Cytogenix (CYGX) 10-Q/A 2007 Q1 Quarterly report (amended)

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

Form 10-Q/A

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the quarterly period ended March 31, 2007

[   ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT  
For the transition period from ___________

to ____________.

Commission file number: 0-26807

CYTOGENIX, INC.
(Exact name of registrant as specified in its charter)

NEVADA (State or other jurisdiction of incorporation or organization)	76-0484097 (IRS Employer Identification No.)
3100 Wilcrest, Suite140, Houston, Texas (Address of principal executive offices)	77042 (Zip Code)

Issuer’s telephone number, including area code: (713) 789-0070

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

Yes    X     

No ______

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

 Large accelerated filer ¨  Accelerated filer  x Non-accelerated filer  ¨ 

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

The number of shares outstanding of the issuer’s common stock, par value $.001 per share, as of March 31, 2007 was 140,663,961.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
	ITEM 1. – Financial Statements
	Balance Sheets as of March 31, 2007 (Unaudited) (Restated) and December 31, 2006 (Restated)	4
	Statements of Operations for the three months ended March 31, 2007                  and 2006 (Unaudited) (Restated)	5
	Statements of Cash Flows for the three months ended March 31, 2007 and 2006(Unaudited) (Restated)	6
	Notes to Financial Statements (Unaudited) (Restated)	7
	ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk	14
	ITEM 4.  Controls and Procedures	14
PART II	OTHER INFORMATION	15
	ITEM 1.  Legal Proceedings	15
	ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds	16
	ITEM 6.  Exhibits	17
SIGNATURES		18

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This Amendment No. 1 to the quarterly report on Form 10-Q/A (Form 10-Q/A) is being filed to amend the CytoGenix, Inc. (the “Company”) quarterly report on Form 10-Q for the quarter ended March 31, 2007, which was originally filed on May 15, 2007 (Original Form 10-Q).

We are filing this Form 10-Q/A to amend and restate Part I Financial Information, Item 1 Financial Statements; and Part  I Financial Information, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In connection with the establishment of the Company’s stock option plans of 2003 and 2005, the Company did not recognize any compensation cost under SFAS 123(R).  As a result of a recent letter from the staff of the SEC, we are restating our financial statements (“The Restatement”) and associated disclosures to include compensation cost upon vesting of options and to cease using the designation “Development Stage Company.”  We understated non-cash expenses and net loss by $490,536 in the quarter ending March 31, 2007.  The restatement impacted certain line items within cash flows from operations, but had no effect on total cash flows from operations and did not impact cash flows from financing or investing activities.  This restatement had no impact on the balance sheets, statements of operations or the net decrease in cash and cash equivalents reported in the statements of cash flows for any periods reported prior to December 31, 2005.

For the convenience of the reader, this Form 10-Q/A, sets forth the Original Form 10-Q in its entirety, as amended by this Form 10Q/A.  However, this Form 10-Q/A amends only Items 1 and 2 of Part I, in their entirety, in each case, solely as a result of, and to reflect, the Restatement, and, except as noted above, no other information in the Original 10-Q is amended hereby.  In addition, Item 6 of Part II, of this Form 10-Q/A has been amended to contain the currently-dated certifications from our Chief Executive Officer and Chief Financial Officer required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.  These certifications are attached to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1, and 32.2.

This amendment does not reflect events occurring after the filing of the Original Form 10-Q, and does not modify or update the disclosures therein in any way other than as required to reflect the adjustments described above.  Such events include, among others, the events described in our quarterly reports on Form 10-Q and annual report on Form 10-K for the quarters and year ended after March 31, 2007, and the events described in our current reports on Form 8-K filed after the filing or the Original Form 10-Q.

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.         

