Cytogenix (CYGX) 10-Q 2008 Q1 Quarterly report

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

Form 10-Q

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the quarterly period ended March 31, 2008

[   ]

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  [ ] Smaller reporting company  

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 May 16, 2008 was 146,575,218.

TABLE OF CONTENTS

	PART I    FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007	3
	Statements of Operations for the three months ended March 31, 2008 and 2007 (Unaudited)	4
	Statements of Cash Flows for the three months ended March 31, 2008 and 2007(Unaudited)	5
	Notes to Financial Statements (Unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	13
ITEM 4.	Controls and Procedures	14
	PART II  OTHER INFORMATION
ITEM 1.	Legal Proceedings	14
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
ITEM 6.	Exhibits	15
SIGNATURES		16

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.           

CYTOGENIX, INC.
BALANCE SHEETS
			March 31,	December 31,
			2008	2007
			(Unaudited)
	ASSETS
Current Assets:
	Cash		$140,159	$162,042
	Inventory		242,002	252,144
	Receivables and other current assets		18,954	44,292
		Total Current Assets	401,115	458,478
Property and equipment, net			221,494	237,354
Deposits			6,399	6,399
Long-term investments - restricted			-	53,402
		Total Assets	$629,008	$755,633
	LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
	Long-term debt, current portion		$-	$27,678
	Note payable - related party		$300,000	$-
	Accounts payable		571,321	388,463
	Accrued expenses		1,510,293	1,532,344
		Total Current Liabilities	2,381,614	1,948,485
	Long-term debt, less current portion		-	17,336
		Total Liabilities	2,381,614	1,965,821
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
	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,
		146,653,218 and 146,309,719 share issued and outstanding as of
		March 31, 2008 and December 31, 2007, respectively	146,653	146,310
	Additonal paid-in capital		37,340,008	36,999,514
	Treasury stock		(629,972)	(629,972)
	Accumulated deficit		(38,609,295)	(37,726,040)
		Total Stockholders' Deficit	(1,752,606)	(1,210,188)
		Total Liabilities and Stockholders' Deficit	$629,008	$755,633
The accompanying notes are an integral part of these financial statements. 3

CYTOGENIX, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDING MARCH 31, 2008 AND 2007
(UNAUDITED)
		2008	2007
			(Restated)
REVENUES		$13,160	$-
COSTS OF REVENUES		10,354	-
	GROSS MARGIN	2,806	-
COSTS AND EXPENSES:
	Research and development	247,419	866,279
	General and administrative	554,565	698,717
	Consulting expense	52,009	8,031
	Depreciation and amortization	15,860	15,442
LOSS FROM OPERATIONS		(867,047)	(1,588,469)
OTHER INCOME:
	Interest income	517	1,553
	Interest expense	(16,725)	(1,622)
NET LOSS		$(883,255)	$(1,588,538)
Net loss per share:
	Basic and diluted net loss per share	$(0.01)	$(0.01)
Weighted average shares outstanding:
	Basic and diluted	146,594,885	140,663,961
The accompanying notes are an integral part of these financial statements. 4

CYTOGENIX, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING MARCH 31, 2008 AND 2007
(UNAUDITED)
				2008	2007
					(Restated)
	Net Loss			$(883,255)	$(1,588,538)
	Adjustments to reconcile net loss to net cash
		used in operating activities:
		Deprecation and amortization		15,860	15,442
		Stock-based compensation		200,547	490,536
		Accrued interest income on long-term investment - restricted		-	(1,553)
		Changes in assets and liabilities:
			Accounts receivable	16,000	2,577
			Inventory	10,142	36,248
			Prepaid expenses	9,338	(388)
			Accounts payable	182,858	2,521
			Accrued expenses	267,239	156,637
Net cash used in operating activities				(181,271)	(886,518)
INVESTING ACTIVITIES:
	Proceeds from restricted long term investment			53,402	-
	Deposit on building contract			(300,000)	-
	Purchase of property and equipment			-	(33,336)
Net cash provided by (used in) investing activities				(246,598)	(33,336)
FINANCING ACTIVITIES:
	Payment on notes payable			(45,014)	(6,084)
	Proceeds from notes payable - related party			300,000	-
	Proceeds from stock subscriptions			151,000	-
Net cash used in financing activities				405,986	(6,084)
NET CHANGE IN CASH				(21,883)	(925,938)
CASH, beginning of period				162,042	2,854,197
CASH, end of period				$140,159	$1,928,259
SUPPLEMENTAL CASH FLOW INFORMATION:
	Interest paid			$1,339	$1,622
	Income taxes paid			$-	$-
The accompanying notes are an integral part of these financial statements. 5

