Nuo Therapeutics (AURX) 10-Q/A 2010 Q2 Quarterly report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q/A
Amendment No. 1

 

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

For the Quarterly Period Ended June 30, 2010

OR

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

For the Transition Period from  to 

Commission File Number 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.)

209 Perry Parkway, Suite 7
Gaithersburg, MD 20877

(Address of Principal Executive Offices)(Zip Code)

(240) 499-2680

(Registrant’s Telephone Number, Including Area Code)

 

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.Yesx Noo

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yeso Noo

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.

Large Accelerated Filero	Accelerated Filero	Non-Accelerated Filero	Smaller Reporting Companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Nox

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 7, 2010, the Company had 37,733,506 shares of common stock, par value $.0001, issued and outstanding.

EXPLANATORY NOTE

We are filing this Amended Quarterly Report on Form 10-Q/A (the “Amended Filing” or “Form 10-Q/A”) to our Quarterly Report of Form 10-Q for the three months ended June 30, 2010 (the “Original Filing”) to amend and restate our unaudited financial statements and related disclosures for the three and six months ended June 30, 2010 as discussed in Note 2 to the accompanying restated unaudited financial statements.

Background of the Restatement

On January 3, 2011, the Company concluded, based on the recommendation of management, that the previously issued financial statements for the year ended December 31, 2009 included in the Company's most recently filed Form 10-K, and each of the quarterly periods from March 31, 2009 through September 30, 2010 included in the Company’s quarterly reports on Forms 10-Q (collectively, the “Affected Periods”) are no longer reliable because they failed to incorporate non-cash charges resulting from required adjustments to certain outstanding warrants (the “Warrants”).

An expalanation of the errors and their impact on the Company’s financial statements is contained in Note 2 to the financial statements contained in Item 1 of this report. The following is a brief summary of the accounting errors:

(a) The Comapny adopted the FASB Emerging Issues Task Force's Issue No 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's own Stock” (“EITF 07-5), now codified in ASC 815-40, as of January 1, 2009. EITF 07-5 provides guidance as to assessing equity versus liability treatment and classification for equity-linked financial instruments, including stock purchase warrants. Upon the adoption of EITF 07-5, the Company did not properly assess the impacts of certain non-standard anti-dilution provisions that existed in certain then-outstanding stock purchase warrants, resulting in equity (versus liability) treatment and classification.

(b) In 2009, the Company did not properly assess the impacts of certain non-standard anti-dilution provisions that existed in stock purchase warrants issued in an August 2009 offering, resulting in equity (versus liability) treatment and classification.

(c) As a result of the improper accounting treatment of the above-mentioned stock purchase warrants, certain offering expenses were also misclassified and accounted for incorrectly.

Restatement of Other Financial Statements

Along with the filing of this Form 10-Q/A, we are concurrently filing amendments to our Annual Report on Form 10-K/A Amendment No. 1 for 2009 and our Quarterly Report on Form 10-Q for the quarterly periods ended March 31, June 30 and September 30, 2009 and March 31 and September 30, 2010. The amendments to our Quarterly Report on Form 10-Q are being filed to restate our unaudited financial statements and related financial information for the periods contained in those reports. The amendment to our Annual Report on Form 10-K/A Amendment No. 1 is being filed to restate our financial statements for the fiscal year ended December 31, 2009.

Internal Control Considerations

Management determined that there was a control deficiency in its internal control that constitutes a material weakness, as discussed in Part I – Item 4 of the Amended Filing. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. For a discussion of management’s consideration of the Company’s disclosure controls and procedures and the material weakness identified, see Part I – Item 4 included in this Amended Filing.

For the convenience of the reader, this Amended Filing sets forth the Original Filing as modified and superseded where necessary to reflect the restatement. The following items have been amended principally as a result of, and to reflect, the restatement:

• Part I – Item 1. Financial Statements;

• Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and

• Part I – Item 4. Controls and Procedures

In accordance with applicable SEC rules, this Amended Filing includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.

Except for the items noted above, no other information included in the Original Filings is being amended by this Amended Filing. The Amended Filing continues to speak as of the date of the Original Filing and we have not updated the filing to reflect events occurring subsequently to the Original Filing date other than those associated with the restatement of the Company’s financial statements. Accordingly, this Amended Filing should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing.

CYTOMEDIX, INC.
  
TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION		1
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4T. Controls and Procedures		29
PART II. OTHER INFORMATION		30
Item 1. Legal Proceedings		30
Item 1A. Risk Factors		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 3. Defaults Upon Senior Securities		30
Item 4. Removed and Reserved		30
Item 5. Other Information		30
Item 6. Exhibits (see Exhibit Index at end of report)		30
Signatures		31
Exhibit Index		32

i

PART I
  
FINANCIAL INFORMATION

Item 1. Financial Statements

CYTOMEDIX, INC.
  
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	June 30, 2010 (restated)			December 31, 2009 (restated)
ASSETS
Current assets
Cash	$	1,069,611		$	2,107,499
Short-term investments, restricted		52,762			52,672
Accounts and royalties receivable, net		1,057,693			180,560
Inventory		1,030,372			25,986
Prepaid expenses and other current assets		123,079			193,743
Deferred costs, current portion		327,630			—
Total current assets		3,661,147			2,560,460
Property and equipment, net		838,863			84,623
Deferred costs		245,722			—
Other intangibles, net		3,316,292			—
Goodwill		706,823			—
Total assets	$	8,768,847		$	2,645,083
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	1,827,471		$	1,037,894
Note payable, current portion		1,048,209			—
Dividends payable on preferred stock		97,434			7,285
Derivative liability, current portion		—			391
Total current liabilities		2,973,114			1,045,570
Note payable		2,960,649			—
Derivatives and other liabilities		880,075			623,462
Total liabilities		6,813,838			1,669,032
Commitments and contingencies
Stockholders’ equity
Series A Convertible preferred stock; $.0001 par value, authorized 5,000,000 shares; 2010 and 2009 issued and outstanding – 97,663 shares, liquidation preference of $97,663		10			10
Series B Convertible preferred stock; $.0001 par value, authorized 5,000,000 shares; 2010 and 2009 issued and outstanding – 65,784 shares, liquidation preference of $65,784		7			7
Series C Convertible preferred stock; $.0001 par value, authorized 1,000,000 shares; 2010 and 2009 issued and outstanding – 0.0 shares		—			—
Series D Convertible preferred stock; $.0001 par value, authorized 2,000,000 shares; 2010 issued and outstanding – 3,650 shares, liquidation preference of $3,650,000		—			—
Common stock; $.0001 par value, authorized 100,000,000 shares; 2010 issued and outstanding – 37,547,879 shares; 2009 issued and outstanding – 37,273,628 shares		3,755			3,727
Additional paid-in capital		46,131,454			41,827,199
Accumulated deficit		(44,180,217	)		(40,854,892	)
Total stockholders’ equity		1,955,009			976,051
Total liabilities and stockholders’ equity	$	8,768,847		$	2,645,083

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

1

CYTOMEDIX, INC.
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010 (restated)			2009 (restated)			2010 (restated)			2009 (restated)
Revenues
Sales	$	1,147,219		$	72,928		$	1,210,479		$	115,303
Royalties		—			496,378			115,474			993,140
Total revenues		1,147,219			569,306			1,325,953			1,108,443
Cost of revenues
Cost of sales		685,278			26,584			700,215			34,638
Cost of royalties		—			91,389			(189,380	)		216,322
Total cost of revenues		685,278			117,973			510,835			250,960
Gross profit		461,941			451,333			815,118			857,483
Operating expenses
Salaries and wages		664,750			639,423			1,286,951			1,275,078
Consulting expenses		119,404			36,963			195,501			52,784
Professional fees		401,718			146,170			587,125			306,024
Research, development, trials and studies		156,407			99,923			220,898			179,116
General and administrative expenses		679,494			419,343			1,145,181			832,636
Total operating expenses		2,021,773			1,341,822			3,435,656			2,645,638
Loss from operations		(1,559,832	)		(890,489	)		(2,620,538	)		(1,788,155	)
Other income (expense)
Interest, net		(274,645	)		3,695			(275,146	)		10,525
Change in fair value of derivative liabilities		(419,739	)		(274,782	)		(421,795	)		(325,054	)
Other, net		(3,143	)		(1,969	)		(7,846	)		(3,938	)
Total other income (expense)		(697,527	)		(273,056	)		(704,787	)		(318,467	)
Loss before provision for income taxes		(2,257,359	)		(1,163,545	)		(3,325,325	)		(2,106,622	)
Income tax provision		—			—			—			—
Net loss		(2,257,359	)		(1,163,545	)		(3,325,325	)		(2,106,622	)
Preferred dividends:
Series A preferred stock		2,073			1,916			4,106			3,793
Series B preferred stock		1,410			1,956			2,793			3,873
Series D preferred stock		83,250			—			83,250			—
Amortization of beneficial conversion feature on Series D preferred stock		1,948,155			—			1,948,155			—
Net loss to common stockholders	$	(4,292,247	)	$	(1,167,417	)	$	(5,363,629	)	$	(2,114,288	)
Loss per common share – Basic and diluted	$	(0.11	)	$	(0.03	)	$	(0.14	)	$	(0.06	)
Weighted average shares outstanding – Basic and diluted		37,502,673			33,962,623			37,388,783			33,962,623

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

2

CYTOMEDIX, INC.
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended June 30,
	2010 (restated)			2009 (restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,325,325	)	$	(2,106,622	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		142,677			19,142
Stock-based compensation		180,771			211,761
Change in fair value of derivative liabilities		421,795			325,054
Amortization of deferred costs		81,908			—
Gain on disposal of assets		(8,255	)		—
Change in assets and liabilities net of effects from acquisition of Angel business:
Change in accounts and royalties receivable, net		(877,133	)		99,715
Change in inventory		146,649			7,513
Change in other current assets		63,138			103,536
Change in accounts payable and accrued expenses		789,577			4,359
Change in deferred revenues		—			(107,642	)
Change in other liabilities		—			(123,241	)
Net cash used in operating activities		(2,384,198	)		(1,566,425	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment		—			(52,500	)
Capital expenditures		(76,413	)		(27,474	)
Payment for acquisition of Angel business		(2,000,000	)		—
Proceeds from sale of equipment		29,895			—
Net cash used in investing activities		(2,046,518	)		(79,974	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net		3,227,125			—
Proceeds from option and warrant exercises		165,703			—
Net cash provided by financing activities		3,392,828			—
Net decrease in cash		(1,037,888	)		(1,646,399	)
Cash, beginning of period		2,107,499			4,027,026
Cash, end of period	$	1,069,611		$	2,380,627

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

3

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Business and Presentation

Description of Business

Cytomedix, Inc. (“Cytomedix,” the “Company,” “we,” “us,” or “our”) is a biotechnology company that develops, sells, and licenses regenerative biological therapies intended to aid the human body in regenerating/healing itself, to primarily address the areas of wound care, inflammation, and angiogenesis. The Company currently markets the AutoloGel^TM System, a device for the production of platelet rich plasma (“PRP”) gel derived from the patient’s own blood. The AutoloGel^TM System is cleared by the Food and Drug Administration (“FDA”) for use on a variety of exuding wounds. The Company is currently pursuing a multi-faceted strategy to penetrate the chronic wound market with its AutoloGel^TM System.

