paid in shares of Series A or, in
      the
      sole discretion of the Board of Directors, in cash. Each share of Series A
      stock
      shall entitle the holder thereof to vote on all matters voted on by holders
      of
      Common stock of the Company voting together as a single class with the other
      shares entitled to vote.





Each
      share of Series A stock may be converted into Common stock at a conversion
      rate
      equal to 90% of the twenty-day average closing price of the Company’s Common
      stock, but in no case shall this price be less than $3.00 per
      share.





The
      Company may redeem Series A stock for cash at a price per share equal to 104%
      of
      the liquidation preference amount plus all accrued but unpaid dividends, by
      providing proper notice of not less than 10 days nor more than 60 days prior
      to
      a redemption date set by the Company.




41


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




***Series
      B Convertible Preferred Stock***





Series
      B
      Convertible Preferred stock (“Series B”) has a par value of $.0001 per share and
      is limited to a maximum of 5,000,000 shares. It has a stated liquidation
      preference of $1.00 per share, is subordinate to the Series A stock, and has
      preference over and ranks senior to (i) common stock, and (ii) all other classes
      and series of equity securities of the Company which by its terms do not rank
      senior to the Series B stock. The Series B contains a negative covenant
      prohibiting the Company from granting any security interest in the Company's
      patents and/or future royalty streams ("Intellectual Property"). The holders
      of
      record of shares are entitled to receive cumulative dividends at the rate of
      8%
      of the stated liquidation preference amount per share per annum, payable
      quarterly in arrears. These dividends are prior and in preference to any
      declaration or payment of any distribution on any outstanding shares of Common
      stock or any other equity securities of the Company ranking junior as to the
      payment of dividends. Dividends are to be paid in shares of Series B or, in
      the
      sole discretion of the Board of Directors, in cash. Each share of Series B
      stock
      shall entitle the holder thereof to vote on all matters voted on by holders
      of
      Common stock of the Company voting together as a single class with the other
      shares entitled to vote.





Each
      share of Series B stock may be converted into Common stock at a conversion
      rate
      equal to 90% of the twenty-day average closing price of the Company’s Common
      stock, but in no case shall this price be less than $3.00 per
      share.




The
      Company may redeem Series B stock for cash at a price per share equal to 103%
      of
      the liquidation preference amount plus all accrued but unpaid dividends, by
      providing proper notice of not less than 10 days nor more than 60 days prior
      to
      a redemption date set by the Company.





***Series
      C Convertible Preferred Stock***





Series
      C
      Convertible Preferred stock (“Series C”) has a par value of $.0001 per share and
      is limited to a maximum of 1,000 shares. It has a stated liquidation preference
      of $10,000 per share, and ranks junior to the Series A regarding distributions
      upon liquidation of the Company. Series C stock ranks junior to the Series
      B
      solely with respect to the priority security interest in the Company's
      Intellectual Property. The shares accrued dividends at 6% of the stated
      liquidation preference amount from the date of issuance and increased to 8%
      commencing on September 25, 2005, are payable annually in cash or shares of
      Common stock at the option of the Company. The Series C stock ranks pari passu
      with Series A and Series B with respect to payment of dividends. As of December
      31, 2006 and 2005, no Series C remained outstanding.





***Warrants
      and Options***





The
      Company had the following outstanding warrants and options at December
      31:


**Equity
                  Instrument**
              
              **2006**
              
              **2005**A
                  and B Warrants (1)
              
              
              —
              
              
              22,500C-1
                  Warrants (2)
              
              
              —
              
              
              815,900C-2
                  Warrants (2)
              
              
              855,000
              
              
              876,750D
                  Warrants (3)
              
              
              304,033
              
              
              —Unit
                  Warrants (4)
              
              
              1,825,000
              
              
              4,250,000Other
                  warrants (5)
              
              
              1,761,268
              
              
              2,563,838Options
                  issued under theLong-Term
                  Incentive Plan (6)
              
              
              3,202,377
              
              
              2,782,077





(1) These
      warrants were issued in connection with the $800,000 raised while the Company
      was a debtor in possession and the $2.8 million raised upon the Company’s
      emergence from bankruptcy. As of December 31, 2006, all class A and class B
      warrants have been exercised or have expired.




42


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




(2) These
      warrants were issued in connection with the Series C stock offering and are
      voluntarily exercisable at $1.50 per share, provided that the exercise does
      not
      result in the holder owning in excess of 9.999% of the outstanding shares of
      the
      Company's Common stock, and expire on March 25, 2009. They provide for a
      cashless exercise at the option of the warrantholder provided that (i) the
      per
      share market price of one share of Common stock is greater than the warrant
      price and (ii) a registration statement for the resale of warrant stock is
      not
      in effect. As of December 31, 2006 all class C-1 warrants have been exercised
      or
      have expired. The Company has the option to call up to 100% of the C-2 warrants
      commencing July 29, 2007, provided that the Company's Common stock must have
      been trading at a closing price greater than $3.00 for 10 consecutive trading
      days prior to the call notice and a registration statement is then in effect
      and
      has been effective without lapse for a period of 60 consecutive days and trading
      in the Company's stock shall not have been suspended. The Company, upon calling
      the warrant and the expiration of 20 days without action by the warrant holder,
      will remit to the holder of the warrant $.01 per called warrant and issue a
      new
      warrant representing the number of warrants not subject to the
      call.


(3)  These
      warrants were issued in exchange for the voluntary exercise of Outstanding
      Warrants during the offer period ending May 1, 2006 and are voluntarily
      exercisable at $3.50 per share, provided that the exercise does not result
      in
      the holder owning in excess of 9.9% of the outstanding shares of the Company's
      Common stock, and expire on May 1, 2011. The Company may call up to one hundred
      percent (100%) of the class D warrants, provided that the Company’s Common stock
      must have been trading at a closing price greater than $4.50 for a period of
      at
      least ten (10) consecutive trading days prior to the date of delivery of the
      Call Notice, provided that the Registration Statement is then in effect and
      trading in the Common stock shall not have been suspended by the Securities
      and
      Exchange commission or the securities exchange or quotation system on which
      the
      Common stock is then listed or traded.


(4)  These
      warrants were issued in connection with the Unit offering (discussed later
      in
      this footnote), have a five year term, and are voluntarily exercisable at $1.50
      per share, provided that the exercise does not result in the holder owning
      in
      excess of 9.999% of the outstanding shares of the Company's Common stock, and
      expire on March 31, 2009. They provide for a cashless exercise at the option
      of
      the warrant provided that (i) the per share market price of one share of Common
      stock is greater than the warrant price and (ii) a registration statement for
      the resale of warrant stock is not in effect.


(5)  These
      warrants were issued to placement agents, consultants, and other professional
      service providers in exchange for services provided. They have terms ranging
      from 5 to 10 years with various expiration dates through February 24, 2014
      and
      exercise prices ranging from $1.00 to $6.00. The vesting period typically does
      not exceed the service period. They are voluntarily exercisable once vested.
      There is no call provision associated with these warrants.


(6)  These
      options were issued under the Company’s shareholder approved Long-Term Incentive
      Plan. See Note 12 for a full discussion regarding these options.





***Activity***





The
      Company issued 2,828,892 shares of Common stock during 2006. The following
      table
      lists the sources of and the proceeds from those issuances:


**Source**
              
              **#
                  of Shares**
              
              **Total**
                **Exercise**
                **Price**Conversion
                  of series A convertible preferred shares
              
              
              303
              
              $
              —Conversion
                  of series B convertible preferred shares
              
              
              3,003
              
              $
              —Exercise
                  of class B warrants
              
              
              22,500
              
              $
              33,750Exercise
                  of series C-1 warrants
              
              
              548,900
              
              $
              823,350Exercise
                  of series C-2 warrants
              
              
              21,750
              
              $
              32,625Exercise
                  of unit offering warrants
              
              
              1,355,166
              
              $
              2,032,750Exercise
                  of options issued under theLong-Term
                  Incentive Plan
              
              
              79,200
              
              $
              118,800Exercise
                  of other warrants (1)
              
              
              798,070
              
              $
              798,070Totals
              
              
              2,828,892
              
              $
              3,839,345





(1)  Proceeds
      include $620,000 in the form of a note receivable. See discussion
      below.




43


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




The
      Company issued 4,657,941 shares of Common stock during 2005. The following
      table
      lists the sources of and the proceeds from those issuances:


**Source**
              
              **#
                  of Shares**
              
              **Total**
                **Exercise**
                **Price**Conversion
                  of series A convertible preferred shares (1)
              
              
              431,528
              
              
              —Conversion
                  of series B convertible preferred shares (1)
              
              
              449,942
              
              
              —Conversion
                  of series C convertible preferred shares
              
              
              839,500
              
              
              —Exercise
                  of class A warrants
              
              
              42,500
              
              $
              42,500Exercise
                  of class B warrants (2)
              
              
              507,008
              
              $
              673,851Exercise
                  of class C-1 warrants
              
              
              462,900
              
              $
              694,350Exercise
                  of class C-2 warrants
              
              
              478,700
              
              $
              689,925Exercise
                  of unit offering warrants
              
              
              250,000
              
              $
              375,000Exercise
                  of options issued under theLong-Term
                  Incentive Plan (3)
              
              
              252,000
              
              $
              367,500Exercise
                  of other warrants (2)
              
              
              870,190
              
              $
              356,101Other
                  issuances
              
              
              73,673
              
              
              —Totals
              
              
              4,657,941
              
              $
              3,199,227




(1)  Includes,
      but is not limited to, the immediate conversion to Common stock of certain
      dividends paid in preferred stock.


(2)  Includes
      Common stock issued pursuant to cashless exercise provisions.


(3)  The
      issuance of these shares were registered by the Company’s S-8 filed on November
      1, 2004.





The
      Company has used the cash proceeds from these issuances for general corporate
      purposes. The issuance of shares under the Company's Long-Term Incentive Plan
      were registered by the Company's S-8 filed on November 1, 2004. All other shares
      were issued in private offerings exempt from registration pursuant to Section
      4(2) of the Securities Act.





In
      2006,
      the Company granted 500,000 options to purchase the Company’s Common stock with
      exercise prices ranging from $1.50 to $4.89. These options were granted to
      employees and board members under the Long-Term Incentive Plan (see Note
      12).





On
      October 1, 2006, FEQ Investments, Inc. (“FEQI”) exercised 775,000 consultant
      warrants and simultaneously entered into a Negotiable Term Promissory Note
      and
      related Security Agreement (the “Note”) with the Company in the amount of
      $697,500. The exercise price for these options was $1 per share or a total
      of
      $775,000. The Note provides for the exercise proceeds to be delivered to the
      Company in installment payments ending on February 15, 2007. The Note bears
      interest on the outstanding balance at 6% per year. The Company holds the stock
      certificate resulting from the exercise as collateral. The outstanding principal
      balance of $620,000 at December 31, 2006, is reflected as an offset to
      Stockholder’s equity on the Balance Sheet. See Note 18 to the Financial
      Statements.