CYTOGENIX, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of CytoGenix, Inc. (“CytoGenix”or the “Company”) 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 ended December 31, 2007, as reported in the Form 10K, have been omitted.

NOTE 2 – RELATED PARTY TRANSACTION

The Company entered into a loan agreement to borrow money from KV Mechanical Construction and Restoration Company, Inc.  KV Mechanical Construction and Restoration Company, Inc. is a significant shareholder of the Company owning approximately 6.1% of the Company’s common stock.  The principal amount of the loan is $300,000 with an annual interest rate of 24%.  Maturity date of the note is ten days of closing on the proposed facility or as the parties agree.  Repayment of the loan may be in cash or restricted stock of the borrower at the average closing price over the past five business days, but no less than $0.12 per share by mutual consent of both parties.  In the event there is no consent, then payment will be in cash.  Accrued interest as of March 31, 2008 is 15,386.

NOTE 3 - - 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 2008 compared to the last 20 trading days of 2007.  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 2008 based on the Company’s common stock price as of March 31, 2008.

During the first quarter of 2008, the Company initiated negotiations and tentatively agreed to terms with GE Healthcare Bio-Sciences Corp (“GEHC”), to amend its original Supply Agreement entered into on March 24, 2006, and first amended June 11, 2007, for the purchase of customized kits and reagents used in the manufacture of its proprietary synDNA^TM products.  The terms of the amendment call for the Company to purchase a minimum of two custom kits at $80,000 each prior to December 31, 2008; and maintains the Company’s obligation to pay various royalty percentages based on revenue derived from the Company's sale of synDNA products.  The second amendment was executed on April 28, 2008.

Frank Vazquez and Lawrence Wunderlich v. CytoGenix, Inc.

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In November 2006, former Chief Financial Officer (CFO), Lawrence Wunderlich, and former Chief Operations Officer (COO), Frank Vazquez, resigned from the Company. The Company and former officers are pursuing arbitration to determine obligations consistent with the circumstances surrounding the former officers’ resignations. The Company has also filed counterclaims against the former officers.  The arbitration hearing has occurred the decision should be received from the arbitrator prior to the end of the second quarter of 2008.  

The likelihood of an unfavorable outcome is not determinable by management or outside counsel at this time and, accordingly, no additional loss accruals have been recorded by the Company in relation to this matter.

NOTE 4 – STOCK-BASED COMPENSATION

Employee Stock-Based Compensation

At March 31, 2008 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 options plans, the following compensation expense was recorded for the three months ended March 31, 2008:

Research and development

$ 31,814

General and administrative

 128,733

Stock-based compensation

$160,547

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

Volatility

116% to 250%

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, 2008 is presented below:

				Average	Aggregated
			Average	Life	Fair
		Options	Price ¹	(years)²	Value
Outstanding at December 31, 2007		24,286,000	$             0.48	6.85	$  11,059,071
	Granted	-	-		-
	Exercised	-	-		-
	Forfeited/expired	-	-		-
Outstanding at March 31, 2008		24,286,000	$             0.48	6.60	$  11,059,071

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Exercisable at March 31, 2008      22,019,333  $             0.51 6.38  $  10,484,473

¹Weighted-average exercise price

² Weighted-average contractual life remaining

The unvested options fair value will be recognized over their respective vesting period which ends November 12, 2009.

