UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
CytoGenix, Inc.
(Name of Small Business Issuer in its charter)
Nevada 76-0484097
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9881 South Wilcrest, Houston, Texas 77099
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (281) 988-6118
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NA NA
Securities to be registered under Section 12(g) of the Act:
The registrant had 29,010,503 shares of Common Stock, at $.001 par value,
outstanding as of December 31,1999.
(Title of class)
CYTOGENIX, INC.
FORM 10 - SB
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS........................................ 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION.............................................. 7
ITEM 3. DESCRIPTION OF PROPERTY........................................ 11
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................................... 11
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS............................................ 13
ITEM 6. EXECUTIVE COMPENSATION......................................... 15
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 15
ITEM 8. LEGAL PROCEEDINGS.............................................. 15
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS............................................ 15
ITEM 10. DESCRIPTION OF SECURITIES...................................... 17
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 18
ITEM 13. FINANCIAL STATEMENTS........................................... 18
PART F/S
FINANCIAL STATEMENTS OF THE REGISTRANT................................... F-2
2
Item 1. Description of Business
CytoGenix, Inc. (the company) is a development stage biotechnology company that
has never had any sales. The primary focus of the Company, Inc. research is the
implementing and enabling technologies useful in the final stage of delivery of
therapeutic DNA and RNA molecules in cells.
The company was formed in 1995 as a biomedical research and development
operation. Equity funding has been the only source of operational and research
support from the outset.
In an effort to explain the CytoGenix(TM) TroVec(TM) antisense molecule
replication technology (ssDNA intracellular expression vector) in everyday
terms, scientific accuracy has been compromised.
A more complete and accurate scientific explanation is available at
www.cytogenix.com.
INTRODUCTION
Science has discovered that nearly all disease is the result of malfunctioning
genes in the human genome. These malfuntioning genes cause the production of
harmful proteins which we identify as the symptoms and destructive results of
disease.
Biomedical research has demonstrated that in many instances it is possible to
inhibit the disease causing activity of the faulty gene by introducing small
molecules of specific genetic material into the cells themselves. This is called
"antisense" therapy.
The key to success with antisense therapy is to insure that sufficient
quantities of the antisense molecules are caused to appear in the cells. The
Company has invented an entity that can be introduced into the nucleus of the
cell that produces the antisense molecules in the cell. The business of Company
is to refine this enabling technology and combine it with the various antisense
molecules to develop therapeutic drugs.
THE HUMAN GENOME
The Genome is composed of biochemical components called nucleotides which are
the smallest sub-units of DNA. Each cell in the body contains forty-six
chromosomes that contain the DNA code for constructing and maintaining the human
body.
3
The chromosomes are made up of complementary intertwined strands of DNA (one
positive and the other negative). The negative strand of the DNA produces single
strands of positive nucleotides (RNA) that move around in the cells carrying
coded instructions for the production of various proteins, amino acids,
hormones, etc. By studying how genes work and understanding how they go awry,
scientists are developing new therapies that attack the underlying causes of
disease, not just the symptoms. Makers of the new gene-based drugs believe that
they will offer advantages over existing treatments.
ANTISENSE THERAPY
Most diseases are caused by incorrect or excess production of proteins in the
cells of the body. This may be caused by a faulty gene or the activities of
rogue genes called viruses.
To produce a protein, the cell first makes a positive copy (messenger RNA) of
the DNA code containing the information necessary to produce the protein. This
messenger RNA is called the "sense" molecule. The message-carrying molecule then
moves to another part of the cell where it is assembles the biochemical
components to produce proteins.
Scientists use the information content of the original DNA nucleotide sequence
to construct highly specific "Antisense" molecules made up of free floating
single strands of (negative) DNA which specifically bind to and neutralize the
(positive) messenger RNA strands to prevent the production of specific proteins.
Because of their specificity, Antisense molecules do not have the potential for
toxicity associated with traditional chemical or herbal compounds. In
addition,it is believed that Antisense molecules can be designed to treat a wide
range of infectious and inflammatory diseases, cardiovascular diseases and
cancer.
A key distinction of Antisense therapy is that it intervenes much earlier in the
disease process than traditional drug therapies. Biotech researchers have
identified and patented over 600 of the single stranded DNA molecules that are
potential Antisense agents.
The impediment to developing effective therapies using the Antisense molecules
has been the problem of "delivering" them into individual cells where they can
bind to the offending messenger RNA and prevent the production of harmful
proteins. This activity involves the design and use of a genetically engineered
single stranded DNA molecule synthesizer called an expression vector.
4
The CytoGenix(TM) "intracellular single stranded expression vector "
(TroVec(TM)) should enable the final stage of "delivery" by actually
synthesizing sequence specific antisense DNA molecules in the cell. The vector
remains in the cell and continues to synthesize antisense molecules to cancel
the messenger RNA and prevent the production of harmful proteins.
The CytoGenix TroVec(TM) technology could be instrumental in enabling and
implementing the development of useful drugs by combining it with growing number
of antisense molecules discovered by other biotech companies.
DEVELOPMENT TO DATE
The ssDNA expression vector technology (antisense molecule delivery system) was
developed as the direct result of an exclusive license and sponsored research
agreement with Dr. Charles Conrad and InGene, Inc. Dr. Conrad first invented and
filed a patent in June 1997 on the precursor technology of expressing single
strands of sequence specific DNA in bacteria as a research laboratory technique,
not contemplating any therapeutic use in living organisms.
CytoGenix negotiated a license to obtain rights to the technology, a continuing
sponsored research agreement and revived the patent. These activities enabled
the Company's expansion and refinement of the technology for possible use in
human and animal therapies.
Continuing this expansion of the technology the Company has budgeted live animal
studies for this year beginning with one in progress at the Southwest Foundation
for Biomedical Research in San Antonio, Texas. The technology has been
successfully tested in cell cultures in the laboratory.
The company has submitted for publication in a scientific journal a
comprehensive manuscript describing these studies showing proof of expression of
various ODNs in the cell cultures investigated.
5
On December 28, 1998 the United States Patent Office (USPTO) notified the
company that it has allowed all the claims contained in the patent application
for the company's single stranded DNA expression vector. The Patent is expected
to issue in April, 2000. There are nine additional pending patent applications
describing the company's technology.
The company has spent approximately $1,000,000 per year for the past two years
on research and development activities.
To date there have been demonstrated only limited ways to deliver sufficient
quantities of ODNs into cells to accomplish antisense functions. These are not
always reliable and can be used only in restricted applications. As has been
demonstrated in the laboratory, the company's ssDNA expression vector can be
used in broad applications. The Company plans to extend expression achieved in
cell cultures to cells in live animals as has been discussed above.
The company has 7 full time employees.
Dr. Jonathan Elliston was hired on September 1, 1999 as Director of Strategic
Planing and Intellectual Property. Ms. Kim Totsky was hired as an Executive
Assistant. The four Officers of the company are described in Item 5,"Directors,
Officers, Promoters and Control Persons."
Regulatory Issues
The FDA approves compounds that have been demonstrated both safe and effective
as individual parts and in combination. The FDA also recognizes different
categories of disease that deserve different approval standards. The most
lenient is accorded to those drugs that have been designated "compassionate use"
in that any dangers or side effects they may exhibit are less harmful than those
inherent in the disease itself when compared with the potential benefits.
Certain diseases have been designated as "orphan" diseases in that there are so
few cases that the major drug companies cannot justify the expense of
investigational development and submitting to the full approval process. Many of
the orphan diseases, although rare, are nonetheless devastating to the patients
and their families from both a physical and financial point of view. The FDA
therefore, has afforded less rigorous requirements for their approval. It is
believed the Company's TroVecTM technology may be allowed under the above
described regulatory schemes.
6
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company has budgeted $2,000,000 for operations in fiscal year 2000 of which
$840,000 has been allocated for General & Administrative costs. $930,000 has
been allocated for Research & Development including six live animal studies. The
scientific protocols have been determined for these studies. A total of $230,000
will be reserved for contingencies. The Company will rely on equity financing to
attain it's working capital requirements.
There are currently over 600 U.S. patents for ODN's with therapeutic potential,
each of which is a prospective license for the CytoGenix antisense molecule
delivery technology. The Company's standard license calls for a $100,000
initiation fee, and a maintenance fee of $50,000 per year versus an 8% royalty,
whichever is greater. The Company anticipates granting 12 to 15 licenses during
the calendar year 2000. The first was executed in February 2000 with
PharmaGenix, LLC, an affiliated company in which CytoGenix is half owner.
In November 1999 CytoGenix formed a joint enterprise with Professional
Compounding Centers of America (PCCA) called PharmaGenix, LLC that will apply
part of the nucleic acid technology (synthesized DNA and RNA sequences) to
developing non prescription products for distribution through the 2,500 member
compounding pharmacies that are affiliated with PCCA.
The Company's objective is to generate sufficient revenue by the end of the year
2000 to support the company's ongoing research and overhead without depending
totally on equity funding.
The Company's ability to continue operations in 2000 depends on its success in
obtaining equity financing in an amount sufficient to support its operations
through the end of the year.
Thus far the major role of management has been to obtain the funding for the
research, monitoring the progress, husbanding intellectual property, and
development of the TroVecTM technology.
1) The decision was made early on that equity funding would be the primary
source with a view toward obtaining government and private grants whenever
possible. Debt has not been an option.
7
2) The management team has attempted to keep general and administrative ovehead
extremely low and dedicated the largest share of available funds for research
and development.
3) The Company has vigorously pursued prosecution of patents for both its
licensed technology and internally developed technology.
The Company strategy from this point forward is:
1) Complete scheduled animal studies now underway.
2) Identify promising "compassionate use" therapies that qualify for fast-track
FDA approval to demonstrate safety and efficacy in human trials.
This strategy has been initiated. In
addition, the company is posting Requests for Proposals (RFP) from independant
research facilities to conduct additional animal studies from a list
suggested by the CytoGenix, Inc. Scientific Advisory Board.
In Kind Stock Swap
In January 1999 rules governing Regulation D, 504 Private Placements were
amended by the U.S. Securities and Exchange Commission whereby issuers were
compelled to offer one year restricted stock to investors. Prior to this
amendment, issuers were permitted to offer freely transferable shares to
investors, typically at a slight discount to market in order to secure equity
financing.
To continue to fund future operations of the Company the Company's management
decided on May 13, 1999 to offer all current shareholders the opportunity to
exchange their freely transferable shares for one year restricted shares at a
ratio of two shares of restricted stock for one share of freely transferable
stock.
8
The Company initially proposed to issue a total of 20,000,000 restricted trading
shares in exchange for 10,000,000 free trading shares. The free trading shares
would then be sold by the company in the market and in private transactions.
Between, May 16, 1999 and August 21, 1999, a total of 424 existing shareholders
agreed to exchange a total of 5,825,761 free trading shares for 11,651,522
restricted shares. The Company then in a series of brokerage and private
transactions sold a total of 2,611,572 purportedly free trading shares in the
market and realized a total of $ 1,367,813 as a result of such activity. The
Company retained a total of 3,214,189 shares which it received from shareholders
in the treasury of the Company.
No Form D relating to the Exchange offering was filed with the Securities and
Exchange Commission. The SEC has challenged that the shares sold in the market
were exempt from registration.