In April 2010, the Company acquired the Angel® Whole Blood Separation System (“Angel®”) and ActivAT® Autologous Thrombin Processing Kit (“ActivAT®”) from Sorin Group USA, Inc (“Sorin”). Used primarily in operating rooms, Angel® is used for separation of whole blood into red cells, platelet poor plasma and platelet rich plasma. ActivAT® is designed to produce autologous thrombin serum from platelet poor plasma and is sold exclusively in Europe and Canada, where it provides a completely autologous, safe alternative to bovine-derived products.

We are also pursuing opportunities for the application of AutoloGel^TM and Angel® into other markets such as hair transplantation and orthopedics, as well as actively seeking complementary products for regenerative medicine markets.

Basis of Presentation

The financial statements and related information for 2010 are presented on a condensed consolidated basis. The financial statements and related information for 2009 are presented on a condensed basis. Cytomedix formed a wholly-owned subsidiary in April 2010 for the sole purpose of effectuating the acquisition of the Angel® and ActivAT® product lines.

The unaudited financial statements included herein have been prepared by Cytomedix pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly state such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.

The year-end balance sheet data were derived from audited financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America.

These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s 2009 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2010.

Basic and diluted net losses per common share are presented in accordance with established standards for all periods presented. We compute basic and diluted net losses per common share using the weighted-average number of shares of Common stock outstanding during the period. During periods of net losses, shares associated with outstanding stock options, stock warrants, and convertible preferred stock are not included because the inclusion would be anti-dilutive (i.e., reduce the net loss per share). The total numbers of such shares excluded from diluted net loss per common share were 22,912,247 for the three and six months ended June 30, 2010, and 9,689,231 for the three and six months ended June 30, 2009.

4

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Restatement of Financial Statements

Historically, the Company has issued stock purchase warrants as part of various financings and as compensation to consultants for various services. Prior to January 1, 2009, the Company assessed whether or not stock purchase warrants should be accounted for and classified as equity or liabilities based on the accounting guidance in effect at the time.

On January 1, 2009, the Company adopted new accounting guidance (ASC 815-40, formerly EITF 07-5 “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”) that required additional analysis as to whether or not stock purchase warrants are “indexed to” its stock, a condition that is required to attain equity accounting and classification. Upon the adoption of this new guidance, the Company concluded that its previously issued stock purchase warrants were appropriately classified as equity and, therefore, the adoption of the new guidance did not have any impact on its historical financial statements or on its 2009 financial statements.

In connection with the review of certain equity transactions in 2010, the Company determined that, upon the adoption of the new accounting guidance on January 1, 2009, certain stock purchase warrants issued in 2004 should have been appropriately classified as derivative liablities (and not equity) due to the presence of non-standard anti-dilution provisions in those warrant agreements. These provisions require that the Company modify existing warrants (as to the actual number of warrants and their exercise price) in the event that the Company issues subsequent equity (or equity-linked instruments) at a price below the exercise price of the existing warrants. Additionally, stock purchase warrants issued in 2009 (after the adoption of the new guidance) should also have been classified as derivative liabilities (and not equity) for similar reasons. Also, as a result of the improper accounting treatment for the above-mentioned stock purchase warrants, certain offering expenses were also misclassified and accounted for incorrectly. The Company previously has restated its quarterly and annual 2009 financial statements.

5

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Restatement of Financial Statements – (continued)

As a result, the Company has restated its 2010 quarterly financial statements to correct for the misapplication of the new accounting guidance related to the accounting and classification of stock purchase warrants. This correction resulted in adjustments to the following financial statement line items as of and for the period indicated:

	As Previously Reported			Increase (Decrease)			As Restated
Three months ended June 30, 2010
Change in fair value of derivative liabilities	$	—		$	(419,739	)	$	(419,739	)
Other, net	$	(410	)	$	(2,733	)	$	(3,143	)
Total other income (expense)	$	(275,055	)	$	(422,472	)	$	(697,527	)
Loss before provision for income taxes	$	(1,834,887	)	$	(422,472	)	$	(2,257,359	)
Net loss	$	(1,834,887)		$	(422,472	)	$	(2,257,359	)
Net loss to common stockholders	$	(3,869,775)		$	(422,472	)	$	(4,292,247	)
Loss per common share – Basic and diluted	$	(0.10	)	$	(0.01	)	$	(0.11	)
Six months ended June 30, 2010
Statement of Operations
Change in fair value of derivative liabilities	$	—		$	(421,795	)	$	(421,795	)
Other, net	$	(410	)	$	(7,436	)	$	(7,846	)
Total other income (expense)	$	(275,556	)	$	(429,231	)	$	(704,787	)
Loss before provision for income taxes	$	(2,896,094)		$	(429,231	)	$	(3,325,325	)
Net loss	$	(2,896,094)		$	(429,231	)	$	(3,325,325	)
Net loss to common stockholders	$	(4,934,398)		$	(429,231	)	$	(5,363,629	)
Loss per common share – Basic and diluted	$	(0.13	)	$	(0.01	)	$	(0.14	)
Statement of Cash Flows
Net loss	$	(2,896,094	)	$	(429,231	)	$	(3,325,325	)
Depreciation and amortization	$	135,241		$	7,436		$	142,677
Change in derivative liabilities	$	—		$	421,795		$	421,795
As of June 30, 2010
Prepaid expenses and other current assets	$	77,517		$	45,562		$	123,079
Total current assets	$	3,615,585		$	45,562		$	3,661,147
Total assets	$	8,723,285		$	45,562		$	8,768,847
Derivative and other liabilities	$	—		$	880,075		$	880,075
Total liabilities	$	5,933,763		$	880,075		$	6,813,838
Additional paid-in capital	$	48,213,257		$	(2,081,803)		$	46,131,454
Accumulated deficit	$	(45,427,507)		$	1,247,290		$	(44,180,217)
Total stockholders’ equity	$	2,789,522		$	(834,513	)	$	1,955,009
Total liabilities and stockholders’ equity	$	8,723,285		$	45,562		$	8,768,847

6

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Restatement of Financial Statements – (continued)

	As Previously Reported			Increase (Decrease)			As Restated
Three months ended June 30, 2009
Change in fair value of derivative liabilities	$	—		$	(274,782	)	$	(274,782	)
Other, net	$	—		$	(1,969	)	$	(1,969	)
Total other income (expense)	$	3,695		$	(276,751	)	$	(273,056	)
Loss before provision for income taxes	$	(886,794	)	$	(276,751	)	$	(1,163,545	)
Net loss	$	(886,794	)	$	(276,751	)	$	(1,163,545	)
Net loss to common stockholders	$	(890,666	)	$	(276,751	)	$	(1,167,417	)
Loss per common share – Basic and diluted	$	(0.03	)	$	(0.01	)	$	(0.03	)
Six months ended June 30, 2009
Statement of Operations
Change in fair value of derivative liabilities	$	—		$	(325,054	)	$	(325,054	)
Other, net	$	—		$	(3,938	)	$	(3,938	)
Total other income (expense)	$	10,525		$	(328,992	)	$	(318,467	)
Loss before provision for income taxes	$	(1,777,630	)	$	(328,992	)	$	(2,106,622	)
Net loss	$	(1,777,630	)	$	(328,992	)	$	(2,106,622	)
Net loss to common stockholders	$	(1,785,296	)	$	(328,992	)	$	(2,114,288	)
Loss per common share – Basic and diluted	$	(0.05	)	$	(0.01	)	$	(0.06	)
Statement of Cash Flows
Net Loss	$	(1,777,630	)	$	(328,992	)	$	(2,106,622	)
Depreciation and amortization	$	15,204		$	3,938		$	19,142
Change in derivative liabilities	$	—		$	325,054		$	325,054
As of December 31, 2009
Prepaid expenses and other current assets	$	166,731		$	52,998		$	219,729
Total current assets	$	2,507,462		$	52,998		$	2,560,460
Total assets	$	2,592,085		$	52,998		$	2,645,083
Derivative liabilities, current portion	$	—		$	391		$	391
Total current liabilities	$	1,045,179		$	391		$	1,045,570
Derivative and other liabilities	$	—		$	623,462		$	623,462
Total liabilities	$	1,045,179		$	623,853		$	1,669,032
Additional paid-in capital	$	44,074,575		$	(2,247,376	)	$	41,827,199
Accumulated deficit	$	(42,531,413	)	$	1,676,521		$	(40,854,892	)
Total stockholders’ equity	$	1,546,906		$	(570,855	)	$	976,051
Total liabilities and stockholders’ equity	$	2,592,085		$	52,998		$	2,645,083

The cumulative effect of the adoption of the new accounting guidance as of January 1, 2009 was a $1.6 million decrease in additional paid in capital, a $1.5 million decrease in accumulated deficit and a $0.1 million increase in derivative liabilities. The effect of the adoption on the three months ended March 31, 2009 was a $0.1 million increase in other expenses.