NOTE 5 – DEFAULT NOTICE

On March 20, 2008, the Company received notice of termination of its construction contract with GSL Construction Contractors, Ltd. (“GSL”) under the terms of an earnest money contract it had entered into for the construction of a new office and lab facility.  Accordingly, the Company’s earnest money deposits and change order payments were forfeited.  Forfeited deposits and payments included $901,160 made as of December 31, 2007, as well as an additional payment of $300,000 made in January 2008.  Based on the Company’s determination of the possibility of loss and the subsequent notice of termination, the Company recorded an impairment loss of $1,201,160 associated with the contract for the year ended December 31, 2007.

NOTE 6 – COMMON STOCK

In the first quarter of 2008, the Company issued 101,250 shares at a price of $0.16 per share as part of its November 30, 2007 private placement.  In addition, the Company received $151,000 for 2,464,583 common shares of which only 31,250 shares were issued at March 31, 2008.  The remaining shares were issued after the end of the quarter.  Also, the Company issued 249,999 shares with a value of $40,000 for services rendered to outside consultants.  Approximately 83,333 were issued each to TMS Investments, Inc., Harris Forbes, Inc., and Chasseur Corporation.  

NOTE 7 – 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.

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			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)

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 8 – SUBSEQUENT EVENTS

On April 14, 2008, the Company issued 750,000 shares of common stock to BioXcel Corporation in exchange for services valued at $45,000.

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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 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 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

10

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007.

For the three months ended March 31, 2008, we reported a net loss of $883,255, or less than one cent per share, and revenue of $13,160 as compared with a net loss of $1,588,538, or less than one cent per share, and no revenue for the three months ended March 31, 2007.  Revenue for the three months ended March 31, 2008 resulted from the sale of synDNA.  We had no revenue for the three months ended March 31, 2007.

Research and Development Expenses.  Research and development expenses decreased to $247,419 for the first quarter of 2008 as compared to $866,279 during the same period in 2007 due to a decrease of approximately $448,000 in equity award expenses in 2008.  The cost of DNA materials and lab supplies declined by approximately $40,000 in the first quarter of 2008 from the same period in 2007.  Additionally, R&D consulting expenses declined by approximately $132,000 in 2008 compared to the same period in 2007.  R&D consulting expenses in 2007 were incurred to with improve the production process for the manufacture of synDNA.

Generaland Administrative Expenses.  General and administrative expenses decreased to $554,565 for the first quarter of 2008 compared to $698,717 for the same period in 2007 primarily due to the decrease of approximately $153,000 in legal and investigation fees relating to a Sarbanes-Oxley whistleblower complaint and an arbitration complaint filed by two former executive officers in 2007.  

Consulting Expenses. Consulting expenses increased to $52,009 for the first quarter of 2008 compared to $8,031 for the same period in 2007.  This increase was due to costs of financial consultants retained to advise the Company regarding financing options.

Depreciation and Amortization Expenses.  Depreciation and amortization expenses increased to $15,860 for the first quarter of 2008 compared to $15,442 for the same period in 2007 due primarily to the purchase of additional research and development equipment.

Interest Expense.  Interest expense increased approximately $15,000  to $16,725 for the first quarter of 2008 compared to $1622 for the same period in 2007 due to a loan from a related party.

Liquidity and Capital Resources

The Company has budgeted approximately $4,600,000 for operations in fiscal year 2008, of which approximately $1,500,000 has been allocated for general and administrative costs and $3,100,000 for research and development.  We will require equity financing to satisfy our working capital requirements, and have, as of March 31, 2008, $140,159 of cash on hand for fiscal year 2008. Of the $3,100,000 budgeted for research and development expenses, the Company anticipates utilizing $2,300,000 for pre-clinical development.

The Company’s ability to continue operations through December 31, 2008 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, 2008.  Based on historical yearly financial requirements, operating capital of approximately $6.0 million will be needed for each of the calendar years

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2009 and 2010.