The Company disputes that registration is required. It is possible that the sale
of the free trading shares described above may have violated securities
registration provisions of the federal and state securities laws which could
subject the Company to fines, penalties or other regulatory enforcement action.
There can be no assurance that the SEC or applicable state authorities will not
pursue any enforcement action. The Company disputes any such liability.
Additionally, while the Company also disputes the following assertion, that it
is possible that shareholders who purchased the shares described above in market
transactions may have the right under state and federal securities laws to
require the Company to repurchase their shares, for the amount originally paid,
plus interest. The Company disputes any such liability.
Based upon the best information available to the Company at this time, the
Company has calculated the amount of possible, but disputed, exposure that
exists for the Company in light of the disputed civil liabilities described
above.
Accordingly, in the event these disputed civil liabilities were successfully
asserted, the Company could be liable to certain shareholders who purchased the
securities in market transactions in an amount of approximately $ 1,367,813 ,
plus interest. The exposure was calculated by reference to the average closing
price for a share of the Company's common stock, weighted for reported daily
volume, during the period May 16, 1999 to January 31, 2000; the number of shares
possibly sold during the same period of time; and the closing price of one share
on January 31, 2000.
9
The results of the completion of the In Kind Stock Swap are;
Number of one year restricted shares issued: 11,651,522 shares
Number of freely transferable shares transferred to treasury: 5,825,761 shares
Number of freely transferable shares sold from treasury: 2,611,572 shares
Number of freely transferable shares remaining in treasury: 3,214,189 shares
The total number of shares outstanding as of December 31, 1999 is 29,010,503
common.
DIVESTITURE OF PHYSICAL THERAPY ASSOCIATES
CytoGenix purchased Physical Therapy Associates 1996 with stock for equity (1.5
million shares) in order to acquire the technical expertise in traditional nerve
damage therapy and to provide a platform for future clinical trials contemplated
after the necessary molecular biology research was completed.
This line of research was subsequently suspended when the more promising
antisense molecule delivery (ssDNA expression vector) technology was identified.
The nerve damage repair research was indefinitely postponed because of
insufficient resources to pursue both research objectives simultaneously.
CytoGenix divested PTA, who repaid 1,000,000 shares but retained the balance
(500,000 shares) as compensation for good faith services provided, and to
reserve the option of revisiting the research when available resources allow.
10
Change in Management
In May of 1999 Laurence Mealey, CEO of the company died, subsequently Mike
Skillern assumed the position of temporary CEO and President. On September 1,
1999 Malcolm Skolnick was appointed as CEO and President of the Company. He was
also appointed as a director of the company beginning September 1, 1999 for a
term of three years.
Lawrence Wunderlich, Chief Financial Officer and Corporate Secretary was also
appointed to the Board of Directors on September 1, 1999 for a term of three
years.
Item 3. Description of Property.
The Company's corporate executive offices are located at 9881 So. Wilcrest,
Houston, TX 77099. The Company has occupied this approximate 4200 square foot
executive office and laboratory space since December 1999. The facility is in
excellent condition and is adequate for corporate use. Rent on the facility is
$2,046.00 per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Principal Shareholders
The following table sets forth the name and address, as of December 31,, 1999,
and the approximate number of Shares of Common Stock of the Company owned of
record or beneficially by each person who owned of record, or was known by the
Company to own beneficially, more than 5% of the Company's Common Stock, and the
name and shareholdings of each Officer and Director, and all Officers and
Directors as a group.
11
NAME OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES OWNED SHARES OWNED
- --------------------------- ------------ ------------
Skillern Fam. Partnership Ltd. 2,022,300 6.9% D
2900 South Gessner #504 common
Houston, Texas 77063
Dell T. Gibson 1,742,300 6.0% D,O
9881 So. Wilcrest common
Houston, Texas 77099
Lawrence Wunderlich 172,300 .6% D,O
9881 So. Wilcrest common
Houston, Texas 77099
Mike Walters, L.P.T. 500,000 1.7% D
1220 Blalock #220 common
Houston, Texas 77055
Malcolm Skolnick, Ph.D. J.D. 1,158,000 4.0% D,O
9881 So. Wilcrest common
Houston, Texas 77099
D A Director of Company
O An Officer of Company
Officers and Directors as a group: 5,594,900 19.2%
Common
12
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth certain information with respect to each of the
Directors, executive Officers, key employees and control persons of the Company.
NAME AGE TITLE
- ---- --- -----
Malcolm Skolnick 64 Chief Executive Officer, President, Director
Term of Office: 9/30/99 to 9/30/02
Dell Gibson 62 Executive Vice President, Chairman of the Board
Term of Office: 9/10/98 to 9/10/02
Mike Skillern 33 Vice President Research & Development, Director
Term of Office: 9/10/98 to 9/10/01
Lawrence Wunderlich 42 Vice President, Finance, Director
Term of Office 9/30/99 to 9/10/02
Michael Walters 66 Director
Term of Office 9/10/98 to 9/10/01
Mark Wilson 48 Director
Term of Office 3/21/00 to 3/21/03
None of the members of Management are related. The Company has executed
employment agreements with the officers of the company.
Employment compensation can be made in the form of cash or restricted common
stock at the prevailing ask price of the stock. The officers are given the
option of accruing cash payments until such time as the Company can afford to
make such payments, in the opinion of the Board of Directors. The payment of
stock is based on the closing asked price of the Company's common stock on the
1st and 15th of each month for the preceding pay period.
13
Malcolm Skolnick has been the Chief Executive Officer and President of the
Company since September 1, 1999. Prior to that time and for the last 30 years
Dr. Skolnick was a Professor in the University of Texas Health Sciences Center
at Houston. Dr. Skolnick received a Ph.D. in physics from Cornell University and
a J.D. from the University of Houston. He is licensed to practice law in Texas
and is a registered patent attorney. He has practiced intellectual property law,
been active in technology transfer and licensing activities and serves on the
Boards of Biodyne, Inc., Public Health Services, Inc. and several foundations.
Dr. Skolnick owns 1,158,000 common shares of the company
Mr. Skillern has been an officer of the company since February 1995. Mr.
Skillern is a founder and currently serves as a Director. Mr. Skillern serves as
one of three general partners for Skillern Family Partnership,LTD. which owns
2,022,300 common shares of the Company.
Mr. Gibson has been an officer of the company since February, 1995. He graduated
from the University of Texas in Austin and has done post graduate work there.
Mr. Gibson has worked in a wide variety of Sales, Marketing and Management
positions with companies such as Searle Cardio Pulmonary Instruments and AMSCO
Rehab. Mr. Gibson currently serves as Vice President and Director for CytoGenix,
Inc. Mr.Gibson owns 1,742,300 common shares of The Company.
Mr. Wunderlich worked as a financial consultant at the investment banking firm
of Josephthal and Company from October 1996 until August 1998. At that time Mr.
Wunderlich joined the management team of CytoGenix, Inc. as Vice President of
Finance. Prior to his employment with Josephthal, Mr. Wunderlich co-owned The
Language Loop, a translation service from 1991 to 1996 and held the position of
President. Mr. Wunderlich attended the University of Vienna and Manhattan
College in Riverdale, New York. He owns 172,300 common shares of the Company.
Michael Walters, L.P.T. has been a Director since February, 1995 and is a
Licensed Physical Therapist and has been in private practice for over 36 years.
Michael Walters owns 500,000 shares of CytoGenix, Inc. common stock.
Mr. Wilson is the founder and Director of Haelan Health Corporation and Argyll
Scientific, L.L.C.. He is a former investment banker with Kidder Peabody, Inc.
and is an inventor and Patent owner of drug delivery technology.
An equity interest in The Company will be made available, on an incentive basis,
to all employees, through an incentive and non-qualified stock option plan.
14
Item 6. Executive Compensation
The company has entered into employment agreements with each of the officers as
reflected in the table below. In addition to salary, each employee has the
option each quarter to purchase common stock at par value in an amount
equivalent to 25% of his gross salary computed at the closing price ont the last
day of each pay period.
OFFICER SALARY
- ------- --------
Malcolm Skolnick $125,000
Dell Gibson $ 72,000
Lawrence Wunderlich $ 72,000
Mike Skillern $ 72,000
Item 7. Certain Relationships and Related Transactions
Management is unaware of any other interests of its officers and directors that
may create a potential conflict of interest with the Company.
Item 8. Legal Proceedings.
The Company is not currently involved in any litigation.
Item 9. Market for Common Equity and Related Stockholder Matters.
Principal Market
The Company's securities are traded on the NASD electronic bulletin board,
quotations for which are under the symbol "CYGX." The market makers are:
Herzog, Heine, Geduld, Inc
USCC Trading/A Division of Fleet Securities
WM.V. Frankel & Co. Inc.
Hill Thompson Magid & Co., Inc.
Wein Securities Corp.
Sharpe Capital, Inc.
Knight Securities, Inc.
Waterhouse Securities, Inc.
Advanced Clearing, Inc.
Continental Broker-Dealer Corp.
Brown & Company Securities Corporation
GVR Company
15
Bid Information
The high and low bid price for the Company's common stock for each quarter
within the last two fiscal years, as received from OTC Bulletin Board follows.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
HIGH LOW
---- ----
First Quarter Ending 03/31/00 2.25 1.87
Fiscal Year Ending December 31, 1999 .66 .62
Third Quarter Ending 09/30/99 .51 .48
Second Quarter Ending 06/30/99 .66 .62
First Quarter Ending 03/31/99 .94 .91
Fiscal Year Ending December 31, 1998
Fourth Quarter Ending 12/31/98 .54 .51
Third Quarter Ending 09/30/98 .59 .56
Second Quarter Ending 06/30/98 .75 .63
First Quarter Ending 03/31/98 .35 .34
Fiscal Year Ending December 31, 1997
Fourth Quarter Ending 12/31/97 .48 .43
Third Quarter Ending 09/30/97 .20 .20
Second Quarter Ending 06/30/97 .30 .30
First Quarter Ending 03/31/97 .18 .18
Stockholders
There approximately 1260 shareholders of record for the Company as of the date
of this submission. Dividends To date, the Company has not paid any dividends on
its Common Stock..The Board does not intend to declare any dividends in the
foreseeable future.
16
Item 10. Recent Sales of Unregistered Securities.
The following tables outlines all securities the Company sold or issued within
the past three years without registering the securities under the Securities
Act, Regulation D Rule 504 (an exemption from registration).
TYPE NUMBER OF NUMBER OF
DATE OF SECURITY SECURITIES ISSUED INVESTORS CONSIDERATION
- -------- ----------- ----------------- --------- ------------------
03/11/98 Common 1,283,960 9 Received par value
$.001 for a total
of $1,283.00
to Craig Tomlinson,
Gibson Family Family
Partnership, Malcolm
Skolnick, Mark Wisner,
Charles Conrad,
Charles Boyd,
Harry Morgenthal,
William Waldroff,
Skillern Family
Partnership.
03/26/98 Common 30,000 1 Received par value
$.001 for a total
of $30.00 to Allan
Richardson.
07/16/98 Common 980,000 7 Received par value
$.001 for a total
of $980.00
to InGene Inc.,
Ellis Gibson,
Charles Bardwell,
Dell Gibson,
Laurence Mealey,
Craig Tomlinson,
Steven Sloat.