CYTOGENIX, INC.
BALANCE SHEETS
			March 31,	December 31,
			2007	2006
			(Unaudited)
			(Restated)	(Restated)
	ASSETS
Current Assets:
	Cash		$        1,928,259	$        2,854,197
	Accounts receivable, net		-	2,577
	Inventory		385,709	421,957
	Prepaid expenses		14,685	14,297
		Total Current Assets	2,328,653	3,293,028
Property and equipment, net			279,687	261,793
Deposits			481,971	481,971
Long-term investments - restricted			174,445	172,892
		Total Assets	$        3,264,756	$        4,209,684
	LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Long-term debt, current portion		$             25,745	$             25,153
	Accounts payable		312,395	309,874
	Accrued expenses		1,084,526	927,889
		Total Current Liabilities	1,422,666	1,262,916

	Long-term debt, less current portion		38,339	45,015
		Total Liabilities	1,461,005	1,307,931
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
	Preferred stock, $.001 par value; 50,000,000 share authorized,
		no shares issued and outstanding	-	-
	Common stock, $.001 par value; 300,000,000 share authorized,
		140,663,961 and 140,663,961 share issued and outstanding as of
		March 31, 2007 and December 31, 2006, respectively	140,664	140,664
	Additonal paid-in capital		35,341,562	34,851,026
	Treasury stock		(629,972)	(629,972)
	Aaccumulated deficit		(33,048,503)	(31,459,965)
		Total Stockholders' Equity	1,803,751	2,901,753
		Total Liabilities and Stockholders' Equity	$        3,264,756	$        4,209,684
The accompanying notes are an integral part of these financial statements.

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CYTOGENIX, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDING MARCH 31, 2007 AND 2006
(UNAUDITED)
		2007 (Restated)	2006 (Restated)
REVENUES		$                      -	$                      -
COSTS OF REVENUES		-	-
	GROSS MARGIN	-	-
COSTS AND EXPENSES:
	Research and development	866,279	1,890,716
	General and administrative	698,717	1,307,179
	Consulting expense	8,031	9,075
	Depreciation and amortization	15,442	6,518
LOSS FROM OPERATIONS		(1,588,469)	(3,213,488)
OTHER INCOME:
	Interest income	1,553	966
	Interest expense	(1,622)	-
	Loss on disposal of property of equipment	-	-
	Dividend income	-	-
NET LOSS		$      (1,588,538)	$      (3,212,522)
Net loss per share:
	Basic and diluted net loss per share	$               (0.01)	$               (0.03)
Weighted average shares outstanding:
	Basic and diluted	140,663,961	124,613,703
The accompanying notes are an integral part of these financial statements.

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CYTOGENIX, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDING MARCH 31, 2007 AND 2006
(UNAUDITED)
				2007	2006
				(Restated)	(Restated)
OPERATING ACTIVITIES:
	Net Loss			$         (1,588,538)	$         (3,212,522)
	Adjustments to reconcile net loss to net cash
		used in operating activities:
		Deprecation and amortization		15,442	6,518
		Stock-based compensation		490,536	2,177,028
		Accrued interest income on long-term investment- restricted		(1,553)	(967)
		Changes in assets and liabilities:
			Accounts receivable	2,577	-
			Inventory	36,248	(176,571)
			Prepaid expenses	(388)	(22,426)
			Deposits	-	-
			Accounts payable	2,521	90,005
			Accrued expenses	156,637	99,859
Net cash used in operating activities				(886,518)	(1,039,076)
INVESTING ACTIVITIES:
	Purchase of property and equipment			(33,336)	(93,254)
Net cash used in investing activities				(33,336)	(93,254)
FINANCING ACTIVITIES:
	Payment on notes payable			(6,084)	-
	Proceeds from stock subscriptions			-	365,000
Net cash used in financing activities				(6,084)	365,000
NET CHANGE IN CASH				(925,938)	(767,330)
CASH, beginning of period				2,854,197	1,307,965
CASH, end of period				$           1,928,259	$              540,635
SUPPLEMENTAL CASH FLOW INFORMATION:

	Interest paid	$                  1,622	$                         -
	Income taxes paid	$                         -	$                         -
The accompanying notes are an integral part of these financial statements.

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CYTOGENIX, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDTIED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of CytoGenix, Inc. (“CytoGenix”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in CytoGenix’s latest annual report filed with the SEC on Form 10K.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal year ending December 31, 2006, as reported in the Form 10K, have been omitted.