Note 3 — Liquidity Risks and Management’s Plans

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and continues to incur, significant losses from operations. The licensing agreements, under which the Company’s royalty revenues were generated, expired in late November 2009. In April 2010, we

7

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Liquidity Risks and Management’s Plans  – (continued)

completed a $3.65 million capital raise, of which $2 million was immediately used to fund the up-front payment to Sorin for the Angel® and ActivAT® acquisition (see Acquisition Note for further description). The Angel® and ActivAT® businesses yielded approximately $5 million in revenue in 2009. The Company needs to sustain Angel® and ActivAT® product sales and increase sales of AutoloGel^TM. There is no assurance that the Company will be successful in this regard. The Company will also require additional capital to finance the development of its business operations and to satisfy a Note Payable to Sorin arising as part of the Angel® and ActivAT® acquisition. It will seek such capital through strategic collaborations, issuance of its equity securities, grant funding, or any other means it deems appropriate. There is no assurance that such capital will be available on acceptable terms or at all. As a result, there is substantial doubt as to the Company’s ability to continue as a going concern.

In the event the Company is unable to successfully sustain and increase product sales as described above and obtain additional capital, it is unlikely that the Company will have sufficient cash flows and liquidity to finance its business operations as currently contemplated. Accordingly, if the Company determines it will not be able to obtain the necessary financing to address its working capital needs for a reasonable period into the future, it may pursue alternative paths forward for the Company. These paths could include, but not be limited to, sale of the Company or its assets, merger, organized wind-down, going private/dark, fundamental shift in its strategic plan (e.g. abandon commercialization strategy and focus exclusively on licensing), bankruptcy, etc.

The financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Note 4 — Summary of Significant Accounting Policies

Following is an update to the summary of significant accounting policies provided in the Company’s 10-K/A.

Purchase Accounting

When the Company determines that an agreement constitutes a business combination it accounts for it by applying the acquisition method. Under this method the Company allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition, including intangible assets that arise from contractual or other legal rights or are separable (i.e. capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). The purchase price in excess of the fair value of the net assets and liabilities is recorded as goodwill. See further discussion regarding the accounting for the Angel® Business (hereinafter defined) combination in Note 5 — Acquisition.

Revenue Recognition

With the acquisition described below, the Company acquired various customer agreements. Some of these agreements are for sales of disposable processing sets and supplies to existing customers, and the remaining agreements combine the (i) usage or leasing of blood separation processing equipment, (ii) maintenance of processing equipment, and (iii) purchase of disposable processing sets and supplies.

Revenue from sales of disposable processing sets and supplies is recognized upon shipment of products to the customers. The Company does not maintain a reserve for returned products as in the past those returns have been negligible.

In regards to those agreements that combine the usage of the blood separation processing equipment with the sale of disposable processing sets and supplies and maintenance, the consideration is allocated to the various elements in accordance with the guidance for multiple element arrangements underASC 605 — Revenue recognition. Based on the terms contained in the agreements, any payments under these agreements are contingent on the customer ordering additional disposable processing sets and supplies, and the customers are not required to purchase any minimum guaranteed quantity of products during the term of the agreements. The

8

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Summary of Significant Accounting Policies  – (continued)

usage of the blood separation processing equipment is accounted for as an operating lease in accordance withASC 840 — Leases, and as result of payments being contingent upon the ordering by the customer of new products, any rental income is recorded following the contingent rental method when rental income is earned and collectability is reasonably assured. The sale of disposable processing sets and supplies and maintenance are deemed a combined unit of accounting because the Company does not have objective and reliable evidence of fair value of the maintenance component on the arrangement. However, since (a) any consideration for disposable processing sets and supplies and maintenance is contingent upon the customer ordering additional disposable processing sets and supplies and (b) since both the disposable products and maintenance services are provided over the same term, the Company recognizes revenue for this combined unit of accounting following the contingent revenue method at the time disposable products are delivered based on prices contained in the agreement.

All other revenue recognition policies remain as described in the Company’s Annual Report on Form 10-K, as amended.

Note 5 — Acquisition

Overview

On April 9, 2010, Cytomedix, through its wholly owned subsidiary, and Sorin entered into an Asset Purchase Agreement (the “Agreement”) pursuant to which Cytomedix agreed to buy all title and interest in certain assets of and assume certain liabilities in Sorin’s operation of the Angel® and ActivAT® product lines (including the whole blood separation system, the blood processing kit and blood accessing kit) (the “Business Assets” or “Angel® Business”).The Angel® System is a device that utilizes validated blood separation technology to separate platelets and plasma from other components of a patient’s blood. The device provides the necessary flexibility and sophistication for more complex clinical situations. The ActivAT® technology facilitates the preparation of autologous human thrombin and currently is sold in Europe and Canada. The Angel® Business acquired from Sorin will provide Cytomedix with immediate access to surgical markets. By acquiring the Angel® Business, Cytomedix became the only supplier of PRP technology with FDA cleared indications for topical use and surgical use.

Pursuant to the terms of the Agreement, in consideration for the sale of the Business Assets, Cytomedix will pay to Sorin an aggregate amount equal to $7 million, to be paid as follows: (i) $2 million paid on the closing date of the transaction, April 9, 2010 (the “Closing Date”), and (ii) $5 million to be paid in accordance with a Secured Promissory Note in the principal amount of $5 million with interest accruing at 2.7% per annum (the “Promissory Note”) (see Note 12).

Sorin and Cytomedix made customary representations and warranties in the Agreement. Sorin also agreed to various covenants in the Agreement, including to provide Cytomedix access to the books and records and other relevant information relating to the Business Assets. In addition, Cytomedix is entitled to set-off against deferred payments owed to Sorin for the amount of losses that we, in good faith, believe are owed under the indemnification provisions under the Agreement. The amount of such set-off will bear an 8% interest rate per annum from the date of exercise of set-off until the date that any amount improperly set-off is paid by Cytomedix, subject to a $500,000 cap on such set-off right. We have not identified any contingencies subject to indemnification by Sorin as of June 30, 2010.

The parties to the Agreement also entered into several side agreements to facilitate the transition and transactions contemplated under the Agreement. As part of these side agreements, the Company has committed to purchase approximately $625,000 of new Angel® machines in order to support demand for the Angel® products. The purchase price of $625,000 approximates the fair value of the new Angel® machines as of the date of acquisition.

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CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Acquisition  – (continued)

Purchase Price

The following table summarizes the purchase price for the Acquisition:

Cash paid upon closing	$	2,000,000
Promissory note, net of discount(1)		4,008,858
Total costs of acquisition	$	6,008,858

(1) Reflects net present value of payment stream under promissory note, discounted at 18% presumed borrowing rate.

Preliminary Purchase Price Allocation

The Company is in the process of assessing the fair value of assets acquired and the liabilities assumed. The preliminary allocation of the purchase price as reflected herein is based on the best information available to management at the time that these financial statements were filed and is provisional pending, among other things, the finalization of the valuation of selected items. During the measurement period (which is not to exceed one year from the Acquisition date), Cytomedix is required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the Acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. Cytomedix may adjust the preliminary purchase price allocation after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates.

The following table summarizes the preliminary allocation of the Acquisition purchase price based on the estimated fair value of the acquired assets and assumed liabilities:

Inventory	$	1,151,035
Intangibles		3,383,000
Property and equipment		768,000
Net assets acquired	$	5,302,035
Excess of costs of acquisition over net assets acquired	$	706,823

Under purchase accounting rules, Cytomedix revalued the acquired finished goods inventory to fair value, which is defined as the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit allowance for Cytomedix’s selling effort. Cytomedix revalued the acquired property and equipment using the cost approach which is based on the amount required to replace similar assets.

Certain trademarks, technology and customer relationships of the Angel® Business have been recorded as intangible assets. The trademarks and technology are estimated to have useful lives of fifteen years while the customer relationships are estimated to have a useful life of eight years. All of these assets are being amortized on a straight-line basis as this is the most reliable representation of how the economic benefits of the assets are realized. Amortization expense of technology intangible assets is classified as cost of sales while all other intangible asset amortization is classified as general and administrative expense.

Goodwill represents the purchase price in excess of the amounts assigned to acquired tangible or intangible assets and assumed liabilities. Amounts allocated to goodwill are tax deductible in all relevant jurisdictions. The goodwill is attributable to the synergies expected to arise as a result of the Acquisition.

The final allocation of the purchase price will be determined at a later date and is dependent on a number of factors, including the final valuation of our tangible and identifiable intangible assets acquired and liabilities assumed on the closing date of the Acquisition. Adjustments resulting from the final allocation of purchase price may be material.

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CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Acquisition  – (continued)

The Company incurred approximately $230,000 of acquisition related expenses, which were included in general and administrative expense in the Company’s statement of operations. Of this amount, $170,000 was incurred in the fourth quarter of 2009 and $60,000 was incurred in the first quarter of 2010.

The following unaudited pro forma financial information summarizes the results of operations for the periods indicated as if the Acquisition had been completed as of January 1 of the respective period. Revenue specific to the Angel® Business since the April 9, 2010 acquisition was $1,052,000. As Cytomedix has begun to integrate the combined operations, eliminating overlapping processes and expenses and integrating its products and sales efforts with those of the Angel® Business, it is impractical to determine the earnings specific to the Angel® Business since the acquisition date.

These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of January 1 of each year or that may be obtained in the future.

Unaudited Pro Forma Information

	Six Months Ended June 30, 2010			Six Months Ended June 30, 2009			Quarter Ended June 30, 2009
Revenue	$	2,431,953		$	3,496,363		$	1,815,991
Net loss	$	(2,737,000	)	$	(1,777,992	)	$	(815,475	)

Pro forma information primarily reflects adjustments relating to interest on the Promissory Note and amortization of intangibles acquired in the Acquisition. Pro forma information for the quarter ended June 30, 2010, is not being presented as the activity during that period prior to the Acquisition (i.e., 9 days) is immaterial.

