FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File number 0-935

CYTOCORE, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		36-4296006

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

414 North Orleans Street, Suite 510
Chicago, IL 60654

(Address of Principal Executive Offices)

(312) 222-9550

(Registrant’s Telephone Number, including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o (not required)

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


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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

The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

COMMON STOCK, $0.001 PAR VALUE, AT AUGUST 12, 2009: 42,156,560

PART I. — FINANCIAL INFORMATION


Item 1.		*Financial Statements*

CYTOCORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)


	June 30,			December 31,
	2009			2008
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	10		$	553
Accounts receivable, net of allowance of $7 at June 30, 2009 and December 31, 2008		16			36
Inventories		1,299			1,168
Prepaid expenses and other current assets		54			58

Total current assets		1,379			1,815
Fixed assets, net		2,043			2,040
Licenses, patents and technology, net of amortization		84			101

Total assets	$	3,506		$	3,956


Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable	$	2,292		$	2,320
Accrued payroll costs		421			127
Advances payable to related parties		457			—
Accrued expenses		1,854			1,041
Notes payable		70			70

Total current liabilities		5,094			3,558


Stockholders’ Equity (Deficit):
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 373,555 and 373,559 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively (Liquidation value of all classes of preferred stock $2,875 at June 30, 2009)		1,492			1,492
Common stock, $0.001 par value; 500,000,000 shares authorized; 42,173,810 and 41,226,903 shares issued and 42,154,601 and 41,207,694 shares outstanding at June 30, 2009 and December 31, 2008, respectively		42			41
Additional paid-in-capital		92,106			91,065
Treasury stock: 19,209 shares at June 30, 2009 and December 31, 2008		(327	)		(327	)
Accumulated deficit		(94,825	)		(91,799	)
Accumulated comprehensive loss—
Cumulative translation adjustment		(76	)		(74	)

Total stockholders’ equity (deficit)		(1,588	)		398

Total liabilities and stockholders’ equity (deficit)	$	3,506		$	3,956

See accompanying notes to these condensed consolidated financial statements.

CYTOCORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)


	Six months ended						Three months ended
	June 30,						June 30,
	2009			2008			2009			2008
	(Unaudited)						(Unaudited)
Net revenues	$	23		$	82		$	10		$	36

Operating expenses

Cost of revenues		6			143			—			66
Research and development		212			1,317			100			508
Selling, general and administrative		1,857			2,106			978			1,093
Selling, general and administrative — related parties		—			139			—			93


Total operating expenses		2,075			3,705			1,078			1,760


Operating loss		(2,052	)		(3,623	)		(1,068	)		(1,724	)

Other income (expense)

Interest income		—			38			—			23
Provision for legal settlement		(948	)		—			—			—
Interest expense		(27	)		(2	)		(25	)		(1	)

Total other income		(975	)		36			(25	)		22


Net loss		(3,027	)		(3,587	)		(1,093	)		(1,702	)

Preferred stock dividend		—			(58	)		—			(54	)


Net loss applicable to common stockholders	$	(3,027	)	$	(3,645	)	$	(1,093	)	$	(1,756	)


Basic and diluted net loss per common share	$	(0.07	)	$	(0.10	)	$	(0.03	)	$	(0.04	)


Basic and diluted weighted average number of common shares outstanding		41,571,015			38,090,968			41,894,354			40,851,212

See accompanying notes to these condensed consolidated financial statements.

CYTOCORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)


	Six Months Ended
	June 30,
	2009			2008
	(Unaudited)
Operating Activities:
Net loss	$	(3,027	)	$	(3,587	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		232			75
Gain on settlements of indebtedness		—			(19	)
Warrants issued to non-employees for services		—			45
Non-cash compensation expense		2			82
Non-cash interest related to warrant modification		21			—
Stock issued to non-employees for services		5			—
Non-cash charge for legal settlement		948			—
Changes in assets and liabilities:
Accounts receivable		20			(26	)
Inventories		(131	)		(492	)
Prepaid expenses and other current assets		4			137
Accounts payable		328			(427	)
Accrued expenses		240			(480	)


Net cash used in operating activities		(1,358	)		(4,692	)


Investing activities:
Purchase of license		(33	)		(105	)
Purchase of fixed assets		—			(1,130	)


Net cash used in investing activities		(33	)		(1,235	)

Financing activities:
Proceeds from related parties		578			—
Proceeds from issuance of common stock and warrants		—			9,381
Financing costs in connection with private placement of stock		—			(405	)
Proceeds from exercise of warrants		270			42


Net cash provided by financing activities		848			9,018


Net increase (decrease) in cash and cash equivalents		(543	)		3,091

Cash and cash equivalents at the beginning of period		553			316


Cash and cash equivalents at end of period	$	10		$	3,407


Supplemental disclosure of cash flow information:

Non-cash transactions during the period for:
Preferred stock and cumulative dividends converted into common stock	$	—		$	136
Warrants exercised with debt in satisfaction of related party advances and other liabilities	$	168		$	—
Payment of directors fees with common stock	$	545		$	—
Payment of accrued wages with common stock	$	31		$	604

See accompanying notes to these condensed consolidated financial statements.

CYTOCORE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except per share amounts)
(Unaudited)


Note 1.		Organization

CytoCore, Inc. (“CCI” or the “Company”) was incorporated in Delaware in December 1998. Except where the context otherwise requires, “CCI,” the “Company,” “we” and “our” refers to CytoCore, Inc. and our subsidiaries and predecessors.