On
      August
      30, 2006, as required by the Certificate of Designation filed with the Delaware
      Secretary of State, the Company declared a stock dividend on its Series A and
      B
      Convertible Preferred shares. This dividend resulted in issuance of 27,869
      and
      7,036 shares of Series A and B Convertible Preferred stock, respectively, and
      the issuance of 109 shares of Common stock, in lieu of preferred shares, to
      prior holders of Series A and B Convertible Preferred shares that were converted
      to Common stock prior to the payment of the preferred dividends.





On
      July
      31, 2006, the Company’s common stock closed above $3.00 on the American Stock
      Exchange for the tenth consecutive trading day. As authorized by Section 8
      of
      the Series C-1 Warrants and the Unit Offering Warrants, Cytomedix issued a
      Call
      Notice to call all warrants that were eligible and remained outstanding. As
      a
      result of an amendment to the terms of the warrant, which was accepted by a
      majority of the warrantholders, the exercise period was extended, giving the
      warrantholders until October 20, 2006 to exercise their warrants. The total
      number of warrants called was 1,605,734 at an exercise price of $1.50 per
      warrant. Upon expiration of the exercise period on October 20, 2006, 268,900
      warrants had been exercised resulting in proceeds of approximately $403,000
      to
      the Company. The remaining 1,336,834 unexercised warrants expired and were
      cancelled by the Company. Per the terms of the warrant agreements, the Company
      remitted $0.01 for each expired warrant, or approximately $13,000 in the
      aggregate.




44




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




In
      May
      2006, the Company paid a cash dividend on Series C Convertible Preferred shares
      at the rate of six percent per annum, amounting to $11,000. The dividends were
      calculated based on the number of days the shareholder held the Series C
      Convertible Preferred shares prior to conversion.





In
      2005,
      the Company granted 732,500 options to purchase the Company’s Common stock with
      exercise prices ranging from $1.15 to $6.00. These options were granted to
      employees, board members, and professional service providers. Of these, 517,500
      were granted under the Long-Term Incentive Plan. The remaining 215,000 grants
      were as follows:





·
            On
                March 7, 2005, the Company granted to Kol Bio-Medical Instruments,
                Inc. a
                warrant to purchase 60,000 shares of the Company’s Common stock at an
                exercise price of $2.48. These options vest one year from the date
                of
                grant and expire in five years.


·
            On
                April 18, 2005, the Company granted to Crystal Research Associates,
                LLC a
                warrant to purchase 125,000 shares of the Company’s Common stock at an
                exercise price of $3.14. These options vested immediately and expire
                in
                five years.


·
            On
                August 29, 2005, the Company granted to The Wall Street Group, Inc.
                a
                warrant to purchase 30,000 shares of the Company’s Common stock at an
                exercise price of $6.00. These options vested over a one year period
                and
                expire in five years.





On
      July
      15, 2005, the Company entered into a Separation Agreement and Release with
      William L. Allender. Under said Separation Agreement, Mr. Allender agreed to
      provide consulting services to the Company as needed and to provide for a smooth
      transition to his successor. The Company agreed to extend the expiration date
      of
      Mr. Allender’s options to purchase Common stock and to allow cashless exercise
      of said options as part of his severance package. The extension of the
      expiration date of the options resulted in the Company recording approximately
      $798,000 of compensation expense in 2005.





In
      June
      2005, the Company paid a cash dividend on Series C Convertible Preferred shares
      at the rate of six percent per annum, amounting to approximately $91,000. The
      dividends were calculated based on the number of days the shareholder held
      the
      Series C Convertible Preferred shares prior to conversion.





On
      June
      30, 2005, as required by the Certificate of Designation filed with the Delaware
      Secretary of State, the Company declared a stock dividend on its Series A and
      B
      Convertible Preferred shares. This dividend resulted in the issuance of 25,685
      and 6,323 shares of Series A and B Convertible Preferred shares respectively,
      and the issuance of 27,249 shares of Common stock as a result of the automatic
      conversion of preferred shares issued as dividends to prior holders of Series
      A
      and B Convertible Preferred shares who had already converted to Common stock
      prior to the payment of the preferred dividends (see footnote 1 to the above
      table).





On
      June
      29, 2004, the Company entered into a termination agreement with Mark Cline
      that
      granted him 150,000, five year stock purchase warrants to purchase the Company's
      Common stock at $1.50 per share in exchange for all previously issued and vested
      stock options granted to him plus other considerations. On that date, the
      warrants were valued at $204,000 and the Company recorded deferred compensation
      of that amount. Subsequently, the Company amortized the entire $204,000,
      recording the expense to wages and salaries in 2004.





On
      April
      20, 2004, the Company awarded to Dr. Kshitij Mohan 1,000,000, ten year options
      to purchase the Company’s Common stock for $1.50 per share as part of the two
      year contract between Dr. Mohan and the Company to accept the position as Chief
      Executive Officer. At the date of the award, the fair market value was $2.24
      per
      share. In accordance with APB 25, the Company recorded deferred compensation
      of
      $740,000 at that date and amortized approximately $370,000 and $258,000 in
      2005
      and 2004, respectively, recording the expense to wages and salaries. The Company
      would have recorded $112,000 in 2006 under APB 25.





On
      January 2, 2004, the Company entered into a termination agreement with Kent
      Smith that granted him 175,000 warrants to purchase the Company's Common stock
      at $1.50 per share in exchange for all previously issued and vested stock
      options granted to him plus other considerations. The warrants vested
      immediately and expire in three years. The options that were cancelled under
      the
      agreement totaled 569,621 of which 403,080 were fully vested. On that date,
      the
      warrants were valued at $115,938 and the Company recorded deferred compensation
      in that amount. Subsequently, the Company amortized the entire $115,938 to
      compensation expense in 2004.




45


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**


At
      December 31, the following amounts were accrued for dividends
      payable:


**2006**
              
              **2005**Series
                  A Preferred Stock
              
              $
              14,786
              
              $
              13,872Series
                  B Preferred Stock
              
              
              3,450
              
              
              3,413Series
                  C Preferred Stock
              
              
              —
              
              
              10,857$
              18,236
              
              $
              28,142





No
      dividends were declared or paid on the Company’s Common stock in any of the
      periods discussed in this report.





***Offerings***





In
      March
      2004, the Company entered into a Series C Convertible Preferred Stock Purchase
      Agreement with several accredited investors providing for the sale and issuance
      of $2.8 million of Series C Convertible Preferred stock (“Series C”)
      representing 280 shares, at $10,000 per share, of preferred stock which are
      convertible into 2.8 million shares of Common stock. For each Series C share,
      the Company issued Series C-1 and Series C-2 warrants allowing the holders
      thereof to purchase an aggregate of approximately 2.8 million shares of Common
      stock at an exercise price of $1.50 per share. The characteristics and relative
      rights of the Series C stock and the basic terms of the C-1 and C-2 warrants
      are
      discussed earlier in this footnote. Pursuant to a registration rights agreement,
      the Company subsequently registered the resale of the Common stock issuable
      upon
      conversion of the Series C Convertible Preferred stock and the Common stock
      issuable upon exercise of the Series C-1 and Series C-2 warrants. The Company
      received proceeds from this placement, net of commissions and expenses of
      $325,807, of $2,474,193. In addition to the commissions, the placement agent
      also received five-year warrants to purchase 280,000 shares of the Company's
      Common stock at an exercise price of $1.00 per share and was awarded a six-month
      consulting agreement for future financing services in return for compensation
      of
      $5,000 per month and additional warrants to purchase 100,000 shares of Common
      stock at an exercise price of $1.00 per share.





The
      Company’s stock price on March 26, 2004 was $2.06; consequently, pursuant to the
      requirements of EITF 98-5 “Accounting for Convertible Securities with Beneficial
      Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”),
      as amended by EITF 00-27 “Application of Issue 98-5 to Certain Convertible
      Instruments”, the issuance of the Series C stock, which are convertible
      initially at $1.00 per share at any time, resulted in a beneficial conversion
      feature (the difference between the market price and the conversion price)
      recorded as a preferred stock dividend in the amount of $2,800,000.





Simultaneous
      with the Series C placement, the Company commenced a separate private placement
      in which the Company offered for sale 4,500 units at $1,000 per unit (the “Unit
      Offering”), in return for a total of $4,500,000, consisting of cash and
      negotiable subscription promissory notes receivable. Each unit consists of
      1,000
      shares of Common stock and a five-year warrant (the “unit warrants”) to purchase
      an additional 1,000 shares at $1.50 per share. The characteristics and relative
      rights of the Common stock and the basic terms of the unit warrants are
      discussed earlier in this footnote. As compensation for their services, certain
      broker-dealers received cash commissions in the amount of 10% of the gross
      proceeds. The Company incurred $38,825 of professional fees related to this
      placement which have been netted against the proceeds. At December 31, 2004,
      the
      Company had subscriptions receivable of $825,000 plus accrued interest, all
      of
      which was received in 2005.





On
      May 1,
      2006, the Company completed a Class D Warrant Offer whereby, for each $7.50
      of
      Outstanding Warrants exercised by warrantholders during the offer period, the
      Company issued one Class D Warrant which the holder may exercise for one share
      of Cytomedix Common Stock at an exercise price of $3.50. These Class D Warrants
      have a five year term and are callable at the Company’s discretion if the
      closing price of the Company’s Common Stock is at least $4.50 for 10 consecutive
      trading days and certain other conditions are met. Through this offer, the
      Company received exercises of Outstanding Warrants totaling approximately
      $2,280,000 and issued 304,033 Class D Warrants. These Class D Warrants carry
      piggyback registration rights whereby the Company must include the shares
      underlying these Class D Warrants on any registration statement filed by the
      Company after the closing of the Offering.




46




**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




**NOTE
      12 - LONG-TERM INCENTIVE PLAN**





Cytomedix
      has a shareholder-approved, Long-Term Incentive Plan (“LTIP”) that permits
      incentive awards of options, SARs, restricted stock awards, phantom stock
      awards, performance unit awards, dividend equivalent awards and other
      stock-based awards. Cytomedix may issue up to 5,000,000 shares of stock under
      this LTIP. At December 31, 2006, 1,411,423 shares were available for future
      grants. Of all options granted through December 31, 2006, 386,200 had been
      exercised and 3,202,377 remained outstanding. Option terms are set by the Board
      of Directors for each option grant, and generally vest immediately upon grant
      or
      over a period of time ranging up to three years, are exercisable in whole or
      installments, and expire ten years from the date of grant. These options expire
      at various dates through October 11, 2016.