Note 6 — Goodwill and Identifiable Intangible Assets

Goodwill

As a result of its acquisition of the Angel® Business, Cytomedix recorded goodwill of approximately $707,000. The table below sets for the changes in the carrying amount of goodwill for the period indicated:

Balance as of January 1, 2010	$	—
Increase in goodwill due to acquisition		706,823
Balance as of June 30, 2010	$	706,823

Prior to the acquisition of the Angel® Business, the Company had no goodwill. It is the Company’s policy to conduct an impairment test of goodwill on an annual basis as of December 31 of each year. The Company will also conduct tests if events occur or circumstances change that would, more likely than not, reduce the fair value of the Company below its carrying value. No such triggering events were identified during the quarter ended June 30, 2010.

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CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Goodwill and Identifiable Intangible Assets  – (continued)

Identifiable Intangible Assets

Cytomedix’s identifiable intangible assets consist of trademarks, technology (including patents), and customer relationships. These assets were a result of the Angel® Business acquisition. Those intangible assets, and the associated amortization, are as follows:

Trademarks	$	320,000
Technology		2,355,000
Customer relationships		708,000
Total	$	3,383,000
Less: Accumulated amortization		(66,708	)
Other intangibles, net	$	3,316,292

Cytomedix reevaluates the recoverability of its identifiable, definitive lived intangible assets when changes in circumstances indicate the asset’s value may be impaired. If such indicators are identified the Company then would evaluate the assets to determine the amount of such impairment, if any. No such indicators have been identified since the acquisition. Amortization expense of approximately $39,000 was recorded to cost of sales and approximately $28,000 was recorded to general and administrative expense for the six months ended June 30, 2010. Amortization expense for the remainder of 2010 is expected to be approximately $133,400. Annual amortization expense based on our existing intangible assets and their estimated useful lives is expected to be approximately:

2011	$	267,000
2012	$	267,000
2013	$	267,000
2014	$	267,000
2015	$	267,000
Thereafter	$	1,849,000

Note 7 — Fair Value Measurements

The Company determines the fair value of its financial instruments utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The following summarizes the three levels of inputs required, as well as the assets that we value using those levels of inputs.

Level 1 — Quoted prices in active markets for identical assets and liabilities.

Level 2 — Observable inputs, other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable.

Level 3 — Unobservable inputs, supported by little or no market data available, where the reporting entity is required to develop its own assumptions to determine the fair value of the instrument.

An asset’s or liability’s level within the fair value heirarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

The fair value of the Company’s Certificate of Deposit was determined using Level 1 inputs. The fair value as of June 30, 2010 was $52,762.

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CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7 — Fair Value Measurements – (continued)

The following table sets forth a summary of changes in the fair value of our Level 3 liabilities for the six months ended June 30, 2010:

Description	Balance at December 31, 2009 (restated)		Exercise of Outstanding Warrants			Additional Issuances and Repricing Due to Anti-dilution Provisions		Change in Fair Value		Balance at June 30, 2010 (restated)
Derivative Liabilities	$	623,853	$	(232,564	)	$	66,991	$	421,795	$	880,075

The change in fair value of the derivative liabilities is classified in other income (expense) in the Company’s statement of operations. The fair value of the Company’s derivative liabilities related to stock purchase warrants was determined using the Black-Scholes option pricing model – a Level 3 input.

The Company does not have any non financial assets or liabilities that it measures at fair value.

Note 8 — Receivables

Accounts and royalties receivable, net consisted of the following:

	June 30, 2010			December 31, 2009
Trade receivables	$	1,010,046		$	68,171
Due from Sorin Group Italia Srl, net		80,890			—
Royalty receivables		—			131,715
Other receivables		929			929
		1,091,865			200,815
Less allowance for doubtful accounts		(34,172	)		(20,255	)
	$	1,057,693		$	180,560

Note 9 — Inventory

The carrying amounts of inventories are as follows:

	June 30, 2010		December 31, 2009
Raw materials	$	713,901	$	—
Finished goods		316,471		25,986
	$	1,030,372	$	25,986

Note 10 — Property and Equipment

Property and equipment consists of the following:

	June 30, 2010			December 31, 2009
Medical equipment	$	672,501		$	112,406
Office equipment		73,927			46,562
Manufacturing equipment		228,000			—
		974,428			158,968
Less accumulated depreciation		(135,565	)		(74,345	)
	$	838,863		$	84,623

13

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Property and Equipment  – (continued)

For the six months ended June 30, 2010 we recorded depreciation expense of approximately $68,600 with $46,400 reported as cost of sales and $22,200 to general and administrative expenses. For the six months ended June 30, 2009 we recorded depreciation expense of approximately $15,200, all of which was charged to general and administrative expenses.

Note 11 — Accounts payable and accrued expenses

Accounts payable and accrued expenses consisted of the following:

	June 30, 2010		December 31, 2009
Trade payables	$	988,947	$	185,483
Due to Sorin Group USA, Inc., net		151,048		—
Accrued compensation and benefits		157,116		216,179
Accrued professional fees		198,063		364,886
Accrued royalty fees		—		261,964
Accrued interest		180,399		—
Other payables		151,898		9,382
	$	1,827,471	$	1,037,894

Note 12 — Note Payable

In conjunction with the Acquisition Agreement entered into with Sorin and as part of the consideration (see Note 2) the Company executed a $5 million Promissory Note. The Promissory Note accrues interest at 2.7% per annum and is secured by a first priority security interest on the Business Assets acquired. The payment on the Promissory Note are payable as follows: (i) installments of $800,000 each on the 6 and 12 month anniversaries of the Promissory Note, (ii) installments of $1,200,000 each on the 18 and 24 month anniversaries of the Promissory Note, and (iii) an installment of $1,000,000 on the 30 month anniversary of the Note. In the event of default, the initial rate of interest on the Promissory Note will increase from 2.7% to 4% per annum. This Promissory Note may be prepaid at any time without premium or penalty. A portion of the foregoing payment obligations of the Company are guaranteed by certain guarantors as described below. The Promissory Note contains other terms and provisions that are customary for instruments of this nature. No interest has been paid in 2010.

In conjunction with the Acquisition, certain existing shareholders of the Company (the “Guarantors”) executed guaranty agreements pursuant to which such Guarantors agreed to guaranty 50% of the first $4 million payable to Sorin under the promissory note (the “Guaranty Agreements”). In connection with the foregoing guaranties, the Company agreed to provide the following consideration to the Guarantors: (i) cash fee calculated as a percentage of the amount guaranteed (the “Cash Fee”) and (ii) 5 year warrants to purchase an aggregate 1,333,334 shares of Common stock of the Company at an exercise price of $0.5368 per share. These warrants were valued at approximately $655,000, were capitalized as deferred debt issuance costs and are being amortized to interest expense on a straight-line basis over the two year guarantee period. The Company determined that the straight line method of amortization did not yield a materially different amortization schedule from the effective interest method. At June 30, 2010, the short and long-term portions of the unamortized deferred costs were $328,000 and $246,000, respectively.

14

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Capital Stock Activity

The Company issued 274,251 shares of Common stock during the six months ended June 30, 2010. The following table lists the sources of and the proceeds from those issuances:

Source	# of Shares		Total Proceeds
Exercise of August 2009 warrants		274,251	$	165,703
Totals		274,251	$	165,703

The following table summarizes the stock options granted by the Company during the three and six months ended June 30, 2010. These options were granted to employees, board members, and a service provider under the Company’s Long-Term Incentive Plan.

Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
Options Granted	Exercise Price	Options Granted	Exercise Price
25,000	$0.61	288,500	$0.47 – $0.61

During the six months ended June 30, 2010, 10,000 options were forfeited by contract due to the termination of the underlying service arrangement.

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

The Company had the following outstanding warrants and options:

	# Outstanding
Equity Instrument	June 30, 2010		December 31, 2009
D Warrants		304,033		304,033
Unit Warrants(1)		—		1,812,500
Fitch/Coleman Warrants		975,000		975,000
August 2008 Warrants		1,000,007		1,000,007
August 2009 Warrants(2)		1,573,764		1,717,800
April 2010 Warrants(3)		4,128,631		—
Guarantor 2010 Warrants(4)		1,333,334		—
Other warrants(5)		424,632		1,249,632
Options issued under the Long-Term Incentive Plan		4,895,054		4,616,554

(1) The Unit Warrants expired on March 31, 2010 and were accounted for as derivative liabilities as of January 1, 2009.

(2) The August 2009 Warrants contain standard anti-dilution provisions that were triggered upon the completion of the April 2010 Series D preferred stock offering. As such, the exercise price for these warrants was adjusted to $0.60 per share and the number of these warrants was increased by 130,215. The warrants are accounted for as derivative liabilities.

(3) The April 2010 Warrants were issued in connection with the April 2010 Series D preferred stock offering. These warrants have an exercise of price of $0.54 per share and expire on April 9, 2015.

(4) The Guarantor 2010 Warrants were issued pursuant to the Guaranty Agreements executed in connection with the Promissory Note payable to Sorin. These warrants have an exercise price of $0.54 per share and expire on April 9, 2015.

(5) Certain Other warrants, issued to consultants, expired during the quarter ended June 30, 2010.

15

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Capital Stock Activity  – (continued)

Preferred Stock Offering

On April 9, 2010, the Company entered into Subscription Agreements with certain accredited investors (the “Purchasers”), with respect to the sale of its (i) 10% Series D convertible preferred stock (the “Preferred Stock”), and (ii) warrants to purchase shares of Common stock of the Company (the “Warrants”) (together, the “Securities”), for gross proceeds of $3.65 million (before customary offering expenses of approximately $423,000, and excluding any proceeds that Cytomedix may receive upon exercise of the Warrants) (the “Preferred Stock Offering”). The Preferred Stock earns dividends at the rate of 10% per annum, payable quarterly in cash or, in the Company’s sole discretion, in shares of the Company’s Common stock. The Preferred Stock may be converted, at the holder’s option, into fully paid and non-assessable shares of the Common stock at the conversion price equal to 90% of the volume weighted average price (“VWAP”) for the 10 trading days prior to the closing date, or $0.4392. The conversion price on the Preferred Stock for affiliate investors is $0.5580. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders will be entitled to receive out of the Company’s assets an amount equal to the stated value, plus any accrued and unpaid dividends thereon and any other fees then due and owing thereon, for each share of Preferred Stock before any distribution or payment is made to the holders of any junior securities. At any time after the third anniversary of the issuance date, the Company may redeem some or all of the then outstanding Preferred Stock for cash in an amount equal to the stated value of the outstanding Preferred Stock plus any accrued dividends. The Preferred Stock will not be listed on any securities exchange or automated quotation system.