NOTE 2 – RESTATEMENT

In connection with the establishment of the Company’s stock option plans of 2003 and 2005, the Company took the position that no compensation cost should be recognized by the Company until such time as the underlying shares were registered, as this constituted a performance condition under SFAS 123(R) and that such condition was not deemed probable at the time of the filing.  The SEC disagreed with this position and requested the Company restate its financial statements and associated disclosures to include compensation cost assuming the options were exercisable as they vest. The error resulted in the understatement of non-cash expenses and a corresponding understatement of net loss of $490,536 in the quarter ending March 31, 2007.  The restatement impacted certain line items within cash flow from operations, but had no effect on total cash flows from operations and did not impact cash flows from financing or investing activities.  This restatement had no impact on the balance sheet, statement of operations or the net decrease in cash and cash equivalents reported in the statements of cash flows for any periods reported prior to March 31, 2007.

The restatement also affected Note 5.

The effect of the restatement on specific items in the balance sheet including adjustments previously reported in the 2006 10K/A restatement is as follows:

			March 31, 2007
			As Previously
			Reported	Adjustments	As Restated
STOCKHOLDERS' DEFICIT:
	Additional paid-in capital		$       30,544,649	$         4,796,913	$       35,341,562
	Retained earnings (deficit)		(28,251,590)	(4,796,913)	(33,048,503)
		Total Stockholders' Deficit	(627,973)	-	(627,973)

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The effect of the restatement on specific items in the statement of operations is as follows:

		March 31, 2007
		As Previously
		Reported	Adjustments	As Restated
COSTS AND EXPENSES:
	Research and development	$             516,987	$           349,295	$             866,282
	General and administrative	557,476	141,241	698,717
LOSS FROM OPERATIONS		(1,097,933)	(490,536)	(1,588,469)
NET LOSS		(1,098,002)	(490,536)	(1,588,538)

The effect of the restatement on specific items in the statement of cash flows is as follows:

			March 31, 2007
			As Previously
			Reported	Adjustments	As Restated
OPERATING ACTIVITIES:
	Net Loss		$    (1,098,002)	$      (490,536)	$  (1,588,538)
	Adjustments to reconcile net loss to net cash
		Share-based compensation expense	-	490,536	490,536
Net cash used in operating activities			(886,518)	-	(886,518)

NOTE 3 – RECLASSIFICATION

Certain amounts in the 2006 financial statements have been reclassified to conform with the March 31, 2007 financial statement presentation.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

CytoGenix is obligated, per employment agreements, to deliver cash bonuses after year end based on the increase in average share price of the Company’s common stock from the last 20 trading days of 2007 to the last 20 trading days of 2006.  This bonus is payable when the stock appreciation is at least 15%. The Company has accrued no bonus amount in the first three months of 2007 based on the Company’s common stock price as of March 31, 2007.

Waldroff and Applied Veterinary Genomics, Inc. (“AVGI”) - Litigation initiated in March 2004 over the validity of license agreements between CytoGenix (licensor) and William Waldroff (licensee) for use of CytoGenix ssDNA expression technology in shrimp and horse therapeutic applications. AVGI, as sublicensee, was a third party in this action. A jury trial held in February 2005 resulted in entry of a judgment against CytoGenix requiring performance on the contracts and payment of attorney fees. CytoGenix subsequently appealed this decision and in December 2006 the 1st Court of Appeals reversed the trial court's judgment, finding no need for CytoGenix to perform on the contracts and no need for either party to pay the opposing party's attorney fees. Waldroff and Applied Veterinary Genomics filed a motion for a rehearing; CytoGenix filed a timely response to that motion and the parties await decision by the Court. On March 3, 2007, the Court of Appeals denied

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Waldroff/AVGI's Motion for Rehearing.  Appellants have now filed a petition for review before the  Supreme Court of Texas.  The Parties await the high Court's decision to grant or deny the petition.

Pending resolution of the Court’s decision and possible ongoing/ appeals, CytoGenix has established a long-term CD in the amount of $115,500 to comply with the trial court judgment. This CD earns interest at a rate of 3.4% annually.