A
      summary
      of the status of Cytomedix’s LTIP at December 31, 2004, 2005 and 2006, and
      changes during the periods then ended, is presented in the tables
      below:


**Number
                    of****Shares**
              
              **Weighted****Average****Exercise****Price**Balance
                  at December 31, 2003
              
              
              1,840,698
              
              $
              1.50Granted
              
              
              1,480,000
              
              $
              1.52Cancelled
              
              
              (749,121
              )
              $
              1.48Exercised
              
              
              (55,000
              )
              $
              1.50Balance
                  at December 31, 2004
              
              
              2,516,577
              
              $
              1.51Granted
              
              
              517,500
              
              $
              1.52Cancelled
              
              
              —
              
              
              —Exercised
              
              
              (252,000
              )
              $
              1.46Balance
                  at December 31, 2005
              
              
              2,782,077
              
              $
              1.68Granted
              
              
              500,000
              
              $
              2.25Cancelled
              
              
              (500
              )
              $
              1.90Exercised
              
              
              (79,200
              )
              $
              1.50Balance
                  at December 31, 2006
              
              
              3,202,377
              
              $
              1.82




47


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




A
      summary
      of option activity under the LTIP as of December 31, 2006, and changes during
      the year then ended is presented below:


**Options**
              
              **Shares**
              
              **Weighted-Average
                  Exercise Price**
              
              **Weighted-Average
                  Remaining Contractual Term**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at January 1, 2006
              
              
              2,782,077
              
              $
              1.68Granted
              
              
              500,000
              
              $
              2.25Exercised
              
              
              (79,200
              )
              $
              1.50Forfeited
                  or expired
              
              
              (500
              )
              $
              1.90Outstanding
                  at December 31, 2006
              
              
              3,202,377
              
              $
              1.82
              
              
              7.3
              
              $
              0Exercisable
                  at December 31, 2006
              
              
              2,944,046
              
              $
              1.71
              
              
              7.1
              
              $
              0





The
      following table summarizes information about stock options outstanding as of
      December 31, 2006:




**Options
                  Outstanding**
              
              
              **Options
                  Exercisable****Range
                      of****Exercise****Prices**
              
              
              **Number
                      of****Outstanding****Shares**
              
              
              **Weighted**
                      **Average****Remaining****ContractLife**
              
              
              **Weighted**
                      **Average****Exercise****Price**
              
              
              **Number****Exercisable**
              
              
              **Weighted****Average****Exercise****Price**$1.15
                  - $1.50
              
              
              2,384,877
              
              
              6.7
              
              $
              1.49
              
              
              2,384,877
              
              $
              1.49$2.06
                  - $2.73
              
              
              645,000
              
              
              9.2
              
              $
              2.42
              
              
              476,668
              
              $
              2.37$3.14
                  - $6.00
              
              
              172,500
              
              
              8.5
              
              $
              4.08
              
              
              82,501
              
              $
              4.09


The
      weighted-average grant-date fair value of stock options granted under the LTIP
      during the years 2006, 2005, and 2004 was $2.33, $2.74, and $1.46, respectively.
      The total intrinsic value of stock options exercised under the LTIP during
      the
      fiscal years ended December 31, 2006, 2005, and 2004, was $126,000, $916,000,
      and $36,000, respectively.





As
      of
      December 31, 2006, there was $655,170 of total unrecognized compensation cost
      related to nonvested stock options granted under the LTIP. That cost is expected
      to be recognized over a weighted-average period of 1.7 years. The total fair
      value of stock options granted under the LTIP that vested during the fiscal
      years ended December 31, 2006, 2005, and 2004, was $1,421,000, $1,459,000,
      and
      $1,475,000, respectively.





On
      July
      15, 2005, the Company entered into a Separation Agreement and Release with
      William L. Allender. Under said Separation Agreement, Mr. Allender agreed to
      provide consulting services to the Company as needed. The Company agreed to
      extend the contractual life of 150,000 fully vested options to purchase Common
      stock held by Mr. Allender's and to allow cashless exercise of said options
      as
      part of his severance package. As a result of that modification, the Company
      recognized additional compensation expense of $798,000 for the fiscal year
      ended
      December 31, 2005.




48


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**





**NOTE
      13 - DEFERRED COMPENSATION**





The
      components of deferred compensation for the options granted are as follows
      at
      December 31, 2005:


Beginning
                    balance
                
                $
                567,788Deferred
                    compensation recorded
                
                
                1,652,666Amortization
                    of stock-based compensation
                
                
                (1,981,653
                )$
                238,801


Due
      to
      the adoption of FAS123R on January 1, 2006, the above balance was re-classified
      to “Additional paid-in capital”.








**NOTE
      14 - SUPPLEMENTAL CASH FLOW DISCLOSURES - NON-CASH
      TRANSACTIONS**





Non-cash
      transactions for years ended December 31 include:


**2006**
              
              **2005**
              
              **2004**Commissions
                  paid in stock
              
              $
              —
              
              $
              —
              
              $
              15,374Accrued
                  dividends on 6% preferred stock
              
              
              —
              
              
              —
              
              
              79,195Accrued
                  dividends on 8% preferred stock
              
              
              36,361
              
              
              84,902
              
              
              240,665Beneficial
                  conversion feature of Series CPreferred
                  stock recorded as preferredstock
                  dividend
              
              
              —
              
              
              —
              
              
              2,800,000Stock
                  issued for executive recruitment fees
              
              
              —
              
              
              35,000
              
              
              —Stock
                  issued for contract litigation settlement
              
              
              —
              
              
              227,500
              
              
              —Preferred
                  dividends paid by issuance of stock
              
              
              35,232
              
              
              166,063
              
              
              240,704Note
                  received for Common stock issued onwarrant
                  exercise
              
              
              620,000
              
              
              —
              
              
              —





Cash
      paid
      for interest and taxes was $0 in 2006, 2005, and 2004,
      respectively.








**NOTE
      15 - RELATED PARTY TRANSACTIONS**





BDR,
      Inc.
      (“BDR”) is a consulting firm owned solely by Jimmy D. Swink, Jr. The Company
      entered into a consulting agreement with BDR, dated July 11, 2002. Under this
      agreement, the Company granted BDR stock options representing the right to
      purchase 300,000 shares of the Company’s Common stock at $1.50 per share (the
      fair market value on the date of grant). Additionally, in February 2004, the
      Company issued 10-year warrants to purchase an additional 200,000 shares of
      Common stock at $1.50 to BDR, in connection with the consulting agreement.
      All
      such options and warrants are fully vested as of December 31, 2006. Pursuant
      to
      extensions, this consulting agreement expired on August 31, 2006. Under the
      consulting agreement, BDR received compensation totaling $35,000, $186,000,
      and
      $412,000 (of which $0, $78,000, and $289,000 was equity-based compensation
      valued in accordance with SFAS123) for services rendered in the years ended
      2006, 2005, and 2004, respectively.





In
      1999,
      the founder and then sole stockholder of the Company, Charles Worden, and the
      Company entered into an agreement where the Company was to pay Mr. Worden a
      royalty. Mr. Worden and the Company entered into a substitute royalty agreement
      with court approval on November 14, 2001, which superseded the agreement dated
      October 29, 1999. The Company agreed to pay Mr. Worden a royalty of five percent
      of the gross profit from the sale, licensing or other exploitation of the Worden
      Patent. The royalty payment during any calendar year was limited to $600,000.
      The Company was to pay Mr. Worden a minimum royalty of $6,250 per month in
      advance. For the years ended December 31, 2006, 2005 and 2004, the total royalty
      expense was $75,000 per year. The Company granted a security interest and lien
      in the Worden Patent. In addition, the Company granted a reversionary interest
      in the patent if the Company discontinues substantially all efforts to
      commercialize the Worden Patent.




49


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**




The
      Carmen Group, Inc. was engaged during the second quarter of 2003 as a business
      consultant to strategically position and represent the Company before the
      federal government. A former director of the Company, Mr. Robert Burkett, was
      also a senior consultant with the Carmen Group, Inc. during the term of the
      agreement. Effective October 1, 2003, a formal agreement was signed with the
      Carmen Group, Inc. for a period of one year to provide services for the Company
      for a flat fee of $15,000 per month plus expenses. Additionally, the agreement
      stipulated that the Company would issue to the Carmen Group, Inc. an option
      to
      purchase 100,000 shares immediately exercisable at $1.25 with an additional
      100,000 shares being issuable one year from the date of agreement at an exercise
      price of $2.00. In 2004, the Carmen Group provided services to the Company
      amounting to $377,000, which included $240,000 of stock-based compensation.
      The
      Company did not incur any expenses in 2005 or 2006 relating to this agreement
      as
      this agreement expired September 30, 2004, and was neither renewed nor
      extended.








**NOTE
      16 - OPERATING LEASES**





The
      Company leases its office space under an operating lease expiring in July 2008,
      with future minimum lease payments as indicated in the table
      below:


Years
                  ending December 31:2007
              
              $
              64,6582008
              
              
              38,369Thereafter
              
              
              —Total
                  future minimum lease payments
              
              $
              103,027





For
      the
      years ended December 31, 2006, 2005 and 2004, the Company incurred rent expense
      of approximately $63,000, $44,000 and $32,000, respectively.








**NOTE
      17 - COMMITMENTS AND CONTINGENCIES**





Under
      the
      Company’s plan of reorganization upon emergence from bankruptcy in July 2002,
      the pre-bankruptcy Series A Preferred stock and the dividends accrued thereon
      that existed prior to emergence from bankruptcy are exchanged into one share
      of
      new Common stock for every five shares of pre-bankruptcy Series A Preferred
      shares held as of the date of emergence from bankruptcy. This exchange is
      contingent on the successor Company’s attaining aggregate gross revenues for
      four consecutive quarters of at least $10,000,000 prior to July 2009 and would
      result in the issuance of approximately 350,000 shares of Common
      stock.





Under
      a
      distributor agreement, title passes when invoiced product is received by the
      distributor or its designee in acceptable condition. Cytomedix recognizes
      revenue when shipped and does not reserve for defective merchandise.
      Historically, returns for defective merchandise from all customers have been
      negligible.








**NOTE
      18 - SUBSEQUENT EVENTS**





In
      January 2007, the Board of Directors authorized the grant of certain stock
      options under the Long-Term Incentive Plan to board members for their upcoming
      service in 2007. These options have an exercise price of $1.10, vest in equal
      monthly installments through December 2007, and expire ten years from the date
      of grant.





In
      February 2007, the terms of the Note from FEQ Investments were amended to
      accelerate a portion of the principal payments and extend the remainder. As
      amended, the final installment payment is due by April 30, 2007. All other
      terms
      of the Note remain unchanged and in full force and effect.