The Purchasers were also issued five-year Warrants to purchase, in the aggregate, 4,128,631 shares of Common stock, which number represents 50% of shares of Common stock underlying the Preferred Stock as of the closing of the Preferred Stock Offering, at an exercise price per share of $0.5368. Each Warrant is exercisable immediately on the date of issuance and will expire on April 9, 2015. The Company will use its reasonable best efforts to file a registration statement to register the resale of the shares of the Company Common stock issuable upon conversion of the Preferred Stock and exercise of the Warrants.

The Preferred Stock and Warrants are classified as equity. The proceeds from the Preferred Stock Offering were allocated among Preferred Stock and Warrants based on their relative fair values.

Pursuant to the terms of the Preferred Stock Offering, a beneficial conversion feature in the amount of $1,948,155 was recorded and fully amortized in April 2010 and is reflected in the Preferred dividend section of the statement of operations. The beneficial conversion feature represents the intrinsic value of the Preferred Stock which results from the effective conversion price of the convertible preferred stock being lower than the fair value of the underlying common stock on the date of issuance.

Note 14 — Commitments and Contingencies

The Company is prohibited from granting a security interest in certain of the Company’s patents and/or future royalty streams under the terms of the Series A and B Convertible Preferred stock.

The Company is party to registration rights agreements with those shareholders that participated in the April 2010 Series D convertible preferred stock offering. Under the terms of the agreements, the Company must pay liquidated damages in the event that the registration statement is not filed by July 9, 2010 or is not declared effective within 90 days of its filing (or within 120 days if it is reviewed by the SEC). As of June 30, 2010, the Company had accrued, and reflected as general and administrative expense, $36,500 as estimated liquidated damages due to its late filing of the registration statement. The maximum undiscounted amount of such damages is $219,000.

Under the Company’s plan of reorganization upon emergence from bankruptcy in July 2002, the Series A Preferred stock and the dividends accrued thereon that existed prior to emergence from bankruptcy are to be exchanged into one share of new Common stock for every five shares of Series A Preferred stock held as of

16

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Commitments and Contingencies  – (continued)

the date of emergence from bankruptcy. This exchange is contingent on the Company’s attaining aggregate gross revenues for four consecutive quarters of at least $10,000,000 and would result in the issuance of 325,000 shares of Common stock. Through June 30, 2010, the Company had not reached such aggregate revenue levels.

In conjunction with its FDA clearance, the Company agreed to conduct a post-market surveillance study to further analyze the safety profile of bovine thrombin as used in the AutoloGel^TM System. This study is estimated to cost between $500,000 and $700,000 over a period of several years, which began in the third quarter of 2008. As of June 30, 2010, approximately $180,000 had been incurred.

In July 2009, in satisfaction of a new Maryland law pertaining to Wholesale Distributor Permits, the Company established a Letter of Credit, in the amount of $50,000, naming the Maryland Board of Pharmacy as the beneficiary. This Letter of Credit serves as security for the performance by the Company of its obligations under applicable Maryland law regarding this permit and is collateralized by the CD described in Restricted Short-Term Investments (see Note 6).

The Company leases its office space under an operating lease expiring in June 2011. Monthly rent expense is approximately $5,200 from January 2010 through December 2010 and approximately $5,300 thereafter.

The Company also entered into a separate operating lease for approximately 4,100 square feet of flex space to accommodate growth due to the Angel® acquisition. Monthly rent, including our share of certain annual operating costs and taxes, is approximately $5,800 per month, with the first four months free. The term is for 40 months beginning on our occupancy of the premises, currently estimated in mid August.

The Company has also committed to purchase approximately $625,000 of new Angel® machines through October 2010 in order to support demand for the Angel® products.

Note 15 — Income Taxes

The Company accounts for income taxes under the liability method, which requires companies to account for deferred income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax rate changes are reflected in income during the period such changes are enacted.

At June 30, 2010, we have accumulated U.S. federal and state net operating tax losses that are available to offset future taxable income and reduce future federal and state income taxes during the carryforward period. The utilization of available losses depends on the generation of future taxable income to absorb the losses. We may not be able to use available losses within the carryforward period. In addition, based on generally accepted accounting principles, we have determined for financial accounting and reporting purposes that it is unlikely that we will be able to apply or use the available losses to reduce future federal or state income taxes during the carryforward period. This assessment is updated annually or more frequently based on changes in circumstances.

A valuation allowance is recorded against deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment for a valuation allowance requires judgment on the part of management with respect to the benefits that may be realized. The Company has concluded, based upon available evidence, it is more likely than not that the U.S. federal, state, and local deferred tax assets at June 30, 2010, will not be realizable. For the six months ended June 30, 2010, we did not record an income tax provision, as a full valuation allowance has been provided against U.S. federal, state, and local deferred tax assets. The valuation

17

CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Income Taxes  – (continued)

allowance will be reversed at such time that realization is believed to be more likely than not. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The only periods subject to examination for the Company’s federal return are the 2003 through 2009 tax years. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were no such items during the periods covered in this report.

Note 16 — Termination and Consulting Agreement

On June 5, 2008, the Company and Kshitij Mohan, the Company’s former Chief Executive Officer and Chairman of the Board of Directors, entered into a Termination and Consulting Agreement (the “Agreement”), pursuant to which Dr. Mohan agreed, among other things, to step down as the CEO and Chairman and to become a consultant to the Company effective June 30, 2008.

As part of the Agreement, Dr. Mohan is entitled to the following compensation:

• $500,000 to be paid in 24 equal monthly installments, beginning in July 2008

• $5,000 toward legal fees incurred by Dr. Mohan related to this Agreement

• Continuation of health benefits under the Company’s health insurance plans through December 2009

The Company recorded $510,000 in compensation expense in the second quarter of 2008 which represents the present value of the above outlined special termination benefits to Dr. Mohan. The remaining short-term obligation to Dr. Mohan at December 31, 2009 was $132,000, which is reflected in the Accounts payable and accrued expenses line of the Balance Sheet.

Interest expense associated with these obligations was approximately $1,000 and $2,000 for the three and six months ended June 30, 2010 and $4,000 and $8,000 for the three and six months ended June 30, 2009, respectively.

Note 17 — Supplemental Cash Flow Disclosures — Non-Cash Transactions

Non-cash transactions for the six months ended June 30, 2010 include:

Business acquisitions —
Inventory acquired	$	1,151,035
Propery and equipment acquired	$	768,000
Goodwill and intangible assets	$	4,089,823
Deferred charges	$	655,260
Note Payable for balance of acquisition	$	(4,008,858	)

Note 18 — Recent Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13,Multiple-Deliverable Revenue Arrangements, or ASU 2009-13, which amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB ASC 605,Revenue Recognition. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. ASU 2009-13 is effective prospectively for revenue

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CYTOMEDIX, INC.
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Recent Accounting Pronouncements  – (continued)

arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact, if any, that the adoption of this amendment will have on its financial statements.

Note 19 — Subsequent Events

In July 2010, under the Long-term Incentive Plan, the Company granted 326,500 stock options to new and existing employees. These options have an exercise price of $0.56, which was the closing market price of the Company’s Common stock on the date of grant and expire ten years from the date of grant. The options vest over three years in equal annual installments.

In July 2010, the Company hired Mr. Patrick P. Vanek to serve as its Vice President of Operations. As part of his compensation package, Mr. Vanek received 100,000 stock options included in the options described in the preceding paragraph.

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

This Quarterly Report on Form 10-Q contains forward-looking statements regarding Cytomedix, Inc. (“Cytomedix,” the “Company,” “we,” “us,” or “our”) and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Other unknown, unidentified or unpredictable factors could materially and adversely impact our future results. You should read the following discussion and analysis in conjunction with our unaudited financial statements contained in this report, as well as the audited financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors” contained in our Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended December 31, 2009. The Company undertakes no obligation to update the forward-looking statements contained in this report 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. Given these uncertainties, the reader is cautioned not to place undue reliance on such statements.

Restatements

On January 1, 2009, we adopted new accounting guidance (ASC 815-40, formerly EITF 07-5 “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”) that required additional analysis as to whether or not stock purchase warrants are “indexed to” our stock, a condition that is required to attain equity accounting and classification. Upon the adoption of this new guidance, we concluded that our previously issued stock purchase warrants were appropriately classified as equity and, therefore, the adoption of the new guidance did not have any impact on our historical financial statements or on our 2009 financial statements.

In connection with the review of certain equity transactions in 2010, we determined that, upon the adoption of the new accounting guidance on January 1, 2009, certain stock purchase warrants issued in 2004 should have been appropriately classified as derivative liabilities (and not equity) due to the presence of non-standard anti-dilution provisions in those warrant agreements. These provisions require that we modify existing warrants (as to the actual number of warrants and their exercise price) in the event that we issue subsequent equity (or equity-linked instruments) at a price below the exercise price of the existing warrants. Additionally, stock purchase warrants issued in 2009 (after the adoption of the new guidance) should also have been classified as derivative liabilities (and not equity) for similar reasons. Also, as a result of the improper accounting treatment for the above-mentioned stock purchase warrants, certain offering expenses were also misclassified and accounted for incorrectly.

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As a result, we have restated our quarterly and annual 2009 financial statements and our 2010 quarterly financial statements to correct for the misapplication of the new accounting guidance related to the accounting and classification of stock purchase warrants. See Note 2 to the financial statements contained in Part I Item 1 of this report for further discussion.

The following discussion and analysis incorporates the impact of the above-mentioned restatements.

NYSE Amex — Approval of the Plan of Compliance

As previously disclosed, the Company was notified by the NYSE Amex (the “Exchange”) of its non-compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the Exchange Company Guide relating to its shareholders’ equity. On July 24, 2009, the Company received a letter from the Exchange indicating that the Exchange accepted the Company’s plan of compliance and granted the Company an extension until November 12, 2010 to regain compliance with the Exchange’s continued listing requirements. The Company is required to provide the Exchange staff with updates on its progress relating to the execution of the plan so as to enable the Exchange staff to review the Company’s adherence to the plan during the extension period. Failure to regain compliance with the continued listing standards by the end of the extension period or to make progress consistent with the plan of compliance during the extension period could result in the Company being delisted from the Exchange. We maintain regular dialogue with the Exchange staff regarding our progress.