In November of 2006, the former Chief Financial Officer (CFO), Lawrence Wunderlich, and the former Chief Operations Officer (COO), Frank Vazquez, resigned from the Company.  The Company and former officers are currently pursuing arbitration to resolve claims by Messrs Vazquez and Wunderlich and counterclaims by the Company.  In conjunction with the former officers’ resignations, the former CFO filed a Sarbanes Oxley Whistleblower Complaint with the Department of Labor in January of 2007.  The action is against the Company and the Chief Executive Officer, Malcolm Skolnick. The Securities and Exchange Commission (SEC) requested information from the Company addressing the allegations and the Company has responded in compliance with that request.  The Company’s Board of Directors instituted a special committee of independent directors who has hired independent, outside counsel to conduct an independent investigation.  As of May 10, 2007 this investigation is in progress.  Management intends to vigorously defend the actions brought by the former COO and CFO.

NOTE 5 – STOCK-BASED COMPENSATION

Employee Stock-Based Compensation

On March 31, 2007 the Company had two stock-based compensation plans, the 2003 stock option plan and the 2005 stock option plan.  The Company  accounts for these plans in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” SFAS 123 (R), which requires companies to recognize the costs of awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant.  The Company adopted the SFAS 123 R effective January 1, 2006 using the modified prospective method.

Based on the employee stock option plans, compensation expense recorded for options fully vested as of March 31, 2007 was recorded as follows:

Research and development

$349,295

General and administrative

  141,241

Stock-based compensation

$490,536

We used the Black-Scholes option-pricing model (“Black-Scholes model”) to value our stock options with the following assumptions:

Volatility

92% to 250%

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Risk-Fee Interest Rate

              4.50%

Dividend Yield

  0.00%

Expected Term (years)

10.00

A summary for our stock-based compensation activity for the three months ended March 31, 2007 is presented below:

				Average	Aggregated
			Average	Life	Fair
		Options	Price ¹	(years)²	Value
Outstanding at December 31, 2006		22,179,000	$             0.52	7.50	$  11,093,850
	Granted	-	-		-
	Exercised	-	-		-
	Forfeited/expired	-	-		-
Outstanding at March 31, 2007		22,179,000	$             0.52	7.25	$  11,093,850
Exercisable at March 31, 2007		21,677,667	$             0.51	7.20	$  10,657,771

¹Weighted-average exercise price

² Weighted-average contractual life remaining

The associated fair value of options vested prior to December 31, 2005 was $11,891,000.  This amount was not expensed at the time of vesting in accordance with the then applicable provision of APB 25.  All options are issued with an exercise price equal to the market value resulting in no intrinsic value.  

The unvested options fair value will be recognized over their respective vesting periods which ends March 31, 2008

NOTE 6 - SUBSEQUENT EVENT

On March 20, 2008, the Company received notice of termination of its construction contract with GSL Construction Contractors, Ltd. (GSL) and forfeited approximately $1,200,000 in deposits the Company had made as part of this agreement.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS.  

IN ACCORDANCE WITH THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY NOTES THAT CERTAIN STATEMENTS IN THIS FORM 10-Q WHICH ARE FORWARD-LOOKING AND WHICH PROVIDE OTHER THAN HISTORICAL INFORMATION, INVOLVE RISKS AND UNCERTAINTIES THAT MAY IMPACT THE COMPANY’S RESULTS OF OPERATIONS. THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, STATEMENTS CONCERNING THE COMPANY’S GENERAL BUSINESS STRATEGIES, FINANCING DECISIONS, AND EXPECTATIONS FOR FUNDING CAPITAL EXPENDITURES AND OPERATIONS IN THE FUTURE. WHEN USED HEREIN, THE WORDS “BELIEVE,” “PLAN,” “CONTINUE,” “HOPE,” “ESTIMATE,” “PROJECT,” “INTEND,” “EXPECT,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE

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BASED ON REASONABLE ASSUMPTIONS, NO STATEMENTS CONTAINED IN THIS FORM 10-Q SHOULD BE RELIED UPON AS PREDICTIONS OF FUTURE EVENTS. SUCH STATEMENTS ARE NECESSARILY DEPENDENT ON ASSUMPTIONS, DATA OR METHODS THAT MAY BE INCORRECT OR IMPRECISE AND MAY BE INCAPABLE OF BEING REALIZED. THE RISKS AND UNCERTAINTIES INHERENT IN THESE FORWARD-LOOKING STATEMENTS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY THESE STATEMENTS.

READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE INFORMATION CONTAINED IN THIS FORM 10-Q IS BELIEVED BY THE COMPANY TO BE ACCURATE AS OF THE DATE HEREOF. CHANGES MAY OCCUR AFTER THAT DATE, AND THE COMPANY WILL NOT UPDATE THAT INFORMATION EXCEPT AS REQUIRED BY LAW IN THE NORMAL COURSE OF ITS PUBLIC DISCLOSURE PRACTICES.

IMPORTANT RISK FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS REFLECTED IN ANY FORWARD-LOOKING STATEMENT HEREIN INCLUDE AMONG OTHER THINGS: (1) THE ABILITY OF THE COMPANY TO QUICKLY PENETRATE THE MARKET WITH ITS CURRENT THERAPEUTIC PRODUCTS AGAINST LARGER, WELL-FINANCED COMPETITORS WITHIN THE MARKETPLACE; (2) THE ABILITY OF THE COMPANY TO GENERATE REVENUES IS SUBSTANTIALLY DEPENDENT UPON CONTINUED RESEARCH AND DEVELOPMENT FOR, AND FDA APPROVAL OF, THERAPEUTIC PRODUCTS; (3) THE ABILITY OF THE COMPANY TO ATTRACT AND RETAIN KEY OFFICERS, KNOWLEDGEABLE SALES AND MARKETING PERSONNEL AND HIGHLY TRAINED TECHNICAL PERSONNEL; (4) THE ABILITY OF THE COMPANY TO OBTAIN ADDITIONAL FINANCING FROM PUBLIC AND PRIVATE EQUITY MARKETS TO FUND OPERATIONS AND FUTURE GROWTH; AND (5) THE ABILITY OF THE COMPANY TO GENERATE REVENUES TO COVER OPERATING LOSSES AND POSITION THE COMPANY TO ACHIEVE POSITIVE CASH FLOW.

Results of Operations

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006.

For the three  months  ended March 31, 2007, we  reported  a net  loss of  $1,588,538, or less

than one cent per share, and no revenue as compared with a net loss of $3,212,522 or less than three cents per share, and no revenue for the three months ended March 31, 2006.

Research and Development Expenses.  Research and development expenses decreased to $866,279 for the first quarter of 2007 as compared to $1,890,716 during the same period in 2006 due almost entirely to a decrease in personnel costs.  Approximately $154,000 was due to salary, bonus and related payroll expenses not paid in 2007 to a former executive officer because of his resignation in the last quarter of 2006 and the remainder was attributable to non-cash stock based compensation granted under the 2003 and 2005 employee stock option plans.

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Generaland Administrative Expenses.  General and administrative expenses decreased to $698,717 for the first quarter of 2007 compared to $1,307,179 for the same period in 2006 primarily due to a decrease in personnel costs, most of which was attributable to non-cash stock based compensation granted under the 2003 and 2005 employee stock option plans.  The decrease was partially offset by the increase in legal fees and investigation fees amounting to approximately $221,000 relating to a Sarbanes-Oxley whistleblower complaint and an arbitration complaint filed by a former executive officer.  

Consulting Expenses. Consulting expenses decreased to $8,031 for the first quarter of 2007 compared to $9,075 for the same period in 2006.  This decrease was due to a decrease in fees for a consultant used to format our yearly SEC filings.

Depreciation and Amortization Expenses.  Depreciation and amortization expenses increased to $15,442 for the first quarter of 2007 compared to $6,518 for the same period in 2006 primarily due to the additional R&D equipment purchased for DNA production.