50


**CYTOMEDIX,
        INC.**
 **Notes
        to Financial Statements**





**NOTE
      19 - QUARTERLY FINANCIAL DATA (UNAUDITED)**


**First****Quarter**
              
              **Second****Quarter**
              
              **Third****Quarter**
              
              **Fourth****Quarter****2006**Revenues
              
              $
              485,537
              
              $
              411,324
              
              $
              574,091
              
              $
              477,203Gross
                  profit
              
              $
              221,975
              
              $
              188,038
              
              $
              350,773
              
              $
              172,784Net
                  income (loss)
              
              $
              (1,214,998
              )
              $
              801,155
              
              $
              (1,032,850
              )
              $
              (816,263
              )Income
                  (loss) per common share--Basic
              
              $
              (0.05
              )
              $
              0.03
              
              $
              (0.04
              )
              $
              (0.03
              )Diluted
              
              $
              (0.05
              )
              $
              0.02
              
              $
              (0.04
              )
              $
              (0.03
              )**2005**Revenues
              
              $
              271,174
              
              $
              305,129
              
              $
              446,384
              
              $
              491,738Gross
                  profit
              
              $
              116,733
              
              $
              101,123
              
              $
              251,102
              
              $
              164,143Net
                  loss
              
              $
              (2,096,729
              )
              $
              (1,269,514
              )
              $
              (2,281,948
              )
              $
              (855,294
              )Loss
                  per common share--Basic
                  and diluted
              
              $
              (0.10
              )
              $
              (0.05
              )
              $
              (0.09
              )
              $
              (0.03
              )




51




**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.








**ITEM
      9A. CONTROLS AND PROCEDURES**





***Conclusion
      Regarding the Effectiveness of Disclosure Controls and
      Procedures***





Under
      the
      supervision and with the participation of management, including the Chief
      Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company
      conducted an evaluation of its disclosure controls and procedures, as such
      term
      is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”) as of December 31, 2006. Based on this
      evaluation, its CEO and CFO concluded the Company's disclosure controls are
      not effective.




***Management’s
      Report on Internal Control over Financial Reporting***





The
      Company’s management is responsible for establishing and maintaining adequate
      internal control over financial reporting, as such term is defined in Exchange
      Act Rule 13a-15(f). Under the supervision and with the participation of its
      management, including the CEO and CFO, the Company conducted an evaluation
      of
      the effectiveness of its internal control over financial reporting based on
      the
      framework in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission. Based on this evaluation
      under the framework in Internal Control—Integrated Framework, management
      concluded that the Company’s internal control over financial reporting  was
      not effective as of  December 31, 2006.




Two
        material weaknesses were noted based on evidence of errors in application
        of
        controls over financial disclosures and in recording stock-based compensation
        expense. The financial statement disclosure errors related primarily to SFAS109, *Accounting
        for Income Taxes* ,
        and the
        recently adopted SFAS123R, *Share-Based
        Payment* .
        While a
        disclosure checklist was utilized for year-end reporting, certain disclosures
        were not included or properly prepared. Errors were also noted in the recording
        of stock-based compensation related to one set of option grants.
 
 Management
        is in the process of evaluating these issues and will take remedial action
        in
        2007.




Management’s
      assessment of the effectiveness of internal control over financial reporting
      as
      of December 31, 2006, has been audited by L J Soldinger Associates, LLC, an
      independent registered public accounting firm, as stated in their report as
      set
      forth on the following page.





***Changes
      in Internal Control over Financial Reporting***





The
      Company made the following changes in its internal controls over financial
      reporting during the quarterly period ended December 31, 2006, that have
      materially affected, or are reasonably likely to materially affect, its internal
      control over financial reporting:





§
            Created
                formal documentation of internal control structure and testing of
                key
                internal controls


§
            Implemented
                system of mandatory signatures to evidence preparation and review
                of items
                that encompass certain key controls


§
            Formalized
                a company-wide authority matrix regarding contracts, purchasing,
                and
                invoice approval


§
            Developed
                checklists to be used at certain regular meetings to ensure comprehensive
                discussion of internal controls




52




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**


To
        the
        Board of Directors and
 Shareholders
        of Cytomedix, Inc.
  We
        have
        audited management's assessment, included in the accompanying section Item
        9A.
        Control and Procedures, that Cytomedix, Inc. did not maintain effective internal
        control over financial reporting as of December 31, 2006, based on criteria
        established in Internal Control-Integrated Framework issued by the Committee
        of
        Sponsoring Organizations of the Treadway Commission (COSO). Cytomedix, Inc.'s
        management is responsible for maintaining effective internal control over
        financial reporting and for its assessment of the effectiveness of internal
        control over financial reporting. Our responsibility is to express an opinion
        on
        management's assessment and an opinion on the effectiveness of the company's
        internal control over financial reporting based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, evaluating management's assessment, testing and evaluating
        the design and operating effectiveness of internal control, and performing
        such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
  A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company's internal control
        over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) 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 the financial
        statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  A
        material weakness is a control deficiency, or combination of control
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected. The following two material weaknesses have been identified and
        included in management's assessment. The material weaknesses were based on
        evidence of errors in application of controls over financial disclosures
        and in
        recording stock-based compensation expense. The financial statement disclosure
        errors related primarily to SFAS 109, Accounting for Income Taxes, and the
        recently adopted SFAS 123R, Share-Based Payment. While a disclosure checklist
        was utilized for year-end reporting, certain required disclosures were not
        included or properly prepared. Errors were also noted in the calculation
        and
        recording of stock-based compensation related to one set of option
        grants.
  These
        material weaknesses were considered in determining the nature, timing, and
        extent of audit tests applied in our audit of the 2006 financial statements,
        and
        this report does not affect our report dated February 23, 2007 on those
        financial statements.
  In
        our
        opinion based on our audit, management's assessment that Cytomedix, Inc.
        did not
        maintain effective internal
        control over financial reporting as of December 31, 2006, is fairly stated,
        in
        all material respects, based on criteria established in Internal
        Control-Integrated Framework issued by the Committee of Sponsoring Organizations
        of the Treadway Commission (COSO). Also, in our opinion, because of the effect
        of the material weakness described above on the achievement of the objectives
        of
        the control criteria, Cytomedix, Inc. has not maintained effective internal
        control over financial reporting as of December 31, 2006 based on criteria
        established in Internal Control-Integrated Framework issued by the Committee
        of
        Sponsoring Organizations of the Treadway Commission (COSO).
  We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the balance sheets and the related statements
        of operations, stockholders' equity and cash flows of Cytomedix, Inc., and
        our
        report dated February 23, 2007 expressed an unqualified opinion.
  L
        J
        SOLDINGER ASSOCIATES LLC
   Deer
        Park, Illinois, USA
 February
        23, 2007


53





**ITEM
      9B. OTHER INFORMATION**





None.




54




**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





The
      Company’s directors, executive officers and significant employees are listed
      below:


**Name**
              
              **Age**
              
              **Date
                    of Election****or
                  Appointment**
              
              **Position(s)
                  with the Company**James
                  S. Benson
              
              67
              
              November
                  1, 2004
              
              DirectorDavid
                  P. Crews
              
              44
              
              September
                  28, 2001
              
              DirectorArun
                  K. Deva
              
              62
              
              November
                  23, 2004
              
              DirectorDavid
                  F. Drohan
              
              68
              
              July
                  12, 2004
              
              DirectorMark
                  T. McLoughlin
              
              51
              
              June
                  7, 2004
              
              DirectorKshitij
                  Mohan
              
              61
              
              April
                  20, 2004
              
              Chairman
                  of the BoardChief
                  Executive OfficerAndrew
                  S. Maslan
              
              37
              
              August
                  15, 2005
              
              Chief
                  Financial OfficerCarelyn
                  P. Fylling
              
              59
              
              December
                  1, 2001
              
              Vice
                  President of Professional
                  Services





**JAMES
      S. BENSON** has
      served as a Director since November 1, 2004. Mr. Benson has over 25 years of
      experience in the healthcare industry, and also serves as a director of
      Cryolife, Inc. Recently, he retired from the Advanced Medical Device Association
      (AdvaMed) where he served as executive vice president for technical and
      regulatory affairs. Prior to that, he held numerous senior positions at the
      FDA
      over a twenty year period. He retired from the FDA as director of the Center
      for
      Devices and Radiological Health (CDRH). Earlier, he served as deputy
      commissioner of the FDA, and also as its commissioner for a one-year period.
      During his tenure with the FDA, Mr. Benson worked closely with other Federal
      agencies and worked with Congress to craft and create various pieces of
      legislation including "The Food and Drug Modernization Act of 1997", "The
      Biomaterials Access Act of 1998" and "The Medical Device User Fee and
      Modernization Act of 2002". Mr. Benson earned a B.S. degree in civil engineering
      from the University of Maryland and a M.S. degree in nuclear engineering from
      the Georgia Institute of Technology.





**DAVID
      P. CREWS** has
      served as a Director since his election through the consent solicitation that
      became effective on September 28, 2001. Mr. Crews is executive vice president
      of
      Crews and Associates, Inc., a brokerage house located in Little Rock, Arkansas,
      founded by his father. Mr. Crews has worked at Crews & Associates for more
      than 22 years, specializing in the fixed income markets. He is a former partner
      of All American Leasing, a municipal finance firm, and also serves as vice
      president, secretary, and treasurer of CHASC, Inc., an entity that acquired
      Smith Capital Management (an investment advisory firm). Mr. Crews is also a
      Board Member of Pure Energy Group, Inc. (an oil and gas company).





**ARUN
      K. DEVA** has
      served as a Director since November 23, 2004. Mr. Deva is the founder and
      President of Deva & Associates, P.C., a Rockville, Maryland based mid-size
      accounting and consulting firm that provides accounting, auditing, litigation
      support, due diligence, cost-benefit analysis and other financial consulting
      services to many Federal agencies and corporations. He is also the founder
      and
      President of CPAMoneyWatch.com, LLC, a web based business services provider
      offering online accounting and business solutions to small and mid-sized
      businesses. Prior to establishing Deva & Associates in 1991, Mr. Deva was a
      partner at Touche Ross & Co. (now Deloitte & Touche). He has served as a
      management consultant for several public and private companies with a focus
      on
      financial restructurings, negotiations with lenders and creditors, financial
      reporting and disclosures, and filings with the Securities and Exchange
      Commission. Mr. Deva is a member of the American Institute of Certified Public
      Accountants, Maryland Association of Certified Public Accountants and
      Association of Government Accountants. He was appointed to the Maryland Banking
      Board by the Governor of Maryland for a six-year term ending in 2008. Mr. Deva
      earned his Bachelor of Commerce degree in accounting from St. Xavier's College
      in India and a Masters of Business Administration degree in Finance from Indiana
      University, Bloomington, Indiana.