CCI is developing an integrated family of cost-effective products for the detection, diagnosis and treatment of cancer under the CytoCore SolutionsÔ trade name. CytoCore Solutions products are intended to address sample collection, specimen preparation, specimen evaluation (including detection/screening and diagnosis), and patient treatment and monitoring within vertical markets related to specific cancers. Current CytoCore Solutions products are focused upon cervical cancer. CCI plans that this focus will later be expanded to include other gynecological cancers as well as bladder, lung and breast cancers, among others. Within each of these markets, CCI anticipates that the CytoCore Solutions products will be sold as individual value-added drop-in replacements for existing products and as integrated systems that improve the efficiency and effectiveness of clinical and laboratory operations. In addition, most CytoCore Solutions products are specifically designed to support multiple markets, thus providing the customer with a comprehensive and internally consistent migration path as new disease-specific products are added to the CytoCore portfolio. Currently, CCI is selling the SoftPAP^®, a cervical cell collection device approved by the U.S. Food and Drug Administration.

The Company has incurred significant operating losses since its inception. Management expects that significant on-going operating expenditures will be necessary to successfully implement CCI’s business plan and develop, manufacture and market its products. These circumstances raise substantial doubt about CCI’s ability to continue as a going concern. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to increase sales of its products, develop new products, and raise additional capital. At June 30, 2009, the Company had $10,000 in cash, and currently does not have sufficient cash on hand to fund its operations. During the first quarter of 2009, the Company began an offering of 1.4 million units at an offering price of $5.00 per unit. Each unit consisted of one share of Series F Convertible Preferred Stock and one warrant to purchase common stock. The warrants were offered with an exercise price of $0.75 per share. The preferred stock would accrue dividends at the rate of $0.50 per annum, payable in cash or in additional shares of Series F Preferred Stock at the Company’s option. The preferred stock is convertible into common stock at $0.50 per share at any time, subject to adjustment, unless the conversion price is reset under the terms of the certificate of designation. If the Company’s common stock trades at or above $2.00 per share for 20 out of 30 consecutive trading days with an average trading volume of over 200,000 shares, the Series F preferred shares would automatically convert to common stock at a price of $0.50 per share unless the conversion price is reset under the terms of the certificate of designation. The Series F shares rank senior to the Company’s common stock and all outstanding preferred stock except for the Company’s Series E Preferred Stock, and would have voting rights along with the common stock. Both the Series F preferred shares and the warrants have standard anti-dilution provisions. There were no funds received from this offering during the six months ended June 30, 2009.

Also in the first quarter of 2009, the Company offered to holders of its warrants to purchase common stock the opportunity to exercise such warrants at a reduced price of $0.25 per share. During the six months ended June 30, 2009, holders of warrants to purchase an aggregate 854,371 shares exercised their warrants at this reduced price. The Company received $214,000 from these exercises. In addition, other holders of warrants to purchase 28,292 shares exercised their warrants at the original exercise price. The Company received $56,000 from these exercises.

If the Company is unable to obtain adequate additional financing or generate sufficient sales revenues, it will be unable to continue its product development efforts and other activities and may be forced to curtail or cease operations. The consolidated financial statements presented herein do not include any adjustments that might result from the outcome of this uncertainty.


Note 2.		Basis of Presentation

The consolidated financial statements for the periods ended June 30, 2009 and 2008 included herein are unaudited. Such consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2009 or for any other period. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the interim information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC.

Certain items for the six months ended June 30, 2008 have been reclassified in order to conform to the current financial statement presentation.

The Company’s comprehensive net loss is as follows:


	Six months ended						Three months ended
	June 30,						June 30,
	2009			2008			2009			2008
	(Unaudited)						(Unaudited)
Net loss applicable to common stockholders	$	(3,027	)	$	(3,645	)	$	(1,093	)	$	(1,756	)
Foreign currency adjustment		(1	)		—			(1	)		—

Comprehensive net loss applicable to common stockholders	$	(3,028	)	$	(3,645	)	$	(1,094	)	$	(1,756	)

Basic and diluted comprehensive net loss per common share	$	(0.07	)	$	(0.10	)	$	(0.03	)	$	(0.04	)

Basic and diluted weighted average number of common shares outstanding		41,571,015			38,090,968			41,894,354			40,851,212


Note 3.		Inventory

Inventory consists of the following:


	June 30,		December 31,
	2009		2008
	(unaudited)
Purchased Parts	$	271	$	136
Finished goods		1,028		1,032

Total	$	1,299	$	1,168

Inventory is valued at the lower of cost or market, using the first in, first out method. Additionally, as required by SFAS No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4,” items such as idle facility expense, excessive spoilage, freight, handling costs and re-handling costs are recognized as current period charges. The allocation of fixed production overheads to the costs of conversion are based upon the normal capacity of the production facility. Fixed overhead costs associated with idle capacity are expensed as incurred.


Note 4.		Fixed Assets

Fixed assets consist of the following:


	June 30,			December 31,
	2009			2008
	(unaudited)
Furniture and fixtures	$	47		$	47
Laboratory equipment		508			508
Computer and communications equipment		261			261
Design and tooling		1,204			1,016
Machinery and equipment		777			777
Construction in progress		399			402

		3,196			3,011
Less accumulated depreciation and amortization		(1,153	)		(971	)

Total	$	2,043		$	2,040

During the second quarter of 2009, a supplier filed suit against CCI alleging that the Company owes it approximately $377,000. This supplier had previously placed a lien on all of the Company’s machinery and equipment. See Note 10 -Legal Proceedings.