Liquidity and Capital Resources

The Company has budgeted approximately $5,700,000 for operations in fiscal year 2007, of which approximately $2,100,000 has been allocated for general and administrative costs and $3,600,000 for research and development.  We will rely on equity financing to satisfy our working capital requirements, and have as of March 31, 2007 $1,928,259 of cash on hand for fiscal year 2007. Of the $3,600,000 budgeted for research and development expenses, the Company anticipates $2,000,000 will be utilized for pre-clinical development.

The Company’s ability to continue operations through December 31, 2007 depends on its success in obtaining equity financing in an amount sufficient to support its operations through that date.  There is substantial doubt that the Company will be able to generate sufficient revenues or be able to raise adequate capital to remain a going concern through December 31, 2007.  Based on historical yearly financial requirements, operating capital of approximately $5.7 million will be needed for each of the calendar years 2007 and 2008.

The Company expects its sources of revenue for the next several years to consist primarily of income generated by the sale of enzymatically synthesized DNA (synDNA™) to companies involved in the development of DNA-based therapeutics and vaccines,  and payments earned under future product development joint ventures, licensing agreements, and royalties. The process of developing the Company’s future products will require hiring of additional personnel, significant additional research and development, preclinical testing and clinical trials, as well as regulatory approvals. These activities, together with the Company’s general and administrative expenses, are expected to result in operating losses for at least two more years. The Company will not receive product revenue from therapeutic and vaccine products unless it completes clinical trials and successfully commercializes or arranges for the commercialization of one or more products, the accomplishment of which no assurance can be given.

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CytoGenix has developed a broad platform of down regulation and gene silencing technologies. Down regulation of genes or gene silencing comprises a set of techniques which can prevent a gene from expressing the protein for which it is encoded or interact with a target protein to change or inhibit its function.  These techniques are based on the use of single stranded DNA (ssDNA) expression vectors for production of specifically designed strings of single stranded DNA (oligos) inside a cell which can be useful in triplex, antisense, DNA enzyme and aptameric applications.  Triplex applications are those where a designed sequence of ssDNA binds to a specific location in the duplex DNA of the genome which can inhibit a promoter or expression of a target gene and prevent gene expression.  In some antisense applications, the expression vector makes a specific ssDNA sequences that binds to a complementary target mRNA’s and prevents the production of the encoded protein. When this antisense sequence binds to the targeted mRNA it prevents mRNA from being “read” by a ribosome. This antisense approach can be modified so that internally produced ssDNA sequence contains an additional DNA enzyme sequence in the central region of the ssDNA sequence which can degrade the target mRNA after the sequence binds to the targeted mRNA and prevents further translation. Aptamers are ssDNA sequences that directly bind to the target proteins to inhibit their function.  The Company has coordinated and performed experiments utilizing all these applications.  The results appear in scientific publications of peer reviewed journals and have been incorporated into numerous patent applications, some of which have granted or allowed.

The Company’s early research and development on ssDNA expression vectors was dependent upon the use of DNA plasmids produced using bacterial fermentation techniques.  At the time the Company’s experiments began, clinical grade plasmids could be obtained for approximately $25,000 per gram.  When the Company introduced its first product, Simplivir™, an anti-herpes compound, to the FDA, the price for clinical grade plasmids had risen to approximately $250,000 per gram.  The Company looked for alternatives and developed a process for producing enzymatically synthesized DNA (synDNA™) without using bacterial fermentation. The bacteria-free process for making therapeutic quality DNA is proprietary to the Company.  Through its use, we have met our own product needs and have directed our excess capacity to producing DNA for other third party users in the market.  The combination of competitive pricing, rapid manufacture, and regulatory advantages associated with endotoxin-free and bacteria-free production make our products very competitive.  The Company is currently generating revenues from synDNA™ sales.   

We have been able to expand our product line to include DNA vaccines.  Tests comparing the efficacy of various DNA vaccines made with synDNA™ to conventional, bacteria-grown plasmids have demonstrated synDNA™ products are equivalent to or more effective than these conventional plasmids. These tests have included targets such as HIV, Hepatitis B virus, Smallpox, and seasonal and avian flu.  The Company has entered a Cooperative Research and Development Agreements with the United States Department of Agriculture (USDA) to develop a DNA vaccine against Brucellosis and with the United States Army Medical Research Institute for Infectious Diseases (USAMRIID)  todevelop DNA vaccines against ebola and equine encephalitis.  The Company is pursuing other CRADA’s/contracts with the federal government especially in the bio-terror and pandemic threat areas.