**DAVID
      F. DROHAN** has
      served as a Director since July 12, 2004. Mr. Drohan recently retired from
      Baxter Healthcare Corporation where he served as Senior Vice President and
      President of Baxter's medication delivery business, a position he held since
      May
      2001. In this capacity, he had direct general management responsibility for
      the
      development and worldwide marketing of intravenous products, drug-delivery
      and
      automated distribution systems, as well as anesthesia, critical care and
      oncology products representing $4 billion in combined annual sales. He joined
      Baxter in 1965 as a territory manager in New York and throughout the years
      has
      held a succession of senior positions. Prior to joining Baxter, Mr. Drohan
      worked for Proctor & Gamble. He is currently a director of Cytomedix, Inc.
      as well as a director of Pharmedium Health Care Corp. He is a trustee of Parents
      Project Muscular Dystrophy and a director of the Baxter Credit Union. He earned
      his bachelor's degree in industrial relations from Manhattan College, New York.




55




**MARK
      T. McLOUGHLIN** has
      served as a Director since June 7, 2004. Mr. McLoughlin currently serves as
      Sr.
      Vice President, Chief Marketing Officer - International for Cardinal Health,
      Inc., one of the world's largest health care manufacturing and distribution
      companies. In this capacity, he has strategic responsibility for the entire
      International Marketing organization for Cardinal Health based in Geneva
      Switzerland. Prior to joining Cardinal, he was vice president of commercial
      operations for Norwood Abbey Ltd., an Australian-based medical technology
      company. Earlier, he was President of North American operations for Ion Beam
      Application, Inc., a Belgium-based global medical technology company. His
      executive career experience also includes Mallinckrodt, as well as positions
      with other healthcare companies.





**DR.
      KSHITIJ MOHAN** was
      appointed as Chief Executive Officer on April 20, 2004 and has served as a
      Director since May 7, 2004 and Board Chairman since July 12, 2005. Prior to
      assuming his positions in the Company, Dr. Mohan served as Chief Executive
      officer of International Remote Imaging Systems, Inc., the predecessor company
      of IRIS International. Previously, he was the Chief Regulatory and Technology
      Strategist for the Law Firm of King and Spalding, Senior Vice-President and
      Chief Technology Officer for Boston Scientific Corporation, and Corporate
      Vice-President of Baxter International, responsible for all corporate research
      and technical services and was a member of the Baxter operating management
      team.
      Prior to entering the private sector, Dr. Mohan served in various capacities
      within the U.S. Food and Drug Administration, including leading the science
      and
      technology programs and the office of product evaluation and approval of medical
      devices and between 1979 - 1983 served in the White House Office of Management
      and Budget with responsibilities for the national R & D policies, programs
      of the National Science Foundation and NASA's Aeronautical and Space Research
      and Technology programs. Dr Mohan has been widely published in the field of
      health policies, regulations and Applied Physics and served on numerous Boards
      including the Corporate Advisory Boards of the Schools of Engineering at
      Dartmouth College and the University of California at Riverside. Dr. Mohan
      earned a PH.D. degree in Physics from Georgetown University, a M.S. degree
      in
      Physics from the University of Colorado and a B.Sc., First Class Honors, Patna
      University, Patna, India.





**ANDREW
      S. MASLAN** joined
      the company as corporate controller on July 1, 2005, and became our Chief
      Financial Officer on August 15, 2005. Mr. Maslan most recently served as
      controller for BioReliance Corporation based in Rockville, Maryland, which
      was
      acquired by Invitrogen (Nasdaq: IVGN) in February 2004. Earlier, he held
      positions with two other Rockville, Maryland-based companies, serving as a
      principal with GlobeTraders, Inc., and senior accountant for Providence
      Laboratory Associates. Mr. Maslan began his professional career serving as
      an
      auditor with KPMG Peat Marwick, and is a certified public accountant licensed
      in
      the state of Maryland.





**CARELYN
      P. FYLLING, RN, MSN** ,
      has
      served as the Company's Vice President of Professional Services since December
      2001. Ms. Fylling was director of training and program development at the
      International Diabetes Center in Minneapolis, Minnesota. She also has served
      on
      the national Board of Directors of the American Diabetes Association and
      numerous national committees of the American Diabetes Association. Ms. Fylling
      received the prestigious Ames Award for Outstanding Educator in the Field of
      Diabetes. Subsequently, she joined Curative Health Services and helped the
      company grow from three employees to over 650 employees. During her 13 years
      at
      Curative, Ms. Fylling helped to design the national wound database, developed
      clinical protocols, conducted outcome studies, trained physicians and nurses
      in
      comprehensive wound management, wrote scientific articles and abstracts,
      assisted in clinical trials and marketing, and developed an Internet-based
      online wound care training program for health professionals. Subsequently,
      she
      provided independent consulting and outsourcing services to the health care
      industry through Fylling Associates, LLC, which she wholly owns, and through
      Strategic Partners, LLC, in which she held a partnership interest.





***Audit
      Committee***





At
      a
      meeting of the Board of Directors in December 2004, the Board formed an Audit
      Committee. Mr. Arun K. Deva serves as chairman of the Audit Committee and is
      the
      audit committee financial expert. The Board has determined that Mr. Deva is
      “independent” as defined by section 121(A) of the listing standards of the
      American Stock Exchange and Item 7(d)(3)(iv) of Schedule 14A of the Securites
      Exchange Act of 1934. Other members of the Audit Committee are Messrs. David
      P.
      Crews and David F. Drohan.




56




***Code
      of Conduct and Ethics***





In
      April 2005, the Board approved a Code of Conduct and Ethics applicable to all
      directors, officers and employees which complies with Section 807 of the
      American Stock Exchange Corporate Governance Requirements and with the
      definition of a "code of ethics" as set forth in Item 406 of SEC Regulation
      S-K.
      A copy of this Code of Conduct is available at the Company’s website at
      www.cytomedix.com ,and is available at no charge by contacting the Company
      at
      it’s headquarters as listed on the cover page of this report.





***Section
      16(a) Beneficial Ownership Reporting Compliance***





Section
      16(a) of the Act requires officers, directors and persons who own more than
      ten
      percent of a registered class of equity securities to, within specified time
      periods, file certain reports of ownership and changes in ownership with the
      SEC. The Company is not aware of any failure to file initial statements of
      beneficial ownership of securities (Forms 3) or change in beneficial ownership
      reports or report transactions (Forms 4) in a timely manner during the fiscal
      year ended December 31, 2006, by any of the current directors or executive
      officers.








**ITEM
      11. EXECUTIVE COMPENSATION**





During
      2006, the Company had the following executive officers: Kshitij Mohan, CEO;
      Andrew S. Maslan, Chief Financial Officer; Carelyn P. Fylling, Vice President
      of
      Professional Services.





***Compensation
      Discussion and Analysis***





The
      Compensation Committee has responsibility for reviewing and making
      recommendations to the Board of Directors with respect to the Company’s overall
      executive compensation policy, including such items as (i) the annual base
      salary, annual bonus, and annual and long-term equity-based or other incentives
      of each corporate officer, including the CEO; (ii) corporate goals and
      objectives relevant to each executive officer’s compensation, evaluate each
      executive officer's performance in light of those goals and objectives, and
      recommend each executive officer's compensation level based on this evaluation,
      which recommendation will be subject to approval by the full Board; and (iii)
      any other matter, such as severance agreements, change in control agreements,
      or
      special or supplemental executive benefits, within the Committee's
      authority:





The
      overall compensation policy, which is applicable to the Cytomedix executive
      officers, is to position the aggregate of the compensation components at a
      level
      commensurate with the Company’s size and performance relative to similar
      companies. The Compensation Committee seeks to make compensation decisions
      consistent with the long-term growth and performance objectives of the Company.
      The Compensation Committee implements its compensation policy in a manner
      designed to maximize shareholder benefit by aligning the interests of employees
      with the interests of shareholders through the award of stock options and
      motivating executive officers by rewarding them based on
      performance.





The
      Company is committed to providing a competitive pay program that is fair,
      non-discriminatory, and attractive to quality personnel. Further, the Cytomedix
      pay program is structured to achieve motivation of its employees and efficient
      performance. Accordingly, Cytomedix has structured its pay program to achieve
      these goals through an appropriate mix of cash and equity-based compensation
      as
      well as productivity-based awards.





The
      Company’s executive compensation program currently consists primarily of salary,
      annual peformance bonuses and incentive awards in the form of stock options
      under the Company’s Long-Term Incentive Plan. The Compensation Committee
      believes that stock options awarded under the Cytomedix Long-Term Incentive
      Plan
      provide the most useful incentive to encourage executive officers and other
      employees to maximize productivity and efficiency because the value of such
      options relates to the Company’s stock price. Awards under the Long-Term
      Incentive Plan have the effect of more closely aligning the interests of the
      Company’s employees with its shareholders, while at the same time offering an
      attractive vehicle for the recruitment, retention, and compensation of
      employees.





The
      CEO’s
      annual performance bonus is dependent on his performance against pre-determined
      management business objectives (“MBO’s”). The MBO’s in effect for the CEO’s most
      recently completed employment year related to the following general
      areas:


§
            Patents
                and Licensing


o
            Resolution
                of actual and potential infringement
                matters


o
            Development
                and implementation of utilization
                strategies


§
            Product
                Development


o
            Completion
                of clinical trial and submission of preliminary
                results


o
            Development
                and implementation of regulatory
                strategy


o
            Completion
                of a pharmaco-economic study


o
            Development
                of a strategy for submission to the Center of Medicare and Medicaid
                Services


§
            Sales
                and Marketing


o
            Finalize
                potential sales contracts and further development of independent
                slaes
                representative network


§
            Financial
                Performance


o
            Increase
                gross revenues


o
            Secure
                additional financing, if necessary


o
            Further
                development of strategic plan




57




While
      based generally on the CEO’s merit and performance and considering his
      contribution to Cytomedix’s success, the specific performance criteria are set
      by the Compensation Committee and approved by the Board of Directors on an
      annual basis to reflect an appropriate balance of the Company’s short-term and
      long-term goals.





Goals
      and
      objectives for other executive officers are designed to facilitate the
      achievement of the overarching Company goals reflected in the CEO’s
      MBO’s.





***Summary
      Compensation and Grants***





**Summary
      Compensation Table for the year ended December 31,****2006**


**Name
                  and Principal Position**
              
              
              **Year**
              
              **Salary**
              
              **Bonus**
              
              **Option
                  Awards**
              
              **All
                  Other Compensation**
              
              **Total**Kshitij
                  Mohan
              (1)
              
              
              2006
              
              $
              323,549
              
              $
              150,000
              
              $
              311,503
              
              $
              25,619
              
              $
              810,671Chief
                  Executive Officer(Effective
                  April 1, 2004)Andrew
                  S. Maslan
              (2)
              
              
              2006
              
              
              148,500
              
              
              27,700
              
              
              160,304
              
              
              844
              
              
              337,348Chief
                  Financial Officer(Effective
                  August 16, 2005)Carelyn
                  P. Fylling
              (3)
              
              
              2006
              
              
              136,500
              
              
              —
              
              
              15,059
              
              
              169
              
              
              151,728VP
                  Professional Services





(1)  Upon
      acceptance of the position of Chief Executive Officer, Dr. Mohan was awarded
      1,000,000 ten-year options to purchase the Company’s Common stock for $1.50.
      Under the terms of his employment agreement, 500,000 options vested immediately,
      250,000 vested in April 2005 and the remaining options will vest in April 2006.
      Also, pursuant to this agreement, upon reaching the first and second anniversary
      dates of his agreement, Dr. Mohan received 100,000 ten-year options at $1.50.
      Amounts in the All Other Compensation column consist of $25,000 that Dr. Mohan
      received as a “perk package and $619 in company paid life insurance premiums for
      Dr. Mohan’s benefit.