The Company will continue to require equity financing until it develops revenue from 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 expenses associated with additional research and development, preclinical testing and clinical trials, as well as processes directly related to attaining 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.

CytoGenix has developed down regulation and gene silencing technologies comprising a set of techniques which can either prevent a gene from expressing the protein for which it is encoded or interact with the 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 in peer reviewed journals as well as in patent applications, some of which have been 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.  The Company looked for alternatives and developed a process for producing enzymatically biosynthesized DNA (synDNA™) without using bacterial fermentation. The bacteria-free process for making and purifying therapeutic quality DNA is proprietary to the Company.  The Company believes the combination of, rapid manufacture, and regulatory advantages associated with endotoxin-free and bacteria-free production may make our production process more desirable than that of plasmid DNA. The Company is currently generating minimal revenues from synDNA™ sales.

The Company has used it’s enzymatically biosynthesized DNA process to develop 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 in some cases. These tests have included targets such as HIV, Hepatitis B virus, Smallpox, as well as seasonal and avian flu.  The Company has entered a Cooperative Research and Development Agreement 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) to develop DNA vaccines against ebola and equine encephalitis.  The Company is pursuing cooperative agreements with the federal government especially in the bio-terror and pandemic

12

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, 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 to develop and license 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 said financing will be attainable on terms satisfactory or favorable to the Company. 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.

Intellectual Property Matters:

In the quarter ended March 31, 2008, CytoGenix expanded its enforceable patent rights in the foreign markets with grant of a patent on the original ssDNA expression technology in Australia.  The Company also filed an International (PCT) patent application on its avian flu synDNA^SM vaccine, providing the basis for individual patent applications in selected foreign countries. The Company has also received an official US patent allowance on its anti-herpes therapeutic (Simplivir^TM) which is expected to issue in the second quarter of 2008, and has filed a US divisional patent application on some of this technology in an attempt to extend the term of protection on some of this allowed technology.  The Company’s patent holdings currently comprise a total of 69 patents or patent applications.  We currently have 14 granted patents (US and foreign) pertaining to our synDNA^TM in vivo expression technology and 55 additional (US and foreign) pending patent applications which cover various aspects of our single stranded DNA expression vectors, including therapeutics for herpes infections and anti-bacterials, as well as our synDNA^SM technology platform including various applications of synDNA^SM– based  vaccines.

ITEM  3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

NONE.

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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 March 31, 2008.  The Company concluded that material weaknesses over internal control of financial reporting, as previously disclosed, are still in existence.  Based on this evaluation our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of March 31, 2008 are not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in Securities and Exchange Commission rules and forms.  

Changes in Internal Controls

The Company is attempting to remediate 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.  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

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.  The arbitration hearing has occurred and the decision from the arbitrator should be received prior to the end of the second quarter of 2008.  

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In January 2008, the Company issued 31,250 shares of common stock, par value $0.001 per share at a price of $0.16 per share, for gross proceeds of $5000, in conjunction with its private placement that took place in the fourth quarter of 2007.  Beginning on February 29, 2008, the Company entered into subscription agreements for the private placement of 2,433,333 shares of its common stock, par value $0.001 per share at a price of $0.06 per share, for gross proceeds of $146,000.  The difference between the selling price and the market price on the date the shares were sold was approximately $.01 per share ($24,333).  The proceeds will be used for general corporate purposes.  The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4(2) thereof.

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ITEM 6.	EXHIBITS.
		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 10.1 10.2	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) Loan Agreement dated January 7, 2008 between CytoGenix, Inc., and KV Mechanical Construction and Restoration Co., Inc. Supply Agreement Amendment No. 2 dated April 28, 2008 between CytoGenix, Inc. and GE Healthcare Bio-Sciences Corp.
		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

* 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: May 19, 2008	By:	/s/  Malcolm Skolnick
			Malcolm Skolnick
			President and Chief
	Executive Officer

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