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, 2009
[]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 76-0484097
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3100 Wilcrest, Suite140, Houston, Texas 77042
--------------------------------------- -----
(Address of principal executive offices) (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 Accelerated Non-accelerated Smaller reporting
filer [ ] filer [ ] filer [ ] company [X]
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 14, 2009 was 169,404,590.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1.
Financial Statements
Balance Sheets as of March 31, 2009 (Unaudited) and
December 31, 2008 3
Statements of Operations for the three months ended
March 31, 2009 and 2008 (Unaudited) 4
Statements of Cash Flows for the three months ended
March 31, 2009 and 2008(Unaudited) 5
Notes to Financial Statements (Unaudited) 6
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk 11
ITEM 4.
Controls and Procedures 12
PART II OTHER INFORMATION
ITEM 1.
Legal Proceedings 12
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds 13
ITEM 6.
Exhibits 14
SIGNATURES
15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CYTOGENIX, INC.
BALANCE SHEETS
March 31, December 31,
2009 2008
(Unaudited) (Audited)
------------ ------------
ASSETS
Current Assets:
Cash $ 82,927 $ 5,475
Inventory 189,999 189,999
Receivables and other current assets 1,655 4,103
------------ ------------
Total Current Assets 274,581 199,577
Property and equipment, net 160,802 175,806
Deposits 6,399 6,399
------------ ------------
Total Assets $ 441,782 $ 381,782
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 858,819 $ 852,932
Advances from shareholders 105,763 104,813
Accrued expenses 2,517,127 2,425,771
------------ ------------
Total Current Liabilities 3,481,709 3,383,516
------------ ------------
Total Liabilities 3,481,709 3,383,516
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value; 50,000,000 share
authorized,
no shares issued and outstanding 0 0
Common stock, $.001 par value; 300,000,000 share authorized,
167,071,257 and 156,071,257 share issued and
outstanding as of March 31, 2009 and
December 31, 2008, respectively 167,071 156,071
Additional paid-in capital 38,740,830 38,586,830
Treasury stock (629,972) (629,972)
Accumulated deficit (41,317,856) (41,114,663)
------------ ------------
Total Stockholders' Equity (Deficit) (3,039,927) (3,001,734)
------------ ------------
Total Liabilities and Stockholders' Equity $ 441,782 $ 381,782
(Deficit) ============ ============
The accompanying notes are an integral part of these financial statements.
3
CYTOGENIX, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDING MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
----------- -----------
REVENUES $ 0 $ 13,160
COSTS OF REVENUES 0 10,354
----------- -----------
GROSS MARGIN 0 2,806
COSTS AND EXPENSES:
Research and development 2,462 247,419
General and administrative 185,450 554,565
Consulting expense 277 52,009
Depreciation and amortization 15,004 15,860
----------- -----------
TOTAL COST AND EXPENSES 203,193 869,853
----------- -----------
LOSS FROM OPERATIONS (203,193) (867,047)
OTHER INCOME (EXPENSE):
Interest income 0 517
Interest expense 0 (16,725)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 0 (16,208)
----------- -----------
NET LOSS $(203,193) $(883,255)
=========== ===========
Net loss per share:
Basic and diluted net loss $ (0.01) $ (0.01)
per share
----------- -----------
Weighted average shares outstanding:
Basic and diluted 161,515,701 146,594,885
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
CYTOGENIX, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
--------- ---------
Net Loss $(203,193) $(883,255)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deprecation and amortization 15,004 15,860
Stock-based compensation 0 200,547
Changes in assets and liabilities:
Accounts receivable 0 16,000
Inventory 0 10,142
Prepaid expenses 2,448 9,338
Accounts payable 5,887 182,858
Accrued expenses 91,356 267,239
--------- ---------
Net cash used in operating activities (88,498) (181,271)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from restricted long term investment 0 53,402
Deposit on building contract 0 (300,000)
Purchase of property and equipment 0 0
--------- ---------
Net cash provided by (used in) investing activities 0 (246,598)
FINANCING ACTIVITIES:
Payment on notes payable 0 (45,014)
Proceeds from notes payable - related party 950 300,000
Proceeds from stock subscriptions 165,000 151,000
--------- ---------
Net cash provided by financing activities 165,950 405,986
--------- ---------
NET CHANGE IN CASH 77,452 (21,883)
CASH, beginning of period 5,475 162,042
--------- ---------
CASH, end of period $ 82,927 $ 140,159
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 0 $ 1,339
--------- ---------
Income taxes paid $ 0 $ 0
--------- ---------
The accompanying notes are an integral part of these financial statements.