Description of the Business

Overview

Cytomedix is a biotechnology company that develops, sells, and licenses regenerative biological therapies intended to aid the human body in regenerating/healing itself, to primarily address the areas of wound care, inflammation, and angiogenesis. The Company currently markets the AutoloGel^TM System, a device for the production of platelet rich plasma (“PRP”) gel derived from the patient’s own blood. The AutoloGel^TM System is cleared by the Food and Drug Administration (“FDA”) for use on a variety of exuding wounds. The Company is currently pursuing a multi-faceted strategy to penetrate the chronic wound market with its AutoloGel^TM System.

In April 2010, the Company acquired the Angel® Whole Blood Separation System (“Angel®”) and ActivAT® Autologous Thrombin Processing Kit (“ActivAT®”) from Sorin Group USA, Inc. Together these products had sales of approximately $5 million in 2009. Used primarily in operating rooms, Angel® is used for separation of whole blood into red cells, platelet poor plasma and platelet rich plasma. The platelet rich plasma is suitable for use in orthopedic surgery. ActivAT® is designed to produce activated autologous thrombin serum from platelet poor plasma, which can be used to activate platelets and initiate coagulation in platelet rich plasma. It is sold exclusively in Europe and Canada, where it provides a completely autologous, safe alternative to bovine-derived products.

We are also pursuing opportunities for the application of AutoloGel^TM and Angel® into other markets such as hair transplantation and orthopedics, as well as actively seeking complementary products for regenerative medicine markets. Additional discussion of our business and related matters, including risk factors, is set forth in our Annual Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2009, and is incorporated by reference herein. Additional information regarding the acquisition of the Angel® and ActivAT® businesses is set forth in our Form 8-K filed with the SEC on April 12, 2010, and is incorporated herein by reference. Following is an update on critical Company initiatives.

Angel® and ActivAT® Product Lines

The Angel® Whole Blood Separation System, which received market clearance from the U.S. Food and Drug Administration in August 2005, consists of a blood processing device and disposable products used for separation of whole blood into red blood cells, platelet poor plasma (or “PPP”) and platelet rich plasma (or “PRP”). In surgical procedures, the PRP can be mixed with bone graft material prior to application. Growth factors released by platelets present in the PRP have been shown to aid in the healing process.

The Angel® Whole Blood Separation System is designed for single patient use at the point of care, and provides a simple yet flexible means for producing quality PRP and PPP clinical blood components. The system is easy to set up and maintain. It is capable of processing up to 180 ml of whole blood.

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We expect that sales growth of these products will be driven through a combination of strengthened distributor relationships, collaborative agreements, and direct sales. Commercial synergies with AutoloGel^TM will increase sales efficiency and help drive growth. Currently, perfusionists, who operate the heart-lung machine during cardiac and cardiopulmonary bypass surgeries and whose responsibilities include, among others, autologous blood collection and processing, are the primary purchasers of the Angel® technology. Perfusionists are increasingly expanding their clinical reach into areas such as wound management where their expertise in the management of blood and the oxygenation of tissue has become more valuable with the introduction of new therapeutics such as PRP. Sales growth outside of the U.S. will be managed through distributor agreements. The network of European distributors will also allow the Company to build AutoloGel^TM sales outside of the U.S. markets. In the long term, we expect new technology applications for Angel® and expansion into other surgical and orthopedic applications will provide future growth opportunities.

The ActivAT® System produces autologous thrombin serum from platelet poor plasma. Thrombin is a blood coagulation factor that can facilitate blood clotting and platelet activation. The use of PPP to produce autologous thrombin avoids the loss of valuable PRP. The system produces 5 to 6 ml of thrombin from 12 ml of PPP in approximately 30 minutes of processing time. ActivAT® is sold as an adjunct to the Angel® System in Europe and Canada.

Integration of the Angel® and ActivAT® product lines began in April 2010. The early priorities of the integration process include customer communication, transition of customer service and support, control of the supply chain, and management of the distribution network. Integration of the product lines and related customer support is progressing consistently with expectations.

AutoloGel^TM System

We continue to execute our clinical/scientific based sales approach which was implemented in January 2009. This approach is yielding increased clinical awareness and acceptance of our AutoloGel^TM System. Notably, 6 poster presentations and 1 oral presentation were featured at the April 2010 SAWC/WHS Meeting. Four of the poster presentations were done by thought leaders in wound care with no affiliation to Cytomedix, except in their capacity as our customers. Another two posters highlighting the use of the Company’s AutoloGel^TM System to effect rapid improvement of chronic wounds were presented at the 2010 Joint Conference of the Wound Ostomy and Continence Nurses Society and the World Council of Enterostomal Therapists (WOCN/WCET), which took place in June 2010. All presentations were very favorable to AutoloGel^TM.

Additionally, positive results from a prospective study evaluating the AutoloGel^TM System to treat advanced, chronic wounds was published in the June 2010 issue of Ostomy Wound Management (OWM) in a peer reviewed article entitled, “Chronic Wounds Treated With a Physiologically Relevant Concentration of Platelet-rich Plasma (PRP) Gel: A Prospective Case Series.” The article is available athttp://www.owm.com/content/ chronic-wounds-treated-physiologically-relevant-concentration-plateletrich-plasma-gel-prosp. The authors of this article include, among others, certain Company employees and a former consultant to the Company. The Company did not pay any fees for the conduct of the study or the conclusions of the resulting article. The study concluded that treatment with physiologically relevant concentrations of PRP derived from the AutoloGel^TM System “showed the product can be utilized by healthcare providers in various healthcare settings to restart the healing process in complex chronic wounds, even wounds recalcitrant to other treatments, and in patients with advanced age, compromised lab values, and co-morbidities”. The study enrolled 49 patients with 65 chronic wounds. The average duration of these wounds before the first treatment with AutoloGel^TM was 48 weeks. The AutoloGel^TM System produced a favorable clinical response in 97% of the wounds treated, resulting in a mean reduction in wound volume of 62% in less than three weeks of treatment on average.

We believe that recent publications/presentations described above, other published literature, and the data we continue to collect through product evaluations will support our marketing efforts and help build a compelling case for a reconsideration of Medicare Part B reimbursement by the Centers for Medicare and Medicaid Services (“CMS”).

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Furthermore, we anticipate that the acquisition of the Angel® product line described above will greatly facilitate the introduction of AutoloGel^TM into additional sales channels. Most notably, due to the Angel® sales channels discussed above, we will gain immediate access to the perfusionist community and acute care hospitals.

We continue to build our sales infrastructure and, currently have six regional sales managers and 12 independent sales agents.

The first commercial lot of our new packaging concept for AutoloGel^TM has been manufactured and we are on track to introduce it in the third quarter of 2010. The new design and component enhancements will improve the customer experience, reduce process steps and simplify the preparation of AutoloGel^TM.

We are also working with a bioengineering team in Israel to further refine the AutoloGel^TM System. This new system optimizes our technology through changes to the centrifuge and the design of a new separation device that operates in a semi-closed system where the blood will be drawn directly into the device, removing any margin for error and providing for much better management of the waste material. This streamlines the process making the clinical procedure more efficient. Furthermore, these new enhancements provide additional intellectual property opportunities for which provisional patent applications have already been filed on our behalf. Functional prototypes have been completed and tested. The results demonstrate that the new device will be able to produce the clinically proven AutoloGel^TM formulation. The first commercial scale production lots will be available for validation testing in the coming weeks. We are aggressively moving forward with the final development of this more advanced Platelet Separation System and expect to file a 510(k) application for a wound care indication by year-end. We have withdrawn our application for an orthopedic application for our current AutoloGel^TM System. With the acquisition of the Angel® System, which already carries the very same orthopedic application we were seeking, as well as the new AutoloGel^TM System’s adaptability to the orthopedic environment, there was no need to further pursue the 510(k).

Anti-inflammatory Peptide

CT-112, an anti-inflammatory octapeptide, continues to represent an avenue through which we can further monetize our intellectual property. In pre-clinical in-vitro and in-vivo studies, CT-112 was shown to be potentially useful as a therapeutic for a number of autoimmune diseases, such as rheumatoid arthritis, graft-versus-host disease, chronic obstructive pulmonary disease, reperfusion injury and atherosclerosis. Market assessments found that these fields are crowded with new therapies under investigation and that the requisite clinical trials are lengthy and involve large numbers of patients. The Company engaged the Frankel Group to conduct a review of potential therapeutic indications for CT-112, which revealed a number of underserved conditions that provide optimal market opportunity along with a well-defined regulatory pathway. Initial targets may include Pyoderma Gangrenosum (PG), atopic dermatitis, and an anti-inflammatory coating for medical devices. To facilitate partnering and further development of the CT-112 candidate, we have completed studies in human cell systems that are intended to provide potency estimates.

Critical Accounting Policies

Purchase Accounting

When the Company determines that an agreement constitutes a business combination it accounts for it by applying the acquisition method. Under this method the Company allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition, including intangible assets that arise from contractual or other legal rights or are separable (i.e. capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). The purchase price in excess of the fair value of the net assets and liabilities is recorded as goodwill.

Under purchase accounting rules, Cytomedix revalued the acquired finished goods inventory to fair value, which is defined as the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit allowance for Cytomedix’s selling effort. Cytomedix revalued the acquired property and equipment using the cost approach which is based on the amount required to replace similar assets.

Certain trademarks, technology and customer relationships of the Angel® business have been recorded as intangible assets. The trademarks and technology are estimated to have useful lives of fifteen years while the

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customer relationships are estimated to have a useful life of eight years. All of these assets are being amortized on a straight-line basis as this is the most reliable representation of how the economic benefits of the assets are realized. Amortization expense of technology intangible assets is classified as cost of sales while all other intangible asset amortization is classified as general and administrative expense.