(2)  Pursuant
      to his employment agreement as amended, in 2005 Mr. Maslan was granted 60,000
      ten-year options to purchase shares of the Company’s Common stock at an exercise
      price of $5.07 per share and, in 2006 Mr. Maslan was granted 40,000 and 50,000
      ten-year options to purchase shares of the Company’s Common stock at exercise
      prices of $2.23 and $2.75 per share, respectively. Options vest at intervals
      through October 2009. Amounts in the All Other Compensation column consist
      of
      $844 in company paid life insurance premiums for Mr. Maslan’s
      benefit.


(3)  In
      2006,
      Ms. Fylling was granted 20,000 ten-year options to purchase shares of Common
      stock at $2.40. Amounts in the All Other Compensation column consist of $169
      in
      company paid life insurance premiums for Ms. Fylling’s benefit.




58




**Grants
      of Plan-Based Awards in****2006**


**Name**
              
              **Grant
                  Date**
              
              **Date
                  Board Took Action to Grant Award**
              
              **Option
                  Awards: Number of Securites Underlying Options**
              
              **Exercise
                  Price of Option Awards**
              
              **Grant
                  Date Fair Value of Option Awards**Kshitij
                  Mohan
              
              
              8/17/2006
              
              
              4/19/2004
              
              
              100,000
              
              $
              1.50
              
              $
              207,700Andrew
                  S. Maslan
              
              
              3/17/2006
              
              
              3/17/2006
              
              
              40,000
              
              $
              2.23
              
              $
              94,80010/11/2006
              
              
              10/11/2006
              
              
              50,000
              
              $
              2.73
              
              $
              127,000Carelyn
                  P. Fylling
              
              
              1/12/2006
              
              
              1/12/2006
              
              
              20,000
              
              $
              2.40
              
              $
              45,200





***Narrative
      Disclosure to Summary Compensation and Grants***





The
      Company has the following employment agreements with its executive
      officers:





*Kshitij
      Mohan:* On April 20, 2004, the Company entered into an employment
      contract with Dr. Kshitij Mohan to serve as Chief Executive Officer. The
      employment contract had an initial term of two years. The term is automatically
      extended by one year increments on each anniversary of the effective date unless
      the contract is otherwise terminated in accordance with its provisions. As
      an
      inducement to enter this agreement, Dr. Mohan received 1,000,000 ten-year stock
      options at an exercise price of $1.50 per share. Of these options, 500,000
      became immediately exercisable with the remaining 250,000 becoming exercisable
      on the first anniversary of the agreement, and the remaining 250,000 becoming
      exercisable on the second anniversary. Dr. Mohan’s base salary for the first
      contract year was $275,000, increasing by at least 10% on each anniversary
      of
      the agreement. At December 31, 2006, Dr. Mohan’s annual base salary was
      $332,750. Pursuant to this agreement, Dr. Mohan was entitled to and received
      100,000 options upon each of the first and second anniversary dates of this
      agreement. These options had a ten-year term and an exercise price of $1.50
      per
      share. Additionally, in each of the first and second years of this agreement,
      Dr. Mohan received $150,000 cash bonus upon the achievement of performance
      criteria agreed upon by Dr. Mohan and the Board of Directors. In employment
      years ending April 20, 2007 and beyond, Dr. Mohan is eligible for an annual
      bonus at the discretion of the Board of Directors, upon the achievement of
      mutually agreed-upon performance criteria. Dr. Mohan also receives a guaranteed
      “perk package” of $25,000 to be paid at the beginning of each year under the
      term of this agreement.





*Andrew
      Maslan* *:* On June
      3, 2005, the Company entered into an employment agreement with Mr. Andrew S.
      Maslan to serve as Corporate Controller. Employment was at will, with certain
      notification provisions. Mr. Maslan’s base salary was $135,000, subject to
      review at the end of the first calendar year. Mr. Maslan’s annual target bonus
      percentage was 20%, depending on the achievement of performance criteria. Mr.
      Maslan was also granted 60,000 ten-year options to purchase shares of the
      Company’s Common stock at an exercise price of $5.07. In October 2006, this
      agreement was amended to increase Mr. Maslan’s annual base salary to $155,000
      and target bonus percentage to 25% and provided for the grant of an additional
      50,000 10-year options to purchase the Company’s stock at a price of $2.73 per
      share. Additional grants of options or increases to base salary may be
      considered annually, as of the anniversary date of the amended agreement, or
      in
      the ordinary course of business at the discretion of the CEO and Board of
      Directors.





*Carelyn
      Fylling:* On
      September 4, 2002, the Company entered into an employment agreement with Ms.
      Carelyn P. Fylling to serve as Vice President of Professional Services. The
      term
      was for a period of one year, renewable on the first anniversary for a period
      of
      two years and in one year increments thereafter. Under the agreement, Ms.
      Fylling's base salary was $130,000, subject to increase upon review by the
      Board
      at the end of each calendar year. Stock options and annual bonus are at the
      discretion of the Board. Other benefits are in accordance with Company
      policy.




59




**Outstanding
      Equity Awards at December 31,****2006**


**Option
                  Awards****Name**
              
              **Number
                  of Securities Underlying Unexercised Options**
                **Exercisable**
                **(1)**
              
              **Number
                  of Securities Underlying Unexercised Options**
                **Unexercisable**
              
              
              **Option
                  Exercise Price**
              
              **Option
                  Expiration Date**Kshitij
                  Mohan
              
              
              990,000
              
              
              —
              
              
              $
              1.50
              
              
              4/20/2014100,000
              
              
              —
              
              
              $
              1.50
              
              
              6/6/2015100,000
              
              
              —
              
              
              $
              1.50
              
              
              8/17/2016Andrew
                  S. Maslan
              
              
              30,000
              
              
              30,000
              (2)
              
              $
              5.07
              
              
              1/11/201613,334
              
              
              26,666
              (3)
              
              $
              2.23
              
              
              3/16/2016—
              
              
              50,000
              (4)
              
              $
              2.73
              
              
              10/11/2016Carelyn
                  P. Fylling
              
              
              250,000
              
              
              —
              
              
              $
              1.50
              
              
              8/7/201219,077
              
              
              —
              
              
              $
              1.25
              
              
              10/21/2013—
              
              
              20,000
              (5)
              
              $
              2.40
              
              
              1/11/2016


(1)
            All
                options are fully vested.


(2)
            Options
                vest as follows: 15,000 on 7/1/2007, 15,000 on
                7/1/2008


(3)
            Options
                vest as follows: 13,333 on 3/17/2007, 13,333 on
                3/17/2008


(4)
            Options
                vest as follows: 16,667 on 10/11/2007, 16,667 on 10/11/2008, 16,666
                on
                10/11/2009


(5)
            Options
                vest as follows: 6,667 on 1/12/2007, 6,667 on 1/12/2008, 6,666 on
                1/12/2009





***Potential
      Payments Upon Termination or Change-in-Control***





The
      following table presents potential payments to executive officers upon
      termination or a change-in-control event as defined by their respective
      employment agreements, based on assumptions as if the event took place on
      December 31, 2006.


**Name
                  /****Reason
                  for Termination**
              
              
              **Base
                  Salary**
              
              **Discretionary
                  Bonus**Kshitij
                  MohanDisability
              (1)
              
              
              305,021
              
              
              170,536Change
                  of Control
              (2)
              
              
              665,500
              
              
              488,200Not
                  for Cause
              (3)
              
              
              665,500
              
              
              658,736Death
              (4)
              
              
              —
              
              
              —Voluntary
                  by Dr. Mohan
              (5)
              
              
              —
              
              
              —Andrew
                  S. MaslanNot
                  for Cause
              (6)
              
              
              77,500
              
              
              —Carelyn
                  P. FyllingDisability
              (7)
              
              
              125,125
              
              
              —Death
              (8)
              
              
              —
              
              
              —Not
                  for Cause
              (9)
              
              
              68,250
              
              
              —Involuntary
                  Terminationby
                  Ms. Fylling forGood
                  Reason
              (10)
              
              
              125,125
              
              
              —Change
                  of Control
              (11)
              
              
              68,250
              
              
              —Voluntary
                  by Ms. Fylling
              (12)
              
              
              37,538
              
              
              —




60




(1)
            Base
                salary will be paid over a period of 11 months, less net amounts
                received
                under Company sponsored long-term disability insurance. Discretionary
                bonus was estimated based on pro-rata portion (based on current employment
                year) and targeted $150,000 annual cash bonus and 100,000 annual
                option
                grant. All unexercised options granted to Dr. Mohan will remain
                exercisable through their original expiration
                date.


(2)
            Base
                salary will be paid over a period of 24 months. Discretionary bonus
                is due
                within 30 days of change-in-control and is equal to two years bonus
                estimated based on targeted $150,000 annual cash bonus and 100,000
                annual
                option grant. All unexercised options granted to Dr. Mohan will remain
                exercisable through their original expiration
                date.


(3)
            Base
                salary will be paid over a period of 24 months. Discretionary bonus
                is due
                within 30 days of change-in-control and is equal to pro-rata portion
                (based on current employment year) plus two years bonus estimated
                based on
                targeted $150,000 annual cash bonus and 100,000 annual option grant.
                All
                unexercised options granted to Dr. Mohan will remain exercisable
                through
                their original expiration date.


(4)
            All
                unexercised options granted to Dr. Mohan will remain exercisable
                through
                their original expiration date.


(5)
            If
                Dr. Mohan provides 30 days prior written notice to facilitate transition,
                then all unexercised options granted to Dr. Mohan will remain exercisable
                through their original expiration date. Otherwise, unexercised options
                granted to Dr. Mohan will expire three months after
                termination.


(6)
            Base
                salary will be paid over a period of 6 months. Unvested options will
                continue to vest for a period of six months from
                termination.


(7)
            Base
                salary will be paid over a period of 11 months, less net amounts
                received
                under Company sponsored long-term disability insurance. Prorated
                bonus and
                incentive compensation based on the then-applicable bonus plan/long-term
                incentive compensation program (based on current employment
                year).


(8)
            Base
                salary through end of month in which death occurs, plus prorated
                bonus and
                incentive compensation based on the then-applicable bonus plan/long-term
                incentive compensation program (based on current employment year).
                All
                vested stock options become property of the executive's
                estate.