5
CYTOGENIX, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009
(UNAUDITED)
NOTE 1 - NATURE OF ACTIVITIES AND BASIS OF PRESENTATION
Nature of Business
CytoGenix, Inc. ("CytoGenix" or the "Company") was incorporated on February 10,
1995 in Nevada. CytoGenix is a biotechnology company focusing on controlled
cellular processes. CytoGenix has acquired the rights for application to a
specialized expression vector capable of producing single stranded DNA (ssDNA)
in both eukaryotes and prokaryotes.
Unaudited Interim Financial Statements:
The accompanying unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and applicable Securities and Exchange Commission ("SEC") regulations for
interim financial information. These financial statements are unaudited and, in
the opinion of management, include all adjustments (consisting of normal
recurring accruals) necessary to present fairly the balance sheets, statements
of operations and statements of cash flows for the periods presented in
accordance with accounting principles generally accepted in the United States.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to SEC rules and
regulations. It is presumed that users of this interim financial information
have read or have access to the audited financial statements and footnote
disclosure for the preceding fiscal year contained in the Company's Annual
Report on Form 10-K. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Frank Vazquez and Lawrence Wunderlich v. CytoGenix, Inc.
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.
On June 30, 2008, CytoGenix, Inc. (the "Company"), Lawrence Wunderlich and Frank
Vazquez entered into a Settlement Agreement and Mutual Release (the "Settlement
Agreement") regarding arbitration No. 70 144 08333 06, styled Frank Vazquez and
Lawrence Wunderlich v. CytoGenix, Inc., before the American Arbitration
Association in Houston, Texas, (the "Arbitration"). Pursuant to the Settlement
Agreement, all claims of Messrs. Vazquez and Wunderlich against the Company, and
all claims of the Company against each of Messrs. Vazquez and Wunderlich have
been released, acquitted and forever discharged. The Settlement Agreement
obligates the Company to issue to (i) Mr. Wunderlich warrants to acquire, on or
before June 30, 2011, 1,066,666 shares, 1,066,667 shares and 1,066,667 shares of
the Company's common stock at exercise prices of $0.05, $0.10 and $0.15,
respectively, and (ii) Mr. Vazquez warrants to acquire, on or before June 30,
2011, 666,666 shares, 666,667 shares and 666,667 shares of the Company's common
stock at exercise prices of $0.05, $0.10 and $0.15, respectively. Under the
Settlement Agreement the Company is also obligated to pay $150,000 each to
Messres. Vazquez and Wunderlich in equal monthly installments ($3,125 per month
to each) over a four-year period commencing October 1, 2008. The Company has
negotiated with Messres. Vazquez and Wunderlich to defer the commencement of the
monthly payments set forth in the settlement agreement from October 1, 2008 to
April 1, 2009. As of the date of this filing, the Company has not made any
payments to Vazquez and Wunderlich and they have given the Company a default
letter and requested the Judge to execute the Agreed Default Judgment in the
Settlement Agreement.
6
NOTE 4 - STOCK-BASED COMPENSATION
Employee Stock-Based Compensation
At March 31, 2009 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.
No compensation expense was recorded for the three months ended March 31, 2009.
A summary for our stock-based compensation activity for the three months ended
March 31, 2009 is presented below:
Average Aggregated
Average Life Fair
Options Price (1) (years)(2) Value
- -----------------------------------------------------------------------------------------------------
Outstanding at December 31, 2008 9,312,500 $ 0.34 7.56 $ 3,137,313
- -----------------------------------------------------------------------------------------------------
Granted -- -- -- --
Exercised -- -- -- --
Forfeited/expired (5,656,250) 0.37 -- (2,096,688)
- -----------------------------------------------------------------------------------------------------
Outstanding at March 31, 2009 3,656,250 $ 0.29 7.53 $ 1,070,625
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Exercisable at March 31, 2009 3,656,250 $ 0.29 7.53 $ 1,070,625
- -----------------------------------------------------------------------------------------------------
(1) Weighted-average exercise price
(2) Weighted-average contractual life remaining
NOTE 6 - COMMON STOCK
In the first quarter of 2009, the Company received $165,000 and for 11,000,000
shares at a price of $0.015per share as part of its February 14, 2009 private
placement.