Note 5.		Licenses, Patents, and Technology

Licenses, patents, and technology include the following:


	June 30,			December 31,
	2009			2008
		(unaudited)
Licenses	$	192		$	159
Patent costs		133			133
LabCorp Technology Agreement		260			260

		585			552
Less accumulated amortization		(501	)		(451	)

Total	$	84		$	101

During 2008, the Company purchased a license for certain technology for a total of $200,000, of which $100,000 was paid upon signing the license agreement, and the balance of which is due in 18 equal monthly installments of $5,556. There were five payments remaining as of June 30, 2009. In addition, CCI is obligated to make future payments totaling $100,000 upon obtaining certain milestones under the agreement. The Company is amortizing this license over its estimated useful life of two years.


Note 6.		Accrued Expenses

Accrued expenses include the following:


	June 30,		December 31,
	2009		2008
	(unaudited)
Accrued interest	$	358	$	357
Provision for legal settlement		948		—
Accrued franchise and other taxes		155		102
Accrued compensation		—		241
Other accrued expenses		393		341

Total	$	1,854	$	1,041


Note 7.		Notes Payable and Advances-related parties

Notes Payable

Notes payable to unrelated parties consist of:


	June 30,		December 31,
	2009		2008
	(unaudited)
Robert Shaw, $25,000 Promissory Note issued September 20, 2001; interest rate 9% per annum, due December 20, 2001	$	15	$	15

Ventana Medical Systems, Inc. $62,946 Promissory Note issued November 30, 2003; due December 31, 2003; interest rate 8% per annum payable after December 31, 2003		21		21

Xillix Technologies Corporation $361,000 Promissory Note issued June 26, 1998; Interest rate Canadian Prime plus 6% per annum, due December 27, 1999; represents a debt of AccuMed		34		34

	$	70	$	70

The Company has failed to make principal and interest payments when due and is in breach of certain warranties and representations under certain of the notes included above. Such notes require the holder to notify CCI in writing of a declaration of default at which time a cure period, as specified in each individual note, would commence. CCI has not received any written declarations of default from holders of its remaining outstanding notes payable.

Advances-Related Parties

During the six months ended June 30, 2009, the Company was advanced $578,000 from related parties. A portion of these advances were used by the lenders to exercise warrants in lieu of receiving cash repayment.


Note 8.		Stockholders’ Equity (Deficit)

Loss per share

A reconciliation of the numerator and the denominator used in the calculation of loss per share is as follows:


	Six months ended						Three months ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
	(Unaudited)						(Unaudited)
Basic and Diluted:
Net loss applicable to common stockholder	$	(3,026	)	$	(3,645	)	$	(1,094	)	$	(1,756	)
Weighted average common shares outstanding		41,571,015			38,090,968			41,894,354			40,851,212
Net loss per common share	$	(0.07	)	$	(0.10	)	$	(0.03	)	$	(0.04	)

Stock options and warrants to purchase 3,675,742 and 5,967,914 common shares and preferred stock convertible into 507,709 and 485,605 common shares were not included in the computation of diluted loss per share applicable to common stockholders as they are anti-dilutive as a result of net losses for the periods ended June 30, 2009 and June 30, 2008, respectively.

As of June 30, 2009 and 2008, the Company had cumulative preferred undeclared and unpaid dividends. In accordance with SFAS No. 128, “Earnings per Share”, these dividends were added to the net loss in the net loss per share. After taking these undeclared and unpaid preferred dividends into account for the period, the net loss

applicable to common stockholders for the three and six months ended June 30, 2009 was $1,160,000 and $3,159,000, respectively.

Preferred Stock

A summary of the Company’s preferred stock is as follows:


	June 30,		December 31,
	2009		2008
	Shares Issued &		Shares Issued &
Offering	Outstanding		Outstanding
	(unaudited)
Series A convertible		47,250		47,250
Series B convertible, 10% cumulative dividend		93,750		93,750
Series C convertible, 10% cumulative dividend		38,333		38,333
Series D convertible, 10% cumulative dividend		175,000		175,000
Series E convertible, 10% cumulative dividend		19,222		19,226

Total Preferred Stock		373,555		373,559

Summary of Preferred Stock Terms


*Series A Convertible Preferred Stock*
Liquidation Value:		$4.50 per share
Conversion Price:		$103.034 per share
Conversion Rate:		0.04367—Liquidation Value divided by Conversion Price ($4.50/$103.034)
Voting Rights:		None
Dividends:		None
Conversion Period:		Any time


*Series B Convertible Preferred Stock*
Liquidation Value:		$4.00 per share
Conversion Price:		$10.00 per share
Conversion Rate:		0.40—Liquidation Value divided by Conversion Price ($4.00/$10.00)
Voting Rights:		None
Dividends:		10%—Quarterly—Commencing March 31, 2001
Conversion Period:		Any time
Cumulative and undeclared dividends in arrears at June 30, 2009 were $313,000


*Series C Convertible Preferred Stock*
Liquidation Value:		$3.00 per share
Conversion Price:		$6.00 per share
Conversion Rate:		0.50—Liquidation Value divided by Conversion Price ($3.00/$6.00)
Voting Rights:		None
Dividends:		10%—Quarterly—Commencing March 31, 2002
Conversion Period:		Any time
Cumulative and undeclared dividends in arrears at June 30, 2009 were $88,000