Goodwill represents the purchase price in excess of the amounts assigned to acquired tangible or intangible assets and assumed liabilities. Amounts allocated to goodwill are tax deductible in all relevant jurisdictions. The goodwill is attributable to the synergies expected to arise as a result of the Acquisition.

Revenue Recognition

With the acquisition described below, the Company acquired various customer agreements. Some of these agreements are for sales of disposable processing sets and supplies to existing customers, and the remaining agreements combine the (i) usage or leasing of blood separation processing equipment, (ii) maintenance of processing equipment, and (iii) purchase of disposable processing sets and supplies.

Revenue from sales of disposable processing sets and supplies is recognized upon shipment of products to the customers. The Company does not maintain a reserve for returned products as in the past those returns have been negligible.

In regards to those agreements that combine the usage of the blood separation processing equipment with the sale of disposable processing sets and supplies and maintenance, the consideration is allocated to the various elements in accordance with the guidance for multiple element arrangements underASC 605 — Revenue recognition. Based on the terms contained in the agreements, any payments under these agreements are contingent on the customer ordering additional disposable processing sets and supplies, and the customers are not required to purchase any minimum guaranteed quantity of products during the term of the agreements. The usage of the blood separation processing equipment is accounted for as an operating lease in accordance withASC 840 — Leases, and as result of payments being contingent upon the ordering by the customer of new products, any rental income is recorded following the contingent rental method when rental income is earned and collectability is reasonably assured. The sale of disposable processing sets and supplies and maintenance are deemed a combined unit of accounting because the Company does not have objective and reliable evidence of fair value of the maintenance component on the arrangement. However, since (a) any consideration for disposable processing sets and supplies and maintenance is contingent upon the customer ordering additional disposable processing sets and supplies and (b) since both the disposable products and maintenance services are provided over the same term, the Company recognizes revenue for this combined unit of accounting following the contingent revenue method at the time disposable products are delivered based on prices contained in the agreement.

All other revenue recognition policies remain as described in the Company’s Annual Report on Form 10-K, as amended.

Financial Instruments

The unaudited condensed balance sheets include various financial instruments that are carried at fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:

• Level 1, defined as observable inputs such as quoted prices in active markets for identical assets;

• Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our

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assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

Comparison of Operating Results for the Three and Six Month Periods Ended June 30, 2010 and 2009

Certain numbers in this section have been rounded for ease of analysis.

Historically, the Company’s revenues have primarily been earned through its licensing agreements. These revenues, which approximated $1.8 million in 2009, net of related royalty and contingent legal fees, represented the primary source of cash from operations for the Company through November 2009, at which point they expired. Sales and gross profits from AutoloGel^TM, while growing, continue to be modest and insufficient to fund our operating expenses. In April 2010, we acquired the Angel® and ActivAT® businesses from Sorin Group USA, Inc. These product lines had a combined revenue stream of nearly $5 million in 2009 and represent a significant opportunity for growth.

The Company expects to realize synergies for the combined businesses, primarily in the sales and distribution areas. We expect to build on our clinical and scientific based sales approach and expertise in wound care and PRP generally. We expect to maintain current sales levels of Angel® and ActivAT® through the six month transition period. While there is no assurance that we will achieve this goal, sales of the Angel® and ActivAT® products in the second quarter of 2010 (post-acquisition) have remained consistent with sales in the first quarter of 2010 (pre-acquisition). Integration of the product lines and related customer support is progressing smoothly.

Even with the acquisition of Angel®, our revenues will be insufficient to cover our operating expenses in the near term. Operating expenses primarily consist of employee compensation, professional fees, consulting expenses, and other general business expenses such as insurance, travel related expenses, and sales and marketing related items. Cash outflows are expected to rise to support the transition and ongoing support of the Angel® business, as well as to fund the increased investment in the commercialization efforts around AutoloGel^TM, the evaluation of additional products/technologies, and an enhanced investor relations effort.

Revenues

Revenues rose $578,000 (102%) to $1,147,000 and $218,000 (20%) to $1,326,000 comparing the three and six months ended June 30, 2010, respectively, to the same periods last year.

For the three month period, the increase was due to higher product sales ($1,074,000), partially offset by lower royalty revenues ($496,000). The increased product sales were primarily due to $1,052,000 of sales in the Angel® product line, which we acquired from Sorin Group USA, Inc. on April 9, 2010. AutoloGel^TM sales were also up 31% to $95,000 in the second quarter of 2010. Royalty revenues declined due to the expiration of the underlying licensing agreements in late November 2009.

For the six month period, the increase was due to higher product sales ($1,095,000), partially offset by lower royalty revenues ($878,000). Angel® product line sales, as described above, were $1,052,000 in the 2010 period. AutoloGel^TM sales were up 38% to $159,000 in the 2010 period. The licensing agreements, which generated the royalty revenues, expired in late November 2009, with only final close-out adjustments being recorded in Q1 2010.

The Company plans to devote further resources to its efforts in the sales and marketing areas in the coming quarters and expects to leverage synergies of the newly acquired Angel® business.

Gross Profit

Gross profit rose $11,000 (2%) to $462,000 and fell $42,000 (5%) to $815,000 comparing the three and six months ended June 30, 2010, respectively, to the same periods last year.

For the three month period, increases in product sales were mostly offset by the decrease in royalty revenue described above, and higher costs primarily attributable to the sale of inventory adjusted to fair value in accordance with purchase accounting rules and the amortization of patents acquired from Sorin.

For the six month period, decreases in royalty revenue and higher costs primarily attributable to the sale of inventory adjusted to fair value in accordance with purchase accounting rules and the amortization of patents

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acquired from Sorin were partly offset by higher product sales and a credit reflecting final adjustments relating to the close-out of license agreements described above.

For the same periods, gross margin for product sales fell to 40% from 64% and to 42% from 70%, respectively. In the second quarter of 2010, a 10% commission earned by Sorin for logistics support during the transition period was charged to cost of sales, finished goods inventory acquired from Sorin and valued at fair value in accordance with purchase accounting rules was expensed as these products were subsequently sold in the ordinary course of business, and amortization expense, relating to the patents acquired from Sorin, was recorded.

The Company expects product margins, after completion of the transition period with Sorin, to be in the 60% – 65% range.

Operating Expenses

Operating expenses rose $680,000 (51%) to $2,022,000 and $790,000 (30%) to $3,436,000 comparing the three and six months ended June 30, 2010, to the same periods last year. A discussion of the various components of operating expenses follows below.

Salaries and Wages

The change in salaries and wages was nominal, comparing the three and six months ended June 30, 2010, to the same periods last year. Increased salaries due to additional employees and higher commissions associated with increased product sales were offset by lower bonus and stock based compensation expenses.

Consulting Expenses

Consulting expenses rose $82,000 (223%) to $119,000 and $143,000 (270%) to $196,000 comparing the three and six months ended June 30, 2010 to the same period last year. The increase was primarily due to new spending associated with regulatory compliance and CMS reimbursement efforts and the addition of dedicated consultants in the areas of marketing and European operations.

Professional Fees

Professional fees rose $256,000 (175%) to $402,000 and $281,000 (92%) to $587,000 comparing the three and six months ended June 30, 2010, to the same periods last year. The increase was primarily due to legal and accounting costs associated with the Company’s April 2010 acquisition of the Angel® and ActivAT® product lines.

Research, Development, Trials and Studies

Trials and studies expenses rose $56,000 (57%) to $156,000 and $42,000 (23%) to $221,000 comparing the three and six months ended June 30, 2010, to the same periods last year. The increase was due to higher spending around development of the enhanced AutoloGel^TM device and on our TAPS program (post-market surveillance study) for the AutoloGel^TM System, partly offset by reduced spending on CT-112.

General and Administrative Expenses

General and administrative expenses rose $260,000 (62%) to $679,000 and $313,000 (38%) to $1,145,000 comparing the three and six months ended June 30, 2010, to the same periods last year.

For the three month period, the increase was primarily due to higher amortization of intangibles ($28,000), travel costs ($65,000), investor services ($50,000), partial liquidated damages due to late filing of the S-3 relating to the April 2010 Series D Preferred Stock offering ($37,000), and employee benefits ($27,000).

For the six month period, the increase was primarily due to higher investor services ($83,000), amortization of intangibles ($28,000), travel costs ($51,000), partial liquidated damages due to late filing of the S-3 relating to the April 2010 Series D Preferred Stock offering ($37,000), employee benefits ($39,000), and NYSE Amex filing fees ($34,000).

Other Income (Expense)

Other expense (net) increased for the three and six months ended June 30, 2010 as compared to the prior year periods as a result of additional interest expense and the changes in the fair value of derivative liabilities.

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Liquidity and Capital Resources

There exists substantial doubt that the Company will continue as a going concern. We completed a $3.65 million capital raise in April 2010, of which $2 million was immediately used to fund the up-front payment to Sorin for the Angel® and ActivAT® acquisition. We believe that we have adequate cash to fund operations through the third quarter of 2010. However, this belief is based on the successful integration of the Angel® and ActivAT® businesses and the execution of our sales strategy for AutoloGel^TM. Furthermore, there is no assurance that the Company will have adequate funding to enable it to operate beyond that point or to reach a point of self-sustainability without additional financing. The Angel® and ActivAT® businesses yielded approximately $5 million in revenue in 2009. However, there is no assurance that these revenue levels will continue at all or at those levels in 2010.

Additional cash will likely be required for the Company to pursue all elements of its strategic plan. Specific programs that may require additional funding may include, without limitation, accelerated investment in the sales, marketing, distribution, and customer service areas, significant new product development or modifications, conduct of the trials the Company may deem necessary in order to obtain CMS coverage, and pursuit of certain other attractive opportunities for the Company. Furthermore, the Company may need future infusions of capital to fund the installment payments due under the promissory note to Sorin entered into in connection with the Angel® acquisition. We will likely raise capital through the issuance of our equity securities, which may result in significant dilution to our investors. The Company continuously assesses the state of the capital markets and its access to capital. It weighs the cost of capital and dilutive effects of equity issuance against the expected benefits of accelerating the pursuit of certain strategic objectives. The Company’s ability to raise additional capital is dependent on, among other things, the state of the financial markets at the time of any proposed offering. Given the current state of the financial markets, the ability to raise capital may be significantly diminished. We are also exploring potential strategic partnerships for some of these endeavors, which could provide a capital infusion to the Company. However, it may be necessary to partner one or more of our technologies at an earlier stage of development, which could cause the Company to share a greater portion of the potential future economic value of those programs with its partners. The Company is also exploring the possibility of obtaining grant funding for some of its on-going projects, but it is too early to determine whether these efforts are likely to be successful. Because the Company was in bankruptcy in 2002, the Company may not be able to obtain traditional debt financing. There is no assurance that additional funding, through any of the aforementioned means, will be available on acceptable terms, or at all. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, the Company’s operations would be materially negatively impacted.