The Company is subject to risks common to biopharmaceutical companies, including risks inherent in its research and development efforts and clinical trials, reliance on collaborative partners,

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enforcement of patent and proprietary rights, the need for future capital, potential competition and uncertainty in obtaining  required  regulatory approval.  In order for  a product  to be  commercialized, it

will be necessary for the Company and its collaborators to conduct pre-clinical tests and clinical trials, demonstrate efficacy and safety of the Company’s product candidates, obtain regulatory clearances and enter into distribution and marketing arrangements either directly or through sublicenses. From the Company’s inception through the date of this document, the major role of management has been to obtain sufficient funding for required research, monitoring research progress and developing and licensing intellectual property.

The Company expects to incur losses for the foreseeable future due to the ongoing activities of the Company to develop new products through research and development and to develop joint ventures and licensing agreements with third parties.  The Company expects its existing operations to continue to result in negative cash flow and working capital deficiencies that will require the Company to continue to obtain additional capital. There can be no assurance that the necessary financing will be available to the Company or, if available, that the same will be on terms satisfactory or favorable to it. It is possible that additional equity financing will be highly dilutive to existing shareholders.

The Company is currently operating at a loss and expects to continue to depend on cash generated from the sale of securities to fund its operating deficit. There can be no assurance that the Company will be able to generate sufficient revenues to meet its operating cash and growth needs or that any equity or debt funding will be available or at terms acceptable to the Company in the future to enable it to continue operating in its current form.

ITEM  3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

           As of March 31, 2007 the Company has a restricted long-term CD (Certificate of Deposit) investment for the Waldroff litigation matter discussed above.  Pending resolution of an appeal of this case the Company has established a long-term CD in the amount of $115,500. This CD earns interest at a rate of 3.4% annually.

ITEM 4.  CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Based on this evaluation our principal executive officer and principal financial officer concluded that our disclosure controls and procedures have not changed since the December 31, 2006 evaluation and audit of such controls.  

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At December 31, 2006 the Company indicated their control deficiencies, which together constituted a material  weakness over  the Company’s internal  control over financial  reporting  are  still

in existence.  The Company was in the process of remediating the control deficiencies and will continue to do so going forward.

Changes in Internal Controls

The Company is remediating its control deficiencies.  Remediation of the identified material weakness in internal controls over financial reporting will be addressed and modified as needed until all necessary internal  controls  are implemented and  operate for a period of time, are tested, and the Company and its auditors are able to conclude  that  such  internal  controls  are  operating  effectively.  Effective with the first quarter in 2007, the Company has (i) implemented increased segregation of duties between the check issuance, the check signature, and  the  bank  statement reconciliation functions, (ii)  implemented  the requirement for greater documentation for all expenditures,  including approvals by division  manager  and CEO under  certain  circumstances, (iii) is developing controls to insure proper accounting for non-routine or complex accounting issues, and to insure that agreements are provided to and reviewed by appropriate accounting and financial personnel on a timely basis, and (iv) hired an outside financial  reporting  consultant.  The function of the outside accounting consultant is to: (i) review alternative accounting treatments for significant transactions and to make sure that they are documented and approved by management, (ii) develop a financial reporting process, and (iii) review the financial data used to prepare the financial statements.  The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements.  The Company cannot make assurances that it will not identify additional material weaknesses in its internal controls over financial reporting in the future.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

BREACH OF CONTRACT ACTION

Waldroff and Applied Veterinary Genomics, Inc. - Litigation initiated in March 2004 over thevalidity of license agreements between CytoGenix (licensor) and William Waldroff (licensee) for use of CytoGenix ssDNA expression technology in shrimp and horse therapeutic applications. AVGI, as sublicensee, was a third party in this action. A jury trial held in February 2005 resulted in entry of a judgment against CytoGenix requiring performance on the contracts and payment of attorney fees. CytoGenix subsequently appealed this decision and in December 2006 the 1st Court of Appeals reversed the trial court's judgment, finding no need for CytoGenix to perform on the contracts and no need for either party to pay the opposing party's attorney fees. Waldroff and Applied Veterinary Genomics filed a motion for a rehearing and CytoGenix filed a timelyresponse to that motion. On March 3, 2007, the Court of Appeals denied Waldroff/AVGI’s Motion for Rehearing.  As of the date of this filing,

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Waldroff/AVGI has now filed a petition forreview by the Supreme Court of Texas.  The parties await the high  Court’s decision  to  grant  or  deny the  petition. Pending  resolution  of  an  appeal  CytoGenix  has established a long-term CD in the amount of $115,500 to comply with  the  trial court  judgment.  This  CD earns interest at a rate of 3.4% annually.

DEFAMATORY ACTIONS

The Company is actively pursuing legal action against various parties involved in the posting of defamatory comments about the Company and /or its employees.  It has recently settled a suit filed for injunctive relief and damages against a poster on the Cytogenix Investor Hub (IHUB) chatroom.  The suit was filed in the Federal District Court on September 26, 2006.  A subpoena was subsequently served on IHUB to reveal the identification of the responsible poster who was later included in the suit.  The parties agreed to settle the matter and further legal action has been dismissed.

EMPLOYMENT ACTIONS

In November of 2006, the former Chief Financial Officer (CFO), Lawrence Wunderlich, and the former Chief Operations Officer (COO), Frank Vazquez, resigned from the Company.  The Company and former officers are currently pursuing arbitration to resolve claims by Messrs Vazquez and Wunderlich and counterclaims by the Company.  In conjunction with the former officers’ resignations, the former CFO filed a Sarbanes Oxley Whistleblower Complaint with the Department of Labor in January of 2007.  The action is against the Company and the Chief Executive Officer, Malcolm Skolnick. The Securities and Exchange Commission (SEC) requested information  from the Company addressing the allegations and the Company has responded in compliance with that request.  The Company’s Board of Directors instituted a special committee of independent directors who has hired independent, outside counsel to conduct an independent investigation.  As of May 10, 2007 this investigation is in progress.  Management intends to vigorously defend the actions brought by the former COO and CFO.

Intellectual Property Matters:

In the quarter ending March 31, 2007, CytoGenix expanded its enforceable patent rights in the foreign markets through registration of patent rights in nine countries claiming rights to a European patent which granted during the last quarter of 2006. These registrations cover similarin vivossDNA expression technology as covered by a patent in China (also granted in the last quarter of 2006) and allowed patents in Korea and India.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In the three months ended March 31, 2007, CytoGenix did not issue any shares of common or preferred stock.  

ITEM 6.  EXHIBITS.

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Exhibit Number	Description
3.1*	Articles of Incorporation of Cryogenic Solutions, Inc.
3.2*	Certificate of Amendment dated November 1, 1995 of Articles of Incorporation of Cryogenic Solutions, Inc.
3.3*	Certificate of Amendment dated January 13, 2000 of Articles of Incorporation of CytoGenix, Inc.
3.4	Certificate of Amendment dated April 6, 2004 of Articles of Incorporation of CytoGenix, Inc. (incorporated by reference to Exhibit 3.5 to the Company’s annual report of Form 10-KSB for the year ended December 31, 2004)
3.5	Certificate of Amendment dated March 7, 2001 of Articles of Incorporation of CytoGenix, Inc. (incorporated by reference to Annex II of the definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on December 23, 2003)
3.6*	Bylaws of Cryogenic Solutions, Inc.
3.7	Amendments to Bylaws of CytoGenix, Inc. (incorporated by reference to Annex I of the definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on December 23, 2003)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 32.2	Section 1350 Certification of Chief Executive Officer Section 1350 Certification of Chief Financial Officer

*  Incorporated by reference to the corresponding Exhibit in the Form 10-SB of the Company filed on January 31, 2001.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

	CYTOGENIX, INC.
Date:  April 4, 2008	By:	/s/  Malcolm Skolnick
			Malcolm Skolnick
			President and Chief
	Executive Officer

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