*Series D Convertible Preferred Stock*
Liquidation Value:		$10.00 per share
Conversion Price:		$10.00 per share
Conversion Rate:		1.00—Liquidation Value divided by Conversion Price ($10.00/$10.00)
Voting Rights:		None
Dividends:		10%—Quarterly—Commencing April 30, 2002
Conversion Period:		Any time
Cumulative and undeclared dividends in arrears at June 30, 2009 were $1,342,000


*Series E Convertible Preferred Stock*
Liquidation Value:		$22.00 per share
Conversion Price:		$8.00 per share
Conversion Rate:		2.75—Liquidation Value divided by Conversion Price ($22.00/$8.00)
Voting Rights:		Equal in all respects to holders of common shares
Dividends:		10%—Quarterly—Commencing May 31, 2002
Conversion Period:		Any time
Cumulative and undeclared dividends in arrears at June 30, 2009 were $327,000

Conversion of Series E Preferred Shares for Common Shares

During the three months ended March 31, 2009, a holder of four shares of Series E Convertible Preferred Stock of CCI elected to convert such preferred shares and accrued and unpaid dividends thereon into 20 unregistered shares of the Company’s common stock. Dividends paid in common stock on these preferred shares were $7.00.

Repricing of Warrants for Cash and Debt

On March 23, 2009, the Company offered to all holders of warrants to purchase shares of the Company’s common stock the option to exercise their warrants at a reduced exercise price of $0.25 per share. The original offer expired on April 23, 2009 and was subsequently extended until May 23, 2009. During the quarter ended June 30, 2009, the Company received gross proceeds of $210,000 from the exercise of warrants for an aggregate 837,121 shares of unregistered, restricted common stock in connection with its offer. In addition, our former Chairman of the Board of Directors and our Chief Executive Officer exercised warrants to purchase an aggregate 670,000 shares of unregistered, restricted common stock through the reduction of $168,000 of debt. CCI recorded a charge of $21,000 related to this warrant modification and recorded the amount as interest expense for the three months ended June 30, 2009. In addition, holders of warrants to purchase 28,292 exercised their warrants at the original exercise price. CCI received approximately $56,000 from these exercises.

For the six months ended June 30, 2009, CCI received proceeds totaling $270,000 and reduced its debt by $168,000 from the exercise of warrants to purchase an aggregate 1,552,663 shares of unregistered, restricted common stock. As of June 30, 2009, 683,049 shares were not yet issued by the transfer agent.

Issuance of Common Stock as Payment for Services

During the quarter ended March 31, 2009, CCI issued 16,129 shares of restricted, unregistered common stock valued at $0.31 per share to a consultant as payment for services rendered. The Company recorded the value of the common stock at $5,000 and recorded the amount as a selling, general and administrative expense for the three months ended March 31, 2009.

Issuance of Stock and Warrants as Payment for Employee Compensation

In the first quarter of the 2009 fiscal year, as described in Note 9 below, the Company issued to two of its executive officers an aggregate 61,144 shares of restricted, unregistered common stock valued at $0.50 per share as consideration of unpaid compensation for services rendered in 2008. The shares were valued at $31,000, and such amount was recorded as compensation in 2008.

During the three months ended June 30, 2009, the Company issued warrants to purchase 9,000 shares of common stock with an exercise price of $0.20 per share to an employee. CCI valued the warrants at $2,000 using the Black-Scholes valuation model and recorded the amount as non-cash compensation expense for the three months ended June 30, 2009. These warrants have a term of three years and are immediately exercisable.

Also, during the quarter ended June 30, 2009, the Board of Directors granted each director a bonus of 100,000 shares of restricted, unregistered common stock for services rendered. The shares granted totaled 700,000 and were valued at $0.40 per share. The Company recorded a charge of $280,000 as a selling, general and administrative expense in the period ending June 30, 2009.

Application of Black-Scholes Valuation Model

In applying the Black-Scholes valuation model, the Company used the following assumptions for the three months ended June 30, 2009 and 2008:


	2009			2008
Expected volatility		174	%		125%-132	%
Expected term (years)		1.5			1.5
Risk-free interest rate		1.00	%		2.50-4.25	%
Expected dividend yield		0	%		0	%
Forfeiture rate		0	%		0	%
Resulting weighted average grant date fair value	$	0.20		$	1.58-$1.72


Note 9.		Equity Incentive Plan and Employee Stock Purchase Plan and other Share-Based Employee Payments

The Company has a shareholder-approved stock incentive plan for employees and directors, the 1999 Equity Incentive Plan, which provided for the issuance of up to 2 million shares under various forms of equity awards. This plan terminated during the quarter ended June 30, 2009. For the six months ended June 30, 2009, the Company did not grant any options or other equity awards under this plan to its employees.

During the quarter ended March 31, 2009, CCI’s Chief Executive Officer and Chief Operating Officer elected to receive a portion of their unpaid 2008 compensation, totaling 39,459 and 21,685 shares respectively, in restricted, unregistered common stock for services rendered in 2008. CCI valued the common stock at $0.50 per share for an aggregate total of $31,000 using the fair value method and recorded such value as compensation expense in 2008.

During the quarter ended June 30, 2009, our former Chairman of the Board of Directors and our Chief Executive Officer exercised warrants to purchase an aggregate 670,000 shares of unregistered, restricted common stock at a price then in effect of $0.25 through the reduction of $168,000 of debt owed to them by the Company. CCI recorded a charge of $15,000 related to this warrant modification and recorded the amount as interest expense for the three months ended June 30, 2009.

Stockholders also approved the 1999 Employee Stock Purchase Plan, which offered employees the opportunity to purchase shares of CCI common stock through a payroll deduction at 85% of the fair market value of such shares at specified dates. This plan terminated during the quarter ended June 30, 2009. There was no activity under the purchase plan during the 2009 fiscal year.


Note 10.		Legal Proceedings

The Company is a party to a legal proceeding which is described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC. To the Company’s knowledge, there have been no cases initiated by or against the Company, nor any cases resolved, since the date of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 except as described herein. A summary of these cases is as follows:

NeoMed Innovation III L.P. In October 2007, NeoMed Innovation III L.P. (“NeoMed”) filed suit against the Company in the United State District Court, Eastern District of Illinois (Case No. 07C 5721). NeoMed alleged that the Company breached a contract with NeoMed. The alleged contract provided among other things that the Company would exchange two existing notes for a new note in the principal amount of $1,110,000 with an interest rate of 12%, payable on July 31, 2003 at the option of the holder in the form of common stock valued at $1.50 (adjusted for stock splits and equity raised at lower valuations). In 2006, the Company paid to NeoMed $1,060,000 and accrued interest calculated at 7% totaling $318,913. Despite accepting this payment, NeoMed demanded that the Company honor the alleged contract. CCI believes its payment of principal and accrued interest to NeoMed satisfied all of CCI’s obligations owed to NeoMed.

In April, 2009, the Company entered into a tentative settlement agreement with NeoMed. The terms of the agreement provide that the Company will issue to NeoMed 2,680,800 shares of restricted, unregistered common stock and a warrant to purchase 217,000 shares of restricted unregistered common stock at an exercise price of $0.50 per share. As a result of the tentative settlement, the Company made an additional provision totaling $948,000, which was charged to other expense in the first quarter of 2009.

MedPlast Elkhorn, Inc. In May 2009, MedPlast Elkhorn, Inc. (“MedPlast”) filed suit against the Company in the Circuit Court, Walworth County, Wisconsin (Case No. 09 CV00721). MedPlast alleges that the Company has failed to pay for certain tools and materials used in the manufacturing of the Company’s products. MedPlast is asking for payment of $377,000. The Company believes that it has made adequate provision for any obligation to MedPlast.

Other claims

The Company has received subpoenas dated June 29, 2009, and July 24, 2009, (the “Subpoenas”) from the Securities and Exchange Commission (the “Commission”). The Subpoenas request documents pertinent to the Company’s procedures to raise equity in 2008 and 2009, personal information including trading records of insiders as well as certain other documents relating to the Company’s operations. The Company does not know what, if any, action the Commission intends to take at this time.

The Company is a party to a number of other proceedings, informal demands, or debts for services which were described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 under “Other Claims.” To the Company’s knowledge, there have been no new claims or demands made by or against the Company, nor any such matters resolved or with respect to which material developments have occurred, since the date of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained in this discussion and analysis that are not related to historical results are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “hopes,” or similar expressions constitute forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, or possible future actions by us are also forward-looking statements.

These forward-looking statements are based on beliefs of our management as well as current expectations, projections and information currently available to the Company and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated or implied by such forward-looking statements. These risks are described more fully in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2008 under the caption “Risk Factors”, and include our ability to raise capital; our ability to settle litigation; our ability to retain key employees; economic conditions; technological advances in the medical field; demand and market acceptance risks for new and existing products, technologies, and healthcare services; the impact of competitive products and pricing; manufacturing capacity; U.S. and international regulatory, trade, and tax policies; product development risks, including technological difficulties; ability to enforce patents; and foreseeable and unforeseeable foreign regulatory and commercialization factors.

Should one or more of such risks or uncertainties materialize or should underlying expectations, projections or assumptions prove incorrect, actual results may vary materially from those described or implied by forward- looking statements. Those events and uncertainties are difficult to predict accurately and many are beyond our control. We believe that our expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of our current business and operational knowledge, but we cannot be sure that our actual results or performance will conform to any future results or performance expressed or implied by any forward-looking statements. We assume no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of these statements except as specifically required by law. Accordingly, past results and trends should not be used to anticipate future results or trends.

Overview of CytoCore, Inc.

The science of medical diagnostics has advanced significantly during the past decade. Much of this advance has come as a result of new knowledge of the human genome and related proteins, which form the foundation of cell biology and the functioning of the human body. Our goal is to utilize this research as a base to develop screening and diagnostic testing products for cancer and cancer-related diseases. We believe that the success of these products will improve patient care through more accurate test performance, wider product availability and more cost-effective service delivery. We have developed the SoftPAP^®, a sample collection device approved by the U.S. Food and Drug Administration, and are licensed to sell the PadKitÔ collection device and GluCyteÔ cell preservative. We are retiring our specimen evaluation products and are focusing on the development and testing of cocktail assay markers and stains for use with the Company’s Automated Image Proteomic System (AIPSÔ) to screen for various cancers.

Our strategy is to develop products through internal development processes, strategic partnerships, licenses and acquisitions. This strategy has required and will continue to require additional capital. As a result, we will incur substantial operating losses until we are able to successfully market some, or all, of our products.

The Company has incurred significant losses since its inception. Management expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s business plan and develop, manufacture and market its products. Implementation of the Company’s plans and its ability to continue as a going concern depend upon its ability to increase sales of its products, develop new products and raise additional capital. If the Company is unable to obtain adequate additional financing or generate sufficient sales revenues, it will be unable to continue its product development efforts and other activities and may be forced to curtail or cease operations. The consolidated financial statements presented herein do not include any adjustments that might result from the outcome of this uncertainty.