The Company has certain warrants that are callable, subject to certain requirements including a minimum per share price ranging from $4 to $6, at an aggregate exercise price of approximately $6.0 million. The Company has committed to purchase approximately $625,000 of new Angel® machines in order to support demand for the Angel® products. The Company is currently conducting a post-market surveillance study per its understanding reached with the FDA. The Company estimates that this study, which began in the third quarter of 2008, will cost between $500,000 and $700,000 in total. Of that amount, approximately $180,000 has been incurred through June 30, 2010, and approximately $100,000 will be expended in the second half of 2010.

Contractual Obligations

The Company leases its office space under an operating lease expiring in June 2011. Monthly rent expense is approximately $5,200 from January 2010 through December 2010 and approximately $5,300 thereafter.

The Company also entered into a separate operating lease for approximately 4,100 square feet of flex space to accommodate growth due to the Angel® acquisition. Monthly rent, including our share of certain annual operating costs and taxes, is approximately $5,800 per month, with the first four months free. The term is for 40 months beginning on our occupancy of the premises, currently estimated in early September.

The Company has also committed to purchase approximately $625,000 of new Angel® machines through October 2010 in order to support demand for the Angel® products.

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Prospects for the Future

Cytomedix’s success is directly dependent on its ability to successfully integrate the Angel® and ActivAT® product lines, increase revenues related to those products, and to generate sales of the AutoloGel^TM System. While the integration to date is proceeding according to expectations, with no degradation in product sales, much of the integration activities are ahead of us, and may still pose significant challenge to us. We believe that the Angel® and AutoloGel^TM products are synergistic and position Cytomedix as the leader in PRP technology as the only Company with FDA indications in the areas of orthopedics and wound care. Both product lines have proven clinical benefits, and have each experienced revenue growth over the past years. The Company expects to build on this history of sales growth. However, in the near term, the Company will require additional capital infusions, which will most likely come from additional issuances of equity. Therefore, the Company’s future success is in large part dependent on its ability to raise such additional capital.

The Company’s existing patents, and patent applications on product improvements under development provide protection for its best in class technologies.

Although the Company lost its revenue stream from licensing agreements due to the expiration of the underlying patents, the Angel® and ActivAT® product lines bring with them an existing revenue base of nearly $5 million (based on 2009 historical results). We expect to build on this base through a combination of distributor relationships and focused sales efforts.

Regarding reimbursement, while the existing CMS decision of non-coverage of autologous blood-derived products when used on chronic wounds will continue to restrict the Company’s ability to target the entire wound care market with AutoloGel^TM, it will not have an impact on the Company’s current sales and marketing strategy, which targets selected sub-markets with established payment pathways for its products, as well as certain commercial insurance reimbursement opportunities. The Company is also preparing to request reconsideration of coverage by CMS.

This is a pivotal time in the Company’s history. The acquisition of the Angel® and ActivAT® product lines is a transformational event for the Company and is very synergistic to a growing AutoloGel^TM business. However, while Cytomedix’s opportunities and recent progress are encouraging, the Company has limited resources, and is currently not self-sustaining. Given the economic conditions in the overall financial markets, the availability of capital on terms acceptable to the Company may be significantly diminished or not available at all.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13,Multiple-Deliverable Revenue Arrangements, or ASU 2009-13, which amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB ASC 605,Revenue Recognition. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact, if any, that the adoption of this amendment will have on its financial statements.

Item 3. 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 June 30, 2010, the Company’s cash balance of approximately $1.1 million was maintained primarily in an institutional money market account, sensitive to changes in the general level of interest rates. Based on the Company’s cash balances at June 30, 2010, a 100 basis point increase or decrease in interest rates would have an approximately $11,000 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.

The Company has not engaged in off-balance sheet transactions.

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Item 4T. Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2010. The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Management recognizes that any disclosure controls and procedures no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As a result of a material weakness in our internal control over financial reporting relating to the accounting for stock purchase warrants, our management has reassessed the effectiveness of our disclosure controls and procedures and have determined that our disclosure controls and procedures were not effective as of June 30, 2010.

Restatement of Consolidated Financial Statements

On January 3, 2011, the Audit Committee of the Board of Directors concluded, based on the recommendation of management, that the previously issued financial statements for the year ended December 31, 2009 included in the Company's most recently filed Form 10-K and the quarterly periods from March 31, 2009 through September 30, 2010 included in the Company's quarterly reports on Forms 10-Q (collectively, the “Affected Periods'') are no longer reliable because they failed to incorporate non-cash charges resulting from required adjustments to certain outstanding warrants (the “Warrants''). The Company's management and the Audit Committee of the Board of Directors have determined that financial statements in the Affected Periods should be restated to reflect these non-cash charges. The Company’s management and the Audit Committee of the Board of Directors have discussed these matters with the Company’s independent registered public accounting firm.

Remediation Plan

Management has been actively engaged in developing a remediation plan to address the material weakness. Implementation of the remediation plan is in process and consists of redesigning quarterly procedures to enhance management’s identification, capture, review, approval and recording of contractual terms included in equity arrangements. Management believes the foregoing efforts will effectively remediate the material weakness. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the second quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
  
OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Except as set forth below, there were no material changes from the risk factors as previously disclosed on our Annual Report on Form 10-K/A (Amendment No. 1) filed with the Securities and Exchange Commission for the year ended December 31, 2009.

There is No Assurance that The Company Will Successfully Integrate the Angel® and ActivAT® Business, nor That It Will Realize the Anticipated Synergies of the Combined Businesses

The Angel® and ActivAT® business represent a significant increase in volume and revenue compared to the Company’s existing product line of AutoloGel^TM. There is no assurance that the Company will successfully integrate any or all of the various aspects to the acquired business, including but not limited to the sales, marketing, manufacturing, distribution, regulatory, and other functions. Failure to successfully integrate the acquired business could lead to a reduction in revenue for the Angel® and ActivAT® products compared to historical levels, generate ill will among its customer base, and therefore have a material adverse affect on the Company, its operations or the price of its securities. Furthermore, there is no assurance that Cytomedix will realize synergies in the sales, marketing, distribution, reimbursement, or other areas as it currently contemplates. Nor is there any assurance that the Company will realize any anticipated economies of scale for the combined businesses. In the event the Company is unable to integrate the acquired assets successfully, or realize such synergies or economies of scale, its operations and financial state will be materially adversely affected.

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

On April 9, 2010, the Company entered into subscription agreements with certain accredited investors with respect to the sale of its 10% Series D convertible preferred stock, and warrants to purchase shares of Common stock of the Company, for gross proceeds of $3.65 million (the “Preferred Stock Offering”). The description of the terms of the Preferred Stock Offering and other requisite information is set forth under Item 3.02 of the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2010 and is incorporated by reference herein.

The Company did not repurchase any of its equity securities during the quarter ended June 30, 2010.

Item 3. Defaults Upon Senior Securities

N/A

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are furnished as part of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CYTOMEDIX, INC.
Date: January 7, 2011	By: /s/ Martin P. Rosendale Martin P. Rosendale, (Principal Executive Officer)
Date: January 7, 2011	By: /s/ Andrew S. Maslan Andrew S. Maslan, (Principal Financial Officer)

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EXHIBIT INDEX

Number	Exhibit Table
2.1	First Amended Plan of Reorganization with All Technical Amendments (Previously filed on June 28, 2002, as exhibit to Current Report on Form 8-K, File No. 000-28443, and incorporated by reference herein).
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, as exhibit to Form 10-QSB for the quarter ended March 31, 2004, File No. 000-28443, and incorporated by reference herein).
2.3	Asset Purchase Agreement by and among Sorin Group USA, Inc., Cytomedix Acquisition Company and Cytomedix, Inc, dated as of April 9, 2010 (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
3(i)	Restated Certificate of Incorporation of Cytomedix, Inc. (Previously filed on November 7, 2002, as exhibit to Form 10-QSB for quarter ended June 30, 2001, File No. 000-28443, and incorporated by reference herein).
3(i)(1)	Amendment to Restated Certificate of Incorporation of Cytomedix, Inc. (Previously filed on November 15, 2004, as exhibit to Form 10-QSB for quarter ended September 30, 2004, File No. 000-28443, and incorporated by reference herein).
3(i)(2)	Certificate of Amendment to the Certificate of Incorporation (Previously filed on July 1, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
3(ii)	Restated Bylaws of Cytomedix, Inc. (Previously filed on November 7, 2002, as exhibit to Form 10-QSB for quarter ended June 30, 2001, File No. 000-28443, and incorporated by reference herein).
4.1	Form of Warrant (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
4.2	Certificate of Designation, Relative Rights and Preferences of the 10% Series D Convertible Preferred Stock (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
10.1	Form of Transition Agreement, dated as of April 9, 2010 (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
10.2	Form of Asset Transfer and Assumption Agreement, dated as of April 9, 2010 (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
10.3	Form of Subscription Agreement (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
10.4	Form of Registration Rights Agreement (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
10.5	Form of Promissory Note (Previously filed on April 12, 2010 as exhibit to the Current Report on Form 8-K, File no. 001-32518, and incorporated by reference herein).
10.6	Flex Space Office Lease by and between Cytomedix, Inc. and Saul Holdings Limited Partnership, dated as of May 19, 2010.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of Chief Executive Officer pursuant to 18 U.S.C.ss.1350.
32.2	Certificate of Chief Financial Officer pursuant to 18 U.S.C.ss.1350.

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