2. Reverse Merger

In January 2014, the Company and the owners of Medite Enterprise, Inc. entered into an agreement to merge with CytoCore, Inc.. The merger required as a pre-requisite that among other items CytoCore settle certain outstanding payroll amounts in stock and that CytoCore complete a private placement with gross proceeds of a minimum of $2 million, which was later amended to $1.5 million. On April 3, 2014 CytoCore issued 69,723,439 shares of its common stock in satisfaction of approximately $1.61 million in outstanding accrued payroll and on April 4, 2014 also closed on a private placement in which it received gross proceeds of $1.529 million and issued 95,587,500 shares of its common stock. The merger closed on April 4, 2014 with the owners of Medite Enterprise, Inc. receiving 1,468,750,000 shares of the Company’s common stock plus an additional 31,250,000 shares issuable if certain conditions are met, in exchange for 100% of the issued and outstanding stock of Medite Enterprise, Inc.

Because the owners of Medite Enterprise, Inc. received approximately 81.1% of the then issued and outstanding stock of the Company, the merger has been treated as a reverse acquisition, in which for accounting purposes Medite Enterprise, Inc. acquired CytoCore, Inc. The table below shows the management’s best estimate of the purchase price paid for the reverse acquisition of CytoCore by Medite Enterprise, Inc. :

	In thousands
Net assets acquired
Cash	$	1
Accounts receivable		8
Goodwill		12,461
	$	12,470

Liabilities assumed
Accounts payable & accrued expenses	$	2,908
Related party advances		102
Loans payable		21
	$	3,031

Net identifiable assets/consideration paid	$	9,439

The amounts included in the table above are management’s estimates. Because of the issues regarding the liquidity and trading of the stock of the Company, the Company has used an internal valuation for the consideration and assets acquired. The Company expects to obtain professional valuations prior to year end and that the amounts show above will be subject to change upon the Company obtaining those valuations. The most significant estimates subject to change above are the consideration paid, the amount of intangible assets for the possible value attributable to the technology and patents, in process research and development, net deferred tax assets (see discussion below), accounts payable and accrued expenses and finally goodwill.

The transaction entered into by CytoCore, Inc. to satisfy outstanding officer loans in 2013 and the merger consideration paid to the owners of Medite Enterprise, Inc. has resulted in a “change of control” as defined in Section 382 of the internal revenue code as of April 2014. The effect of this change in control is that the past net operating losses of CytoCore, Inc. which amounted to approximately $72 million will be limited as defined in Section 382 of the internal revenue code. The Company is required under Section 382 to perform a valuation that will determine the amount of net operating losses from each loss year that may be taken in each year on a go-forward basis. Because the Company has yet to perform or obtain this valuation, the amount and timing of the availability of its loss carryforwards from CytoCore, Inc. are unknown at this time. Upon determination of this amount, a significant deferred tax asset may be recorded which will effect the final net assets acquired above. The Company expects to obtain this valuation prior to year end.