(9)
            Lump
                sum severance payment equal to six months of base salary. Prorated
                bonus
                and incentive compensation based on the then-applicable bonus
                plan/long-term incentive compensation program (based on current employment
                year). The exercise date of all stock options shall be extended for
                twelve
                months following the date of
                termination.


(10)
            Lump
                sum severance payment equal to eleven months of base salary. Prorated
                bonus and incentive compensation based on the then-applicable bonus
                plan/long-term incentive compensation program (based on current employment
                year). The exercise date of all stock options shall be extended for
                twelve
                months following the date of
                termination.


(11)
            All
                issued and unvested stock options become immediately fully vested
                and
                exercisable. Lump sum severance payment equal to six months of base
                salary. Prorated bonus and incentive compensation based on the
                then-applicable bonus plan/long-term incentive compensation program
                (based
                on current employment year). The exercise date of all stock options
                shall
                be extended for twelve months following the date of
                termination.


(12)
            Ms.
                Fylling's employment may be terminated voluntarily (i) upon written
                consent of Ms. Fylling and the Company, or (ii) upon sixty days'
                written
                notice by Ms. Fylling. If voluntarily terminated pursuant to (i),
                Ms.
                Fylling agrees to stay in the employ of the Company for three months,
                in
                which she will receive 110% of her base salary. If voluntarily terminated
                pursuant to (ii), the Company may accelerate the termination date
                by
                paying the base salary for such sixty day period in a lump
                sum.





***Compensation
      of Directors***





For
      service during 2006, each non-employee director was entitled to and received
      options to purchase 30,000 shares of the Company’s Common stock; each committee
      chair was entitled to and received options to purchase 10,000 shares of the
      Company’s Common stock; each non-employee director was entitled to and received
      $500 for his participation in each telephonic meeting of the Board or a
      Committee and $1,000 for his participation in each in-person meeting of the
      Board or a Committee.





**Director
      Compensation in****2006**


**Name**
              
              **Fees
                  Earned or Paid in Cash**
              
              **Option
                  Awards (1)**
              
              **Total**James
                  S. Benson
              
              $
              7,000
              
              $
              84,640
              
              $
              91,640David
                  P. Crews
              
              $
              8,000
              
              $
              63,480
              
              $
              71,480Arun
                  K. Deva
              
              $
              9,000
              
              $
              84,640
              
              $
              93,640David
                  F. Drohan
              
              $
              7,000
              
              $
              63,480
              
              $
              70,480Mark
                  T. McLoughlin
              
              $
              6,500
              
              $
              84,640
              
              $
              91,140





(1)
            At
                December 31, 2006, the following number of stock options remained
                unexercised by non-employee directors as follows: Benson - 110,000,
                Crews
                - 290,000, Deva - 110,000, Drohan - 90,000, McLoughlin -
                110,000




61




***Compensation
      Committee Report***





The
      Compensation Committee has reviewed and discussed the Compensation Discussion
      and Analysis section of this item 11 with management, and, based on that review
      and discussion, recommended to the Board of Directors that said Compensation
      Discussion and Analysis be included in this annual report on form
      10-K.





Submitted
      by Compensation Committee





Mark
      T.
      McLoughlin (Chairman)


David
      P.
      Crews


David
      F.
      Drohan








**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





The
      Company maintains a Long-Term Incentive Plan approved by a majority of
      shareholders that authorizes awards representing up to 5,000,000 shares of
      Common stock.








***EQUITY
      COMPENSATION PLAN INFORMATION AS OF DECEMBER 31,******2006***


**Plan
                  category**
              
              **Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants,
                  and rights**
              
              **Weighted
                  average exercise price of outstanding options, warrants, and
                  rights**
              
              **Number
                  of securities remaining available for future
                  issuance**(a)
              
              (b)
              
              (c)Equity
                  compensation plans approved by security holders
              
              
              3,202,377
              
              $
              1.82
              
              
              1,411,423Equity
                  compensation plans not approved by security holders
              
              
              0
              
              
              --
              
              
              0Total
              
              
              3,202,377
              
              $
              1.82
              
              
              1,411,423





As
      of
      December 31, 2006, 386,200 shares of common stock have been issued upon exercise
      of options granted pursuant to the Long Term Incentive Plan.








***SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS***





In
      reliance upon statements filed with the SEC under Section 13(d) or 13(g) of
      the
      Secutities Exchange Act of 1934 (unless the Company knew or had reason to know
      such statements are not accurate or complete), the following persons are known
      to Cytomedix to be the beneficial owner of more than five percent of Cytomedix’s
      voting securities as of February 15, 2007, as indicated below:


**Title
                  of Class**
              
              **Name
                  and Address of Beneficial Owner**
              
              **Amount
                  and Nature of Beneficial Ownership**
              
              
              **Percent
                  of Class**Common
                  Stock
              
              
              David
                  E. Jorden
              
              
              2,487,800
              (1)
              
              
              8.5
              %600
                  Travis, Suite 3700Houston,
                  Texas 77002





(1)  Includes
      167,000 shares issuable upon exercise of warrants. Pursuant to the terms of
      the
      warrants, the reporting person cannot exercise such warrants if the exercise
      would result in the reporting person being the “beneficial owner” of more than
      9.999% of the outstanding stock within the meaning of Rule 13d-1 under the
      Securities Exchange Act of 1934.




62




***SECURITY
      OWNERSHIP OF MANAGEMENT***





The
      following table sets forth the number and percentage of shares of all classes
      of
      stock that as of February 15, 2007 are deemed to be beneficially owned by each
      director and executive officer of the Company and by all directors and executive
      officers as a group:


**Title
                  of Class**
              
              **Name
                  of**
                **Beneficial
                  Owner**
              
              **Amount
                  and Nature of Beneficial Ownership (1)**
              
              
              **Percent
                  of**
                **Class
                  (1)**Common
                  Stock
              
              
              James
                  S. Benson
              
              
              150,000
              (2)
              
              
              *Common
                  Stock
              
              
              David
                  P. Crews
              
              
              1,021,623
              (3)
              
              
              3.4
              %Common
                  Stock
              
              
              Arun
                  K. Deva
              
              
              150,000
              (4)
              
              
              *Common
                  Stock
              
              
              David
                  F. Drohan
              
              
              122,000
              (5)
              
              
              *Common
                  Stock
              
              
              Carelyn
                  P. Fylling
              
              
              293,375
              (6)
              
              
              *Common
                  Stock
              
              
              Andrew
                  S. Maslan
              
              
              154,000
              (7)
              
              
              *Common
                  Stock
              
              
              Mark
                  T. McLoughlin
              
              
              150,000
              (8)
              
              
              *Common
                  Stock
              
              
              Kshitij
                  Mohan
              
              
              1,200,000
              (9)
              
              
              4.0
              %Common
                  Stock
              
              
              Group
                  consisting of Benson, Crews, Deva, Drohan, Fylling, Maslan, McLoughlin,
                  and Mohan
              
              
              3,240,998
              
              
              
              9.6
              %





*  Less
      than
      1%.


(1)  For
      purposes of determining the amount of securities beneficially owned, share
      amounts include all Common stock owned outright plus all convertible shares,
      warrants, and options exercisable for Common stock. The Percent of Class for
      Common stock is
      based on the number of shares of the Company’s Common stock outstanding as of
      February 15, 2007. Shares of Common stock issuable upon conversion of
      convertible notes, or the exercise of options or warrants currently exercisable,
      or exercisable within 60 days after the preparation of this table, are deemed
      outstanding for the purpose of computing the percentage ownership of the person
      holding such options or warrants, but are not deemed outstanding for computing
      the percentage ownership of any other persons.


(2)  Consists
      of 150,000 shares Mr. Benson may acquire upon the exercise of stock
      options.


(3)  Consists
      of 684,871 shares owned as trustee for David Paul Crews Revocable Trust, 16,752
      shares owned by children, and 320,000 shares Mr. Crews may acquire upon the
      exercise of stock options.


(4)  Consists
      of 150,000 shares Mr. Deva may acquire upon the exercise of stock
      options.


(5)  Consists
      of 2,000 shares directly owned by Mr. Drohan and 120,000 shares Mr. Drohan
      may
      acquire upon the exercise of stock options.


(6)  Consists
      of 4,298 shares directly owned by Ms. Fylling and 289,077 shares Ms. Fylling
      may
      acquire upon the exercise of stock options.


(7)  Consists
      of 4,000 shares directly owned by Mr. Maslan and 150,000 shares Mr. Maslan
      may
      acquire upon the exercise of stock options.


(8)  Consists
      of 150,000 shares Mr. McLoughlin may acquire upon the exercise of stock
      options.


(9)  Consists
      of 10,000 shares directly owned by Dr. Mohan and 1,190,000 shares Dr. Mohan
      may
      acquire upon the exercise of stock options.








**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





The
      Company was not involved in any transactions with related persons, as defined
      in
      Item 404 of Regulation S-K, since January 1, 2006, nor are there any such
      proposed transactions, that exceed $120,000.





The
      Company has the following directors: James S. Benson, David P. Crews, Arun
      K.
      Deva, David F. Drohan, Mark T. McLoughlin, and Kshitij Mohan. Each of these
      directors is independent as defined by Section 121(A) of the listing standards
      of the American Stock Exchange, with the exception of Dr. Mohan, who, in
      addition to serving as the Chairman of the Board, is also the Company’s Chief
      Executive Officer. Dr. Mohan does not serve on the Audit, Nominating and
      Governance, or Compensation Committees.




63




**ITEM
      14. PRINCIPAL ACCOUNTING FEES AND SERVICES**





The
      following table presents fees for professional services rendered by L J
      Soldinger Associates LLC for the fiscal years 2006 and 2005:


**Services
                  Performed**
              
              **2006**
              
              **2005**Audit
                  Fees (1)
              
              $
              340,000
              
              $
              200,000Audit-Related
                  Fees (2)
              
              
              2,000
              
              
              30,000Tax
                  Fees (3)
              
              
              19,000
              
              
              15,000All
                  Other Fees (4)
              
              
              —
              
              
              —Total
                  Fees
              
              $
              361,000
              
              $
              245,000





(1)  Audit
      fees represent fees billed for professional services provided in connection
      with
      the audit of the Company’s annual financial statements, reviews of its quarterly
      financial statements, audit services provided in connection with statutory
      and
      regulatory filings for those years and audit services provided in connection
      with securities registration and/or other issues resulting from that process.
      In
      2006, audit fees also includes services rendered for audits of management’s
      assessment of the effectiveness of internal controls over financial reporting
      and the effectiveness of internal control over financial reporting.


(2)  Audit-related
      fees represent fees billed primarily for assurance and related services
      reasonably related to securities registration and/or other issues resulting
      from
      that process.


(3)  Tax
      fees
      principally represent fees billed for tax preparation, 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.