Critical Accounting Policies and Changes to Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

There have been no material changes in our critical accounting policies or critical accounting estimates since December 31, 2008, nor have we adopted any accounting policy that has or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, including the notes to our consolidated financial statements included therewith, as filed with the SEC.

Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements presented in Part I, Item 1 of this Quarterly Report and the notes thereto, and our audited consolidated financial statements and notes thereto, as well as our Management’s Discussion and Analysis, contained in our Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the SEC.

Three Months Ended June 30, 2009 as compared to Three Months Ended June 30, 2008

Revenue

Revenues for the three months ended June 30, 2009 as compared with the three months ended June 30, 2008 decreased $26,000, or 72%, from $36,000 to $10,000. This decrease was the result of a decline in sales of the SoftPAP cervical collection device totaling $16,000, a reduction in revenue totaling $7,000 from the licensing fees for our slide-based installed systems and a reduction in service revenue of $3,000 during the quarter ended June 30, 2009.

Costs and Expenses

Cost of Revenues

There was no cost of revenues for the quarter ended June 30, 2009, a decrease of $66,000 from the quarter ended June 30, 2008. This decrease was due to lack of sales of our SoftPAP cervical collection device during the period.

Research and Development

For the three months ended June 30, 2009, our research and development (“R&D”) expenses were $100,000, a $408,000 or 80% decrease over R&D expenses of $508,000 for the same period in 2008. Of this $408,000 decrease, $301,000 relates to the completion of our clinical trials, $37,000 represents a decrease in consulting fees, $7,000 relates to a reduction in laboratory supply costs, and $63,000 relates to costs incurred for the development and modifications of our SoftPAP cervical collection device.

R&D expenses primarily consist of costs related to specific development programs with scientists and researchers and expenses incurred by engineers and researchers at CCI’s Chicago facility. Expenses include industrial design and engineering covering the disposable and instrument components of our products, payments to medical and engineering consultants for advice related to the design and development of our products and their potential uses in the medical technology marketplace, and payroll-related costs for in-house engineering, scientific, laboratory, software development, and research management staff.

Selling, General and Administrative

For the three months ended June 30, 2009, selling, general and administrative (“SG&A”) expenses were $978,000, a decrease of $208,000 or 18% over SG&A expenses of $1,186,000 for the same period in 2008. Of this $208,000 decrease, administrative salary expenses decreased $48,000, sales personnel salary expenses decreased $204,000 and there was a $30,000 reduction related to a non-cash charge for compensation expense. In addition, consulting expense was reduced by $78,000, marketing costs were reduced by $20,000, public and investor relations fees were reduced by $72,000, temporary help expenses were reduced by $13,000, professional fees for legal and accounting services were reduced by $127,000, travel expense was reduced by $51,000, and transfer agent fees were reduced by $15,000. These reductions during the three months ended June 30, 2009 were partially offset by increases of $125,000 in depreciation and amortization expense, $295,000 in director fees and $30,000 in franchise taxes and other costs.

Other Income (Expense)

Interest income was $23,000 for the three months ended June 30, 2008. There was no interest income during the same period of 2009.

Interest expense increased by $24,000 to $25,000 for the three month period ended June 30, 2009. This increase resulted from a non-cash charge related to the Company’s warrant price modification.

Net Loss

The net loss for the three month period ended June 30, 2009, before preferred dividends, totaled $1,093,000, as compared with $1,702,000 for the same period in 2008, a decrease of $609,000 or 36%. This decrease primarily was the result of decreases in R&D and SG&A expenses due to the Company completing its clinical trials during 2008 for the SoftPAP cervical collection device.

The net loss applicable to common stockholders decreased to $1,093,000 for the quarter ended June 30, 2009 from $1,756,000 for the same period in 2008, a decrease of $663,000 or 38%. In addition to the changes reported above, cumulative dividends on the Company’s outstanding Series E convertible preferred stock converted into common stock totaled $54,000 for the three months ended June 30, 2008 with no comparable charge in 2009. The net loss per common share for the three month periods ended June 30, 2009 and June 30, 2008 was $0.03 and $0.04 per share, respectively, on 41,894,354 and 40,851,212 weighted average common shares outstanding, respectively.

Six Months Ended June 30, 2009 as compared to Six Months Ended June 30, 2008

Revenue

Revenues for the six months ended June 30, 2009 as compared with the six months ended June 30, 2008 decreased $59,000, or 72%, from $82,000 to $23,000. This decrease was the result of a decline in sales of the SoftPAP cervical collection device totaling $44,000, a reduction in revenue totaling $13,000 from the licensing fees for our slide-based installed systems and a reduction in service revenue of $2,000 during the six months ended June 30, 2009.

Costs and Expenses

Cost of Revenues

Cost of revenues decreased $137,000 for the six months ended June 30, 2009, from $143,000 in 2008 to $6,000 in 2009. This 96% decrease was due to lack of sales of our SoftPAP cervical collection device during the period.

Research and Development

For the six months ended June 30, 2009, our R&D expenses were $212,000, a $1,105,000 or 84% decrease over R&D expenses of $1,317,000 for the same period in 2008. Of this $1,105,000 decrease, $604,000 relates to the completion of our clinical trials, $127,000 represents a decrease in consulting fees, $123,000 relates to a reduction in laboratory supply costs, $38,000 represents a non-cash charge for the issuance of warrants to employees, and $213,000 relates to costs incurred for the development and modifications of our SoftPAP cervical collection device.

Selling, General and Administrative

For the six months ended June 30, 2009, SG&A expenses were $1,857,000, a decrease of $388,000 or 17%, over SG&A expenses of $2,245,000 for the same period in 2008. Of this $388,000 decrease, administrative salary expenses decreased $55,000, sales personnel salary expenses decreased $302,000 and there was a $40,000 reduction related to a non-cash charge for compensation expense. In addition, consulting expense was reduced by $149,000, marketing costs were reduced by $61,000, public and investor relations fees were reduced by $136,000, temporary help expenses were reduced by $63,000, professional fees for legal and accounting services were reduced by $88,000, travel expense was reduced by $75,000, and transfer agent fees were reduced by $19,000. These reductions during the six months ended June 30, 2009 were partially offset by increases of $220,000 in depreciation and amortization expense, $310,000 in director fees, $32,000 in rent expense and $38,000 in franchise taxes and other costs.

Other Income (Expense)

Interest income was $38,000 for the six months ended June 30, 2008. There was no interest income during the same period of 2009.

Interest expense increased by $25,000 to $27,000 for the six month period ended June 30, 2009. This increase resulted from a non-cash charge related to the Company’s warrant price modification.

The Company recorded a non-cash charge of $948,000 for the six months ended June 30, 2009 resulting from a preliminary legal settlement as described in Item 1 of Part II herein.

Net Loss

The net loss for the six month period ended June 30, 2009, before preferred dividends, totaled $3,027,000, as compared with $3,587,000 for the same period in 2008, a decrease of $560,000 or 16%. This decrease was the result of decreases in R&D and SG&A expenses due to the Company completing its clinical trials of the SoftPAP cervical collection device during 2008.

The net loss applicable to common stockholders decreased to $3,027,000 for the six months ended June 30, 2009 from $3,645,000 for the same period in 2008, a decrease of $618,000 or 17%. In addition to the changes reported above, cumulative dividends on the Company’s outstanding Series E convertible preferred stock converted into common stock totaled $58,000 for the six months ended June 30, 2008 with no comparable charge in 2009. The net loss per common share for the six month periods ended June 30, 2009 and June 30, 2008 was $0.07 and $0.10 per share, respectively, on 41,571,015 and 38,090,968 weighted average common shares outstanding, respectively.

Liquidity and Capital Resources

To date, the Company’s capital resources and liquidity have been generated primarily from investments by individual and institutional investors.

Research and development, clinical trials and other studies of the components of our CytoCore Solutions System, conversions from designs and prototypes into products and product manufacturing, sales and marketing efforts, medical consultants and advisors, and research, administrative and executive personnel are and will continue to be the principal basis for our cash requirements. CCI has provided operating funds for the business since its inception through private offerings of debt and equity securities to U.S. accredited and foreign investors. The Company will be required to make additional offerings in the future to support the operations of the business until some or all of our products are successfully marketed. We used $1,358,000 for the six months ended June 30, 2009 in operating activities. During the six months ended June 30, 2009, approximately $212,000 was incurred on R&D and approximately $1,857,000 was incurred on SG&A functions. The Company used $4,692,000 in operations during the first six months of 2008. This primarily consisted of $1,317,000 for R&D and $2,245,000 for SG&A expense for the six months ended June 30, 2008.

During the six months ended June 30, 2009, the Company invested $33,000 for the purchase of a license. CCI is obligated to make additional payments for this license totaling $28,000. The Company has no other material commitments at this time for capital expenditures during the remainder of the 2009 fiscal year.

We were able to raise proceeds of $270,000 through the exercise of warrants during the six months ended June 30, 2009, compared to $9.0 million net proceeds from the sale of common stock and the exercise of warrants for the same period in 2008. The proceeds of the common stock offerings were used to develop and manufacture our products and satisfy certain present and past obligations. At June 30, 2009, the Company had $10,000 in cash as compared to $0.6 million cash on hand as of December 31, 2008. At June 30, 2009, the Company’s cash balance was not sufficient to fund its operations. During the first quarter of 2009, the Company began an offering of 1.4 million units at an offering price of $5.00 per unit. Each unit consists of one share of Series F Convertible Preferred Stock and one warrant to purchase common stock. The warrants were offered with an exercise price of $0.75 per share. The preferred stock would accrue dividends at the rate of $0.50 per annum, payable in cash or in additional

shares of Series F Preferred Stock at the Company’s option. The preferred stock is convertible into common stock at $0.50 per share at any time, subject to adjustment, unless the conversion price is reset under the terms of the certificate of designation. If the Company’s common stock trades at or above $2.00 per share for 20 out of 30 consecutive trading days with an average trading volume of over 200,000 shares, the Series F preferred shares would automatically convert to common stock at a price of $0.50 per share unless the conversion price is reset under the terms of the certificate of designation. The Series F shares rank senior to the Company’s common stock and all outstanding preferred stock except for the Company’s Series E Preferred Stock, and would have voting rights along with the common stock. Both the Series F preferred shares and the warrants have standard anti-dilution provisions. There were no funds received from this offering in the first six months of the 2009 fiscal year.