17
Item 11. Description of Securities
General
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of Directors, with the result that the
holders of more than 50% of the Shares voted for the election of Directors can
elect all of the Directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefore, in the event of liquidation, dissolution or wind up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of Shares of Common Stock as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock.
Item 12. Indemnification of Directors and Officers.
The Company and its affiliates may not be liable to its shareholders for errors
in judgment or other acts or omissions not amounting to intentional misconduct,
fraud or a knowing violation of the law, since provisions have been made in the
Articles of Incorporation and By-laws limiting such liability. The Articles of
Incorporation and By-laws also provide for indemnification of the Officers and
Directors of the Company in most cases for any liability suffered by them or
arising out of their activities as Officers and Directors of the company if they
were not engaged in intentional misconduct, fraud or a knowing violation of the
law.
Item 13. Financial Statements.
18
To the Board of Directors and Stockholders of CytoGenix, Inc.
6524 San Felipe, Suite 388
Houston, Texas 77057
I have audited the accompanying balance sheet of CytoGenix, Inc. (a Nevada
corporation in the development stage) as of December 31, 1999 and 1998, and the
related statement of operations, stockholders' equity, and cash flows for the
year then ended and for the period from February 10, 1995 (inception), to
December 31, 1999. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of CytoGenix, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the year
then ended and for the period from February 10, 1995 (inception), to December
31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has pending contingencies regarding the Company's ability to raise capital
through the sale of common stock, that raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 11 to the financial statements' in 1999 the Company changed
its method of accounting for start up costs to conform with SOP 98-5 "Reporting
on the Costs of Start-up Activities."
Harrie Marie Pollok Operhall,
A Professional Corporation
Houston, Texas
April 13, 2000
CYTOGENIX, INC.
(A Development Stage Company)
BALANCE SHEET
As of December 31, 1999 and 1998
1999 1998
----------- -----------
ASSETS
Cash .................................................. $ 29,555 $ 173,832
Notes Receivable ...................................... 25,100
Prepaid Expenses & Other Assets ....................... 940 510
----------- -----------
Current assets subtotal .......................... 55,595 174,342
Property & Equipment net .............................. 41,643 32,614
Intangible Assets ..................................... 0 1,755,294
Equity Investment ..................................... 9,973 0
----------- -----------
TOTAL ASSETS .................................. $ 107,211 $ 1,962,250
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable ................................. $ 38,787 $ 3,748
Accrued Liabilities .............................. 44,031 5,868
----------- -----------
Total liabilities ............................. 82,818 9,616
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY
Capital Equity:
Authorized:
50,000,000 Common Shares
$0.001 par value
Issued:
29,010,503 common shares
(December 31, 1998 - 17,485,700) ............ 29,010 17,486
Contributed surplus ................................... 2,362,007 3,381,031
Stock Warrants ........................................ 25,000 0
Treasury stock, reported at fair market value ......... 1,683,434 0
Deficit accumulated during the development stage ........... (4,075,058) (1,445,881)
----------- -----------
Total Shareholders' Equity ....................... 24,393 1,952,635
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 107,211 $ 1,962,250
=========== ===========
F-2
CYTOGENIX, INC.
(A Development Stage Company)
STATEMENTS STATEMENT OF OPERATIONS
Year Ended 12/31/99, 12/31/98 and the period from 02/01/95 (inception) to
12/31/99
Feb. 10, 1995
(Inception) to
12/31/99 12/31/98 12/31/99
------------ ------------ ------------
Dividend income ..................................... $ 1,375 $ 61 $ 1,633
------------ ------------ ------------
INCOME .............................................. 1,375 61 1,633
Research and development expense .................... 296,429 827,573 1,712,811
General and administration .......................... 570,182 11,850 588,784
Depreciation ........................................ 8,644 6,722 19,802
------------ ------------ ------------
Expenses ............................................ $ 875,255 $ 846,145 $ 2,321,397
------------ ------------ ------------
Income before income taxes
and cumulative effect of
change in accounting method ....................... (873,880) (846,084) (2,319,764)
Income Taxes ........................................ 0 0 0
------------ ------------ ------------
Income before cumulative
effect of change in
accounting method ................................. (873,880) (846,084) (2,319,764)
Cumulative effect of change
in accounting method
reporting on costs of
start-up activities (net of
income taxes of 0) ................................ (1,755,294) 0 (1,755,294)
------------ ------------ ------------
Net Income (Loss) ................................... (2,629,174) (846,084) (4,075,058)
============ ============ ============
Basic and Diluted earnings per share of common stock:
Before cumulative effect of accounting change ....... (0.04) (0.06) (0.15)
Accounting change ................................... (0.07) 0.00 (0.12)
------------ ------------ ------------
Net Income .......................................... (0.11) (0.06) (0.27)
Weighted average common
shares outstanding ................................ 23,248,101 14,096,795 14,505,252
============ ============ ============
THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-3
CYTOGENIX, INC.
(A Development Stage Company)
STATEMENT STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended December 31, 1999, 1998 and period from 02/10/95 through 12/31/99
DEFICIT
ACCUMULATED
COMMON SHARES DURING THE
----------------------------- CONTRIBUTED TREASURY DEVELOPMENT
SHARES AMOUNT SURPLUS SHARES STAGE
----------- ----------- ----------- ----------- -----------
Balance, February 5, 1995 .................. 0 0 0
Issuance of Common stock .............. 4,951,690 4,952 59,478
Deficit for year ended 12/31/95 ....... (1,067)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 ................. 4,951,690 4,952 59,478 (1,067)
Issuance of shares
For services rendered ................. 500,000 500 374,500
Purchase .............................. 742,800 743 3,210
Deficit for year ended 12/31/96 ....... (388,616)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 ................. 6,194,490 6,195 437,188 (389,683)
Issuance of shares
For services rendered ................. 3,687,425 3,687 365,110
Purchase .............................. 129,132
Deficit for year ended 12/31/97 ....... (210,117)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ................. 9,881,915 9,882 931,430 (599,800)
Issuance of shares
For services rendered ................. 3,075,020 3,075 1,890,414
Purchases ............................. 4,528,765 4,529 559,187
Deficit for year ended 12/31/98 ....... (846,084)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ................. 17,485,700 17,486 3,381,031 (1,445,884)
Issuance of shares
For services rendered ................. 107,477 107 69,382
Purchases ............................. 14,631,515 14,631 591,814
Treasury Stock ........................ (3,214,189) (3,214) (1,683,220) 1,683,434
Deficit for year ended 12/31/99 ....... (2,629,174)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ................. 29,010,503 29,010 2,362,007 1,683,434 (4,075,058)
=========== =========== =========== =========== ===========
THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENT
F-4
CYTOGENIX, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
- -----------------------
Year Ended 12/31/99, 12/31/98 and Period 02/10/95 (inception) to 12/31/99
Feb 10, 1995
(Inception) to
12/31/99 12/31/98 12/31/99
---------- ---------- ----------
OPERATING ACTIVITIES:
Deficit from Operations ........................................... (2,629,174) (846,084) (4,075,058)
Adjustments to deficit from operations to net cash:
Depreciation Expense ......................................... 8,644 6,723 19,802
Change in accounting ......................................... 1,755,294
Stock for services ........................................... 1,893,489 2,637,293
Changes in non-cash operating working capital:
Administrative expenses ...................................... (1,395,073)
Prepaid expenses and other assets ............................ (430) (250) (940)
Notes Receivables ............................................ (25,100) (25,100)
Accounts payable ............................................. 35,039 2,823 38,787
Accrued liabilities .......................................... 38,163 (50,173) 44,031
---------- ---------- ----------
Net cash used in operating activities ............................. (817,564) (388,545) (1,361,185)
FINANCING ACTIVITIES
Reduction in shareholder loans .................................... (15,000)
Proceeds from issuance of common shares ........................... 700,933 563,700 1,462,158
---------- ---------- ----------
Net cash provided by financing activities ......................... 700,933 548,700 1,462,158
INVESTING ACTIVITIES
Additions to property, & equipment ................................ (17,673) (19,538) (61,445)
Investments ....................................................... (9,973) 0 (9,973)
---------- ---------- ----------
Net cash used in investing activities ............................. (27,646) (19,538) (71,418)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALIENT ....................... (144,277) 140,617 29,555
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD .......................... 173,832 33,215 0
---------- ---------- ----------
CASH AND CASH EQUIVALANET, END OF PERIOD ............................... 29,555 173,832 29,555
========== ========== ==========
THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-5
CYTOGENIX, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 1.-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
CytoGenix, Inc. was incorporated in Nevada on February 10, 1995. It is a
biotechnology company focusing on controlled cellular dedifferentiation and
transdifferentiation processes. The Company has acquired the exclusive rights
for applications to a specialized expression vector capable of producing single
stranded DNA (ssDNA) in both eukaryotes and prokaryotes.
Historically, equity funding has been the only source of operational and
research support. Capital resources have been carefully husbanded with the bulk
of the cash funding allocated directly to research with administrative overhead
held to a minimum.
CASH AND CASH EQUIVALENT
All short-term highly liquid investments that have an original maturity date of
three months or less are considered cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment, are carried at cost, less accumulated depreciation and
amortization. Depreciation commences at the time assets are placed in service
and is computed using the straight-line method over the estimated useful lives
of the assets (five to seven years).
STOCK-BASED COMPENSATION
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Accordingly,
compensation cost for stock transactions are measured as the excess, if any, of
the market price of the Company's common stock at the date of grant over the
stock option exercise price.
Stock compensation expense for stock granted to non-employees has been
determined in accordance with SFAS 123 and the Emerging Issues Task Force
consensus in Issue No. 96-18, "Accounting for Equity Instruments that are Issued
to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18"), as the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measured.
NET LOSS PER SHARE
Basic loss per share is calculated based on the net loss applicable to common
shareholders divided by the weighted average number of common shares outstanding
for the period excluding any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share, if separately presented,
would assume the conversion of all dilutive securities, such as options,
warrants and convertible preferred stock. Due to the Company's history of
losses, all such securities have been anti-dilutive.
F-6
CYTOGENIX, INC.
(A Development Stage Company)
Notes to the Financial Statements
INCOME TAXES
The Company accounts for income taxes using the liability method under Statement
of Accounting Standards No. 109, "Accounting for Income Taxes."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. As of December 31, 1999 the
Company's most significant estimates related to the calculation of depreciation
expense.
PATENTS.
Patent and patent application costs are expensed as incurred.
REVENUE RECOGNITION
Currently the Company's only source of income has been as a result of dividends.
This income is recognized in the period in which dividends are declared.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalent, and
equity investment. The carrying amount of the company's financial instruments
approximate fair value.
RECLASSIFICATION
Certain prior year items have been reclassified to conform to the current
presentation.
NOTE 2 - LIQUIDITY
Since 1995 the Company has been considered a development stage company and has
not generated any significant revenue. To fund its expenses and development
stage activities the Company has relied on the sale of common stock. As more
fully described in Note 3 below, the Company has been informed by the Securities
and Exchange Commission (the "SEC") of potential violations of securities
registration provisions of the federal and state securities laws which could
subject the Company to fines, penalties or other regulatory enforcement action.
Management does not expect any stock transactions to be discontinued and expects
to continue its sale of common shares to fund its operations for 2000. In
addition, management has also entered into a joint venture (see Note 8) which is
expected to generate revenues to support ongoing operations. However, due to
recurring losses and the uncertainty as to whether the Company will be able to
continue to use capital stock transactions to fund operations there is
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from this
uncertainty.