Pursuant
      to its charter, the Audit Committee must pre-approve audit services and
      permitted non-audit services (including the fees and terms thereof) to be
      performed for the Company by its independent auditor. In 2005 and 2006, all
      such
      services were pre-approved by the Audit Committee.








**PART
      IV**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





(a)
            1.
            Financial
                Statements





The
      following financial statements of Cytomedix, Inc. are included in Item
      8:




Report of Independent Registered Public
              Accounting Firm
            24Balance Sheets
            25Statements of Operations
            26Statements of Stockholders’ Equity
            27Statements of Cash Flows
            30Notes to Financial Statements
            31





2.
            Schedule
                II—Valuation and Qualifying
                Accounts





See
      Footnotes to Financial Statements in Item 8 of this report.





(b)
            
            Exhibits





For
      a
      list of exhibits filed with this Form 10-K, refer to the Exhibit Index beginning
      on page 66 .





64




**SIGNATURES**





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





**CYTOMEDIX,
      INC.**





*By:
                /s/Kshitij Mohan*
              *Kshitij
                Mohan, CEO and Chairman of the Board of Directors*
              
              *Date:**February 26**,
                2007*








In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





*By:
                /s/Kshitij Mohan*
              *Kshitij
                Mohan, CEO and Chairman of the Board of Directors*
              
              *Date:**February 26**, 2007*
              
              
              */s/Andrew
                S. Maslan*
              *Andrew
                S. Maslan, Chief Financial Officer*
              *and
                Chief Accounting Officer*
              
              *Date:**February 26**, 2007*
              
              
              */s/David
                P. Crews*
              *David
                P. Crews, Director*
              
              *Date:**February 26**, 2007*
              
              
              */s/Arun
                K. Deva*
              *Arun
                K. Deva, Director*
              
              *Date:**February 26**, 2007*
              
              
              */s/David
                F. Drohan*
              *David
                F. Drohan, Director*
              
              *Date:**February 26**,
                2007*








Signed
      originals of this written statement have been provided to Cytomedix, Inc. and
      will be retained by Cytomedix, Inc. and furnished to the Securities and Exchange
      Commission or its staff upon request.




65






**EXHIBIT
      INDEX**




2.1
            
            First Amended Plan of Reorganization
              with All
              Technical Amendments (Previously filed on June 28, 2002, on Form 8-K,
              File
              No. 000-28443).2.2
            
            Amended and Restated Official Exhibits
              to the
              First Amended Plan of Reorganization of Cytomedix, Inc. with All Technical
              Amendments (Previously filed on May 10, 2004, on Form 10-QSB for the
              quarter ended March 31, 2004, File No. 000-28443).3.1
            
            Restated Certificate of Incorporation
              of
              Cytomedix, Inc. (Previously filed on November 7, 2002, on Form 10-QSB
              for
              quarter ended June 30, 2001, File No. 000-28443).3.2
            
            Amendment to Restated Certificate of
              Incorporation of Cytomedix, Inc. (Previously filed on November 15,
              2004,
              on Form 10-QSB for quarter ended September 30, 2004, File No.
              000-28443).3.3
            
            Restated Bylaws of Cytomedix, Inc.
              (Previously filed on November 7, 2002, on Form 10-QSB for quarter ended
              June 30, 2001, File No. 000-28443).4.1
            
            Amended and Restated Certificate of
              Designation of the Relative Rights and Preferences of Series A Preferred,
              Series B Preferred and common stock of Cytomedix, Inc. (Previously
              filed
              on March 31, 2004, on Form 10-KSB for year ended December 31, 2003,
              File
              No. 000-28443).4.2
            
            Form of Class A Warrant issued to New
              Investors and DIP Lenders (Previously filed on December 5, 2002, on
              Form
              10-QSB for quarter ended September 30, 2001, File No.
              000-28443).4.3
            
            Form of Class B Warrant issued to New
              Investors and DIP Lenders (Previously filed on December 5, 2002, on
              Form
              10-QSB for quarter ended September 30, 2001, File No.
              000-28443).4.4
            
            Form of Series C-1 Warrant to Purchase
              Shares
              of common stock of Cytomedix, Inc. (Previously filed on March 29, 2004
              on
              Form 8-K, File No. 000-28443.)4.5
            
            Form of Series C-2 Warrant to Purchase
              Shares
              of common stock of Cytomedix, Inc. (Previously filed on March 29, 2004
              on
              Form 8-K, File No. 000-28443).4.6
            
            Certificate of Designation of the Relative
              Rights and Preferences of the Series C Convertible Stock of Cytomedix,
              Inc. as filed with the Delaware Secretary of State on March 25, 2004
              (Previously filed on March 29, 2004 on Form 8-K, File No.
              000-28443).4.7
            
            Form of warrant issued to investors
              in the
              2004 Unit Offering (Previously filed on May 11, 2004, on Form SB-2,
              File
              No. 333-115364).4.8
            
            Form of Class D Warrant to Purchase
              Shares of
              Common Stock of Cytomedix, Inc. (Previously filed on May 2, 2005, on
              Form
              8-K, File No. 001-32518).4.9
            
            Form of Registration Rights Agreement
              between
              Cytomedix, Inc., and Class D Warrantholders (Previously filed on May
              2,
              2005, on Form 8-K, File No. 001-32518).10.1
            
            Royalty Agreement, dated as of December
              26,
              2000, by and between Cytomedix, Inc. and Curative Health Services,
              Inc.
              (Previously filed on January 17, 2001, on Form 8-K, File No.
              000-28443).10.2
            
            First Amendment to Royalty Agreement,
              dated
              as of April 20, 2001, by and between Cytomedix, Inc. and Curative Health
              Services, Inc. (Previously filed on May 25, 2001, on SB-2/A, File No.
              333-55818).10.3
            
            Second Amendment to Royalty Agreement,
              dated
              as of December 5, 2002, by and between Cytomedix, Inc. and Curative
              Health
              Services, Inc. (Previously filed on March 31, 2003, on Form 10-KSB
              for
              year ended December 31, 2002, File No. 000-28443).10.4
            
            Cytomedix, Inc. Long-Term Incentive
              Plan.10.5
            
            License Agreement dated March 21, 2001,
              by
              and between Cytomedix, Inc. and DePuy AcroMed, Inc. (Previously filed
              on
              April 16, 2001, on Form 10-KSB for year ended December 31, 2000, File
              No.
              000-28443).




66




10.6
            
            Amendment dated March 3, 2005, to the
              License
              Agreement by and between Cytomedix, Inc. and DePuy Spine, Inc. (f/k/a
              DePuy Acromed, Inc.) (Previously filed on March 31, 2005, on Form 10-KSB
              for year ended December 31, 2004, File No. 000-28443).10.7
            
            Second License Agreement dated March
              3, 2005,
              to the License Agreement by and between Cytomedix, Inc. and DePuy Spine,
              Inc. (f/k/a DePuy Acromed, Inc.) (Previously filed on March 31, 2005,
              on
              Form 10-KSB for year ended December 31, 2004, File No.
              000-28443).10.8
            
            Settlement and License Agreement dated
              May 1,
              2005 by and between Cytomedix, Inc. and Medtronic, Inc. (Previously
              filed
              on May 10, 2005, on Form 8-K, File No. 000-28443).10.9
            
            Settlement Agreement and License Agreement
              dated May 23, 2005, by and between Cytomedix, Inc., and Harvest
              Technologies Corporation (Previously filed on May 27, 2005, on Form
              8-K,
              File No. 000-28443).10.10
            
            Settlement and License Agreement dated
              June
              26, 2005, by and between Cytomedix, Inc., and Perfusion Partners and
              Associates Inc. (Previously filed on August 15, 2005, on Form 10-QSB
              for
              the quarter ended June 20, 2005, File No. 000-28443).10.11
            
            License Agreement dated October 7, 2005,
              by
              and between Cytomedix, Inc., and COBE Cardiovascular, Inc. (Previously
              filed on October 11, 2005, on Form 8-K, File No. 000-28443).10.12
            
            Settlement and License Agreement dated
              October 12, 2005, by and between Cytomedix, Inc., and SafeBlood
              Technologies, Inc. (Previously filed on November 9, 2005, on Form 10-QSB,
              File No. 000-28443).10.13
            
            Employment Agreement with Ms. Carelyn
              P.
              Fylling (Previously filed on December 5, 2002, on Form 10-QSB for quarter
              ended September 30, 2001, File No. 000-28443).10.14
            
            Employment Agreement with Mr. William
              L.
              Allender (Previously filed on March 31, 2004, on Form 10-KSB for year
              ended December 31, 2003, File No. 000-28443).10.15
            
            Addendum to Employment Agreement with
              Mr.
              William L. Allender (Previously filed on November 15, 2004, on Form
              10-QSB
              for quarter ended September 30, 2004, File No. 000-28443).10.16
            
            Separation Agreement and Release dated
              July
              15, 2005, by and between Cytomedix, Inc., and William L. Allender
              (Previously filed on August 15, 2005, on Form 10-QSB for the quarter
              ended
              June 30, 2005, File No. 000-28443).10.17
            
            Employment Agreement with Kshitij Mohan,
              Ph.D., dated April 20, 2004 (Previously filed on May 7, 2004, on Form
              8-K,
              File No. 00028443).10.18
            
            Termination Agreement between Cytomedix,
              Inc., and Kshitij Mohan, dated April 20, 2004 (Previously filed on
              May 7,
              2004, on Form 8-K, File No. 000-28443).10.19
            
            Employment Agreement dated June 3, 2005,
              by
              and between Cytomedix, Inc., and Andrew Maslan (Previously filed on
              June
              20, 2005, on Form 8-K, File No. 000-28443).10.20
            
            Distributor Agreement dated October
              31, 2005
              by and between Cytomedix, Inc. and National Wound Therapies, LLC.
              (Previously filed on March 23, 2006, on Form 10-KSB, File No.
              001-32518).10.21
            
            Settlement and License Agreement dated
              May
              19, 2006, between Cytomedix, Inc., and Biomet Biologics, Inc. (Previously
              filed on August 9, 2006, on Form 10-Q, File No. 001-32518).10.22
            
            First Addendum to Letter Agreement dated
              October 4, 2006, between Cytomedix, Inc., and Andrew Maslan (Previously
              filed on November 1, 2006 on Form 10-Q, File No. 001-32518).20.1
            
            Definitive Proxy Statement (Previously
              filed
              on September 22, 2006, File No. 001-32518).23.1
            
            Consent of LJ Soldinger Associates,
              LLC.31.1
            
            Certification of Chief Executive Officer
              of
              Cytomedix, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002.31.2
            
            Certification of Chief Financial Officer
              of
              Cytomedix, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002.32.1
            
            Certificate of Chief Executive Officer
              of
              Cytomedix, Inc., pursuant to 18 U.S.C.ss.1350.32.2
            
            Certificate of Chief Financial Officer
              of
              Cytomedix, Inc., pursuant to 18
              U.S.C.ss.1350.




67