We have incurred significant operating losses since inception of the business. We expect that on-going operating expenditures will be necessary to successfully implement our business plan and develop, manufacture and market our products. Our operations have been, and will continue to be until we are able to generate significant product revenues, dependent upon management’s ability to raise funds from the sale of our securities. There can be no assurance that we will be able to obtain additional capital to meet our current operating needs or to complete pending or contemplated licenses or acquisitions of technologies. If we are unable to raise sufficient adequate additional capital or generate profitable sales revenues, we will be forced to substantially curtail product research, development and other activities, and may be forced to cease operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our chief executive officer, who is also the Company’s chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our chief executive and chief financial officer has concluded that our current disclosure controls and procedures are effective to ensure that such officer is provided with information related to the Company to allow timely decisions regarding information required to be disclosed in the reports filed or submitted by CCI under the Exchange Act and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 except as described herein. A summary of these cases is as follows:

In April, 2009, the Company entered into a tentative settlement agreement with NeoMed. The terms of the agreement provide that the Company will issue to NeoMed 2,680,800 shares of restricted, unregistered common stock and a warrant to purchase 217,000 shares of restricted unregistered common stock at an exercise price of $0.50 per share. As a result of the tentative settlement, the Company has made an additional provision totaling $948,000, which was charged to other expense in the first quarter of 2009.

Other claims

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Repricing of Warrants for Cash and Debt

On March 23, 2009, the Company offered to all holders of warrants to purchase shares of the Company’s common stock the option to exercise their warrants at a reduced exercise price of $0.25 per share. The original offer expired on April 23, 2009 and was subsequently extended until May 23, 2009. During the first quarter of 2009 the Company received $4,000 from the exercise of warrants. During the quarter ended June 30, 2009, the Company received gross proceeds of $210,000 from the exercise of warrants for an aggregate 837,121 shares of unregistered, restricted common stock in connection with its offer. In addition, our former Chairman of the Board of Directors and our Chief Executive Officer exercised warrants to purchase an aggregate 670,000 shares of unregistered, restricted common stock through the reduction of $168,000 of debt owed to them by the Company. In addition, holders of warrants to purchase 28,292 exercised their warrants at the original exercise price. CCI received approximately $56,000 from these exercises.

Issuance of Common Stock as Payment for Services

Issuance of Stock and Warrants as Payment for Employee Compensation

In the first quarter of the 2009 fiscal year, the Company issued to two of its executive officers an aggregate 61,144 shares of restricted, unregistered common stock valued at $0.50 per share in settlement of unpaid compensation for services rendered in 2008. The shares were valued at $31,000, and such amount was previously recorded as compensation in 2008.

Conversion of Series E Preferred Shares for Common Shares

Exemptions

CCI issues securities in reliance on the safe harbor and exemptions from registration provided under Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales or issuances were made to a limited number of persons, and transfer was restricted by the Company in accordance with the requirements of applicable law. In addition to representations by the above-referenced persons, the Company has made independent determinations that investors were accredited or sophisticated, that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, these investors were provided with access to CCI’s SEC filings.

Company Repurchases of Securities

During the three months ended June 30, 2009, neither the Company nor any affiliated purchaser of the Company purchased equity securities of CCI.

Item 3. Defaults upon Senior Securities

As of June 30, 2009, CCI had failed to make the required principal and interest payments, constituting events of default, on the $21,000 Ventana Medical Systems, Inc. promissory note.

The note requires the holder to notify CCI in writing of a declaration of default at which time a cure period, as specified in the note, would commence. There is no guarantee that CCI would be able to cure any event of default if, or when, the holder provides the required written notice. CCI did not receive any written declarations of default from holders of its remaining outstanding notes payable during the three or six months ended June 30, 2009.

Item 4. Submission of Matters to Vote of Security Holders

At the Company’s Annual Meeting of Shareholders held on June 22, 2009, the following proposal was adopted by the votes specified below:


	Page
PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

a) Condensed Consolidated Balance Sheets — June 30, 2009 (unaudited) and December 31, 2008		2

b) Condensed Consolidated Statements of Operations — Three and Six months ended June 30, 2009 and June 30, 2008 (unaudited)		3

c) Condensed Consolidated Statements of Cash Flows — Three and Six months ended June 30, 2009 and June 30, 2008 (unaudited)		4

d) Notes to Unaudited Condensed Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosures about Market Risk		17

Item 4. Controls and Procedures		17

PART II. — OTHER INFORMATION

Item 1. Legal Proceedings		17

Item 1A. Risk Factors		18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18

Item 3. Defaults upon Senior Securities		19

Item 4. Submission of Matters to a Vote of Security Holders		19

Item 5. Other Information		20

Item 6. Exhibits		20

SIGNATURES		21

EXHIBIT INDEX		22
EX-31
EX-32


	FOR		WITHHELD
Robert F. McCullough, Jr.		27,428,249		588,729

Clinton H. Severson		27,467,238		549,740

Alexander M. Milley		27,470,774		546,204

John H. Abeles, M.D.		23,879,875		4,137,103

Erik Danielsen		27,459,949		557,029


	CytoCore, Inc.
	/s/ Robert F. McCullough, Jr.
	Robert F. McCullough, Jr.
	Chief Executive Officer and Chief Financial Officer


Exhibit
Number		Description

31		Section 302 certification by principal executive and chief financial officer.

32		Section 906 certification by principal executive and chief financial officer.

(1)		I have reviewed this quarterly report on Form 10-Q of CytoCore, Inc.;

(2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)		I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b.		designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under my supervision, 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;

c.		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)		I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

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	/s/ Robert F. McCullough Jr.
	Robert F. McCullough Jr.
	Chief Executive Officer and Chief Financial Officer Dated: August 19, 2009



	/s/ Robert F. McCullough, Jr.
	Robert F. McCullough, Jr. Chief Executive Officer and Chief Financial Officer Dated: August 19, 2009