NOTE 8 - SUBSEQUENT EVENTS
Subsequent to March 31, 2009, the Company received $35,000 in proceeds from a
private placement offering of 2,333,333 shares of restricted common stock.
On April 24, 2009, the Company executed a Settlement Agreement, Indemnification
and Mutual Release with Malcolm Skolnick, the Company's former Chairman of the
Board, President and Chief Executive Officer for the sum of $10.00 and the
intent to negotiate a consulting agreement. Under the terms of the Agreement all
parties to the Agreement agreed to dismiss any and all actual and potential
claims that have been raised or which could have been raised at the time of the
execution of the Agreement.
7
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.
8
Company Overview
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(TM)) 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(TM) 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(TM) to conventional, bacteria-grown plasmids have demonstrated synDNA(TM)
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. If the Company is
able to raise sufficient operating capital, it plans to pursue cooperative
agreements with the federal government especially in the bio-terror and pandemic
threat areas.
The Company is subject to risks common to biopharmaceutical companies, including
risks inherent in its research and development efforts and clinical trials,
reliance on collaborative partners, 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.
Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008.
For the three months ended March 31, 2009, we reported a net loss of $
203,193, or less than one cent per share, and revenue of $0 as compared with a
net loss of $883,255, or less than one cent per share, and revenues of $13,160
the three months ended March 31, 2008. Revenue for the three months ended March
31, 2008 resulted from the sale of synDNA.
9
Research and Development Expenses. Research and development expenses
decreased to $2,462 for the first quarter of 2009 as compared to $247,419 during
the same period in 2008 due to the Company not having any scientist working or
carrying on any significant R&D during the three months ended March 31, 2009.
General and Administrative Expenses. General and administrative
expenses decreased to $185,450 for the first quarter of 2009 compared to
$554,565 for the same period in 2008 primarily due to the decrease of $193,581
in management staff, a decrease of $87,883 in legal fees for patents and the
lawsuit by former employees to a minimal amount for the three months ended March
31, 2009, a decrease of $41,310 in accounting fees and a decrease of $30,000 in
marketing expense.
Consulting Expenses. Consulting expenses decreased to $277 for the
first quarter of 2009 compared to $52,009 for the same period in 2008. This
decrease was due to the Company not contracting with any consultants during the
three months ended March 31, 2009.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses decreased to $15,004 for the first quarter of 2009 compared to $15,860
for the same period in 2008 due primarily to certain items of equipment reaching
their full depreciation cycle.
Interest Expense. Interest expense decreased to $0 for the first
quarter of 2009 compared to $16,725 for the same period in 2008, which was
related to a loan from a related party existing in 2008.
Liquidity and Capital Resources
Our working capital deficit increased by $23,189 to ($3,207,128) at March 31,
2009 compared to ($3,183,939) at December 31, 2008. This deficit is primarily
due to lack of revenues while we are continuing to incur ordinary general and
administrative and research and development and operating expenses.
Our cash flows from operations were negative during the three months ended March
31, 2009 and 2008, respectively, due to our lack of revenues and the
continuation of general and administrative and research and development and
operating costs. Our primary funding source during the three months ended March
31, 2009 came from $165,000 in stock subscriptions as financing activities.
We consumed $88,498 in cash from operating activities for the three months ended
March 31, 2009 compared with $181,271 for the three months ended March 31, 2008.
The decrease is attributable to the Company's reduced operating level during the
three months ended March 31, 2009.
We had a net loss of $203,193 and $883,255 $0.01 and $0.01 per share for the
three months ended March 31, 2009 and 2008, respectively.