Notes to the Financial Statements
F-7
CYTOGENIX, INC.
(A Development Stage Company)
NOTE 3 - SALE OF STOCK
In May 1999 management decided to discontinue its attempt to register and sell
common shares under securities Rule 504. Rule 504 offerings have historically
which had previously been the Company's main method of raising investor equity
and to instead offer existing shareholders to exchange with the Company one
share of free trading stock held by the shareholder for two shares of restricted
stock to be issued by the Company. The Company initially proposed to issue a
total of 20,000,000 restricted trading shares in exchange for 10,000,000 free
trading shares. The free trading shares would then be sold in the market by the
Company which would use the funds obtained for general corporate purposes.
Between, May 16, 1999 and August 21, 1999, a total of 424 existing shareholders
agreed to exchange a total of 5,825,761 free trading shares for 11,651,522
restricted shares. These treasury shares were recorded at their fair value.
The Company then in a series of brokerage transactions sold a total of 2,611,572
purportedly free trading shares in the market realized a total of $ 1,367,813 as
a result of such activity. The Company, as of December 31, 1999, retained a
total of 3,214,189 shares as treasury shares of the Company.
The Company has been orally informed that since no Form D relating to the
Exchange offering was filed with the Securities and Exchange Commission these
shares may not be exempt from registration. If it is determined that these
shares do require registration it is possible that shareholders who purchased
the shares described above in market transactions may have the right under state
and federal securities laws to require the Company to repurchase their shares,
for the amount originally paid, plus interest. In addition the Company may be
subject to fines, penalties or other regulatory enforcement action.
The Company disputes the above assertions, however, in the event theses disputed
civil liabilities were successfully asserted, the Company could be liable to
certain shareholders who purchased the securities in market transactions in an
amount of approximately $ 1,367,813, plus interest. This range of possible
exposure is calculated by reference to the average closing price for a share of
the Company's common stock, weighted for reported daily volume, during the
period May 16, 1999 to January 31, 2000; the number of shares possibly sold
during the same period of time; and the closing price of one share on January
31, 2000. The foregoing range could be adjusted higher or lower depending upon
adjustments to any of the referenced items and as any new information become
available to the Company. There can be no assurance that the SEC or applicable
state authorities will not pursue any enforcement action however management
believes that no enforcement action will occur and accordingly no liability was
recorded in the Company's financial statements.
The following represents the results of the completion of the in kind stock
swap:
Number of one year restricted shares issued: 11,651,522 shares
Number of freely transferable shares transferred to treasury: 5,825,761 shares
Number of freely transferable shares sold from treasury: 2,611,572 shares
Number of freely transferable shares remaining in treasury: 3,214,189 shares
The remaining 8,348,478 shares of the 20,000,000 issued to the trustee NATCO
were retired back to authorized and un-issued upon completion of the exchange.
Notes to the Financial Statements
F-8
CYTOGENIX, INC.
(A Development Stage Company)
NOTE 4 - STOCK BASED COMPENSATION
The Company maintains an Employee Stock Purchase Plan (the Purchase Plan"),
under which eligible employees may purchase common shares at par value quarterly
up to 25% of their gross salary computed at the closing price on the last day of
each pay period. Under the Purchase Plan, the Company issued 107,477 shares at a
fair value of $ 69,489 to employees in 1999. The fair value of these shares was
recorded as compensation expense.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1999 and
1998:
1999 1998
------- -------
Research Development-lab equipment ............. 29,108 29,018
Capitalized Indirect costs ..................... 32,337 14,754
------- -------
Total Equipment .............................. 61,445 43,772
------- -------
Accumulated depreciation ....................... (19,802) (11,157)
------- -------
Net Equipment ................................ 41,643 32,614
======= =======
NOTE 6 - RESEARCH AND DEVELOPMENT EXPENSES
The research and the development of the technology that became known as the
ssDNA IEV was invented by an MD, Dr. Charles Conrad, founder of InGene, Inc. and
a practicing neural oncologist. The technology was exclusively licensed and
developed under a sponsored research agreement by the Company.
The financial arrangement for the term of the contract included a monthly
payment of $13,875 to InGene, Inc. and a payment to Dr. Conrad of $3,750. Out of
the payments to InGene, Inc., purchases of the necessary research and
development equipment were made.
As noted in Note 8 and 9, the Company has moved to facilities which includes
laboratory space. Dr. Conrad will remain on the Scientific Advisory Board, but
CytoGenix, Inc. has terminated his and InGene, Inc.'s contracts for research and
development.
The research and development expense categories also reflect the expenses of the
patent attorneys hired to assist the Corporation in the patent filings of the
first ssDNA IEV patent, which is scheduled to be approved in late 1999 and is
scheduled to be issued in the first half of year 2000. Other patent filings
include co-inventions by a Corporation scientist and Dr. Conrad.
As compensation CytoGenix issued Michael Walters of Physical Therapy Associates
("PTA") 500,000 shares at the fair market value of $375,000 for his technical
expertise in traditional nerve damage therapy, and to reserve the option of the
future use of the research.
F-9
CYTOGENIX, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 7-LOANS FROM SHAREHOLDERS
Company's initial expense and capital expenditures were paid by loans made by
the Company's original officers. In addition, several of the officers were not
paid for services rendered, these expenses were accrued at that time, at the
fair value.
During 1998 182,780 shares of common shares, at a fair value of $91,390 were
issued to satisfy these obligations.
NOTE 8 - EQUITY INVESTMENTS
The Company purchases common shares of companies, which could provide either a
strategic alliance or beneficial research or expertise. It is the Company's
policy to use the equity method of accounting for these investments if the
company's common stock ownership in these companies range from 20% to 50 % and
the cost method for any investment less than 20%. The following is a description
of each investment.
On November 3, 1999, CytoGenix, Inc. formed a joint venture with Professional
Compounding Centers of America, Inc (PCCA). Each own a 50% interest in
Pharmagenix, LLC (Pharmagenix). This joint venture will apply part of the
nucleic acid technology (synthesized DNA & RNA sequences) to the developing
non-prescription products for distribution through the 2,500 member compounding
pharmacies that are affiliated with PCCA. The company recorded the initial
contribution of $10,000 with an adjustment for the 1999 loss of $27.
The following table summarizes the company's equity investments as of December
31, 1999
Pharmagenix
-----------
Common share ownership % .................................... 50%
Revenue ................................................... 0
Net Income (loss) ......................................... (27)
Assets ...................................................... 9,973
Liabilities ................................................. 0
Equity ...................................................... 9,973
Investment as of 12/31/98 ................................... 10,000
Equity Earnings (loss) .................................... (27)
Additional Investments
Loan to Quantum Bit
Investment as of 12/31/99 ................................... 9,973
NOTE 9 - FACILITIES LEASE
The Company has executed noncancelable operating leases for a vehicle, office
and laboratory space that expire in 2002. In 1998 the Company executed an
operating lease for office space that expires in November 1999. Rent expense
amounted to $14,873 and $6,740 for the years ended December 31, 1999 and 1998,
respectively. Future minimum annual rental payments under the current lease
approximate the following for the years ended December 31:
2000.........................................30,189
Notes to the Financial Statements
2001.........................................29,710
2002.........................................22,506
------
82,400
======
F-10
CYTOGENIX, INC.
(A Development Stage Company)
NOTE 10 - NET LOSS PER SHARE
Basic and diluted loss per share is calculated using the average number of
common shares outstanding.
1999 1998
----------- -----------
Income before Income Taxes and Cumulative
effect of change in Accounting Method ............. (873,880) (846,084)
Income Taxes ........................................ 0 0
----------- -----------
Income before Cumulative effect of change
in Accounting Method .............................. (873,880) (846,084)
Cumulative effect of change in accounting
method reporting on costs of start-up
activities (net of income taxes of -0-) ........... (1,755,294) 0
----------- -----------
Net Income (Loss) ................................... (2,629,174) (846,084)
=========== ===========
Basic and Diluted earnings per share of common stock:
Before cumulative effect of accounting change ....... (0.04) (0.06)
Accounting change ................................... (0.07) 0.00
----------- -----------
Net Income .......................................... (0.11) (0.06)
----------- -----------
Average common shares outstanding ................... 23,248,101 14,096,795
=========== ===========
As of December 31, 1999 & 1998, warrants were not included in the calculation of
net loss per share as they are anti-dilutive.
NOTE 11 - INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
As of December 31, 1999, the Company had net operating tax loss carryforwards of
approximately $575,242. The carryforwards begin to expire in the year 2010.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes, a valuation allowance has been recognized to Notes to the Financial
Statements offset the deferred tax assets related to these carryforwards, as it
is more likely than not that these assets will not be realized.
F-11
CYTOGENIX, INC.
(A Development Stage Company)
The following table sets forth a reconciliation of the statutory federal income
tax with the income tax provision.
INCEPTION
YEAR ENDED YEAR ENDED THRU
12/31/99 12/31/98 12/31/99
---------- ---------- ----------
Loss before income tax ....................... (873,880) (846,084) (2,319,764)
Income tax benefit computed at statutory rates (305,858) (296,129) (811,917)
Change in valuation allowance ................ 340,824 0 591,017
Other ........................................ 838,914 1,142,213 2,540,664
---------- ---------- ----------
Tax expense .................................. 0 (0) (0)
========== ========== ==========
Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:
1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryforwards ........... 575,242 240,222
Depreciation in financial
statements in excess of tax ................ 15,775 9,971
-------- --------
Gross deferred tax assets .................... 591,017 250,193
Less valuation allowance ..................... (591,017) (250,193)
-------- --------
Net deferred tax ............................. 0 0
======== ========
NOTE 12 - CHANGE IN ACCOUNTING PRINCIPLE
In 1998 SOP 98-5, "Reporting on the Costs of Start-up Activities," requires
entities to expense the costs of start-up activities, including organizational
costs, as incurred. The SOP is effective for fiscal years beginning after
December 15, 1998. Accordingly as of January 1, 1999 $1,755,294 of start up
costs previously capitalized were expensed as a one time cumulative effect
change in accounting principle. There was no impact on income tax expense as a
result of this transaction. On a pro forma basis this change would have
increased 1998 total expenses Notes to the Financial Statements by $1,395,073
(with no effect on taxes) or $0.07 per share and from inception to date total
expenses would have been increased by $1,755,294 or $0.06 per share.
F-12
CYTOGENIX, INC.
(A Development Stage Company)
NOTE 13 - WARRANTS SOLD
During 1999 the Company sold 250,000 warrants for $ 25,000 to purchase common
shares at $.10 per share in the event that the market price for common shares
exceeded $0.90 per share. Subsequent to year-end these warrants were exercised.
NOTE 14 - NOTE RECEIVABLE
During 1999, the company needing an infusion of funds for its research projects,
CytoGenix loaned without interest $25,100 to Quantum Bit Induction Technology.
Repayment of loan occurred in early 2000.
NOTE 15 - LITIGATION
The Company has been subject to routine litigation matters which have not been
material during the years. Resolution of these matters has been immaterial.
F-13
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ LAWRENCE WUNDERLICH
Lawrence Wunderlich, Chief Financial Officer
(Registrant)
Date 04-18-00 By______________________________________________
(Signature)*
*Print the name and title of each signing officer under his or her signature.