Our financial statements are prepared using principles applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, we do not have
significant cash or other material liquid assets, nor do we have an established
source of revenue sufficient to cover our operating costs and to allow us to
continue as a going concern. We may, in the future, experience significant
fluctuations in our results of operations. If we are required to obtain
additional debt and equity financing or our illiquidity could suppress the value
and price of our shares if and when trading in those shares develops. However,
our future offerings of securities may not be undertaken, and if undertaken, may
not be successful or the proceeds derived from these offerings may be less than
anticipated and/or may be insufficient to fund operations and meet the needs of
our business plan. Our current working capital is not sufficient to cover
expected cash requirements for 2009 or to bring us to a positive cash flow
position. If we do not raise sufficient capital to execute our business plan, it
is possible that we will not be able to continue as a going concern.
10
The Company is currently operating at a loss and will continue to require equity
and/or debt financing until it develops revenue from product sales or licensing.
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 three to five 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.
We are attempting to raise additional capital through bridge loans and sales of
common stock either through private placements or public offerings, as well as
seeking other sources of funding. There are no assurances that the Company will
be able to achieve a level of revenues adequate to generate sufficient cash flow
from operations or obtain the additional financing through private placements or
public offerings to support the investment in the Company's technologies. It is
possible that additional equity financing will be highly dilutive to existing
shareholders. If these funds are not available the Company may not continue its
operations or execute its business plan.
Intellectual Property Matters:
As of March 31, 2009, CytoGenix holds approximately 15 granted patents (2 US; 13
foreign) covering our original ssDNA expression vector and anti-herpes
platforms, with 27 additional pending patent applications covering these as well
as our synDNA and avian flu vaccine platforms.
With sufficient funding the Company's budget would be expected to be in the
$4,600,000 range for operations in fiscal year 2009, of which approximately
$1,500,000 would be 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, 2009, $82,927 of cash on hand for fiscal year 2009. Of
the $3,100,000 budgeted for research and development expenses, the Company would
anticipate utilizing $2,300,000 for pre-clinical development.
The Company's ability to continue operations through December 31, 2009 depends
on its success in obtaining equity financing in an amount sufficient to support
at least its basic 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, 2009. It is
possible that additional equity financing will be highly dilutive to existing
shareholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Item 3 is not required for a smaller reporting company.
11
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, 2009. 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, 2009 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
Four former employees of the Company filed compliant with the Texas Workforce
Commission in 2008 for a total of approximately $175,000 for wages claimed as
unpaid by the Company.
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.
On June 30, 2008, CytoGenix, Inc. (the "Company"), Lawrence Wunderlich and Frank
Vazquez entered into a Settlement Agreement and Mutual Release (the "Settlement
Agreement") regarding arbitration No. 70 144 08333 06, styled Frank Vazquez and
Lawrence Wunderlich v. CytoGenix, Inc., before the American Arbitration
Association in Houston, Texas, (the "Arbitration"). Pursuant to the Settlement
Agreement, all claims of Messrs. Vazquez and Wunderlich against the Company, and
all claims of the Company against each of Messrs. Vazquez and Wunderlich have
been released, acquitted and forever discharged. The Settlement Agreement
obligates the Company to issue to (i) Mr. Wunderlich warrants to acquire, on or
before June 30, 2011, 1,066,666 shares, 1,066,667 shares and 1,066,667 shares of
the Company's common stock at exercise prices of $0.05, $0.10 and $0.15,
respectively, and (ii) Mr. Vazquez warrants to acquire, on or before June 30,
2011, 666,666 shares, 666,667 shares and 666,667 shares of the Company's common
12
stock at exercise prices of $0.05, $0.10 and $0.15, respectively. Under the
Settlement Agreement the Company is also obligated to pay $150,000 each to
Messres. Vazquez and Wunderlich in equal monthly installments ($3,125 per month
to each) over a four-year period commencing October 1, 2008. The Company has
negotiated with Messres. Vazquez and Wunderlich to defer the commencement of the
monthly payments set forth in the settlement agreement from October 1, 2008 to
April 1, 2009. As of the date of this filing, the Company has not made any
payments to Vazquez and Wunderlich and they have given the Company a default
letter and requested the Judge to execute the Agreed Default Judgment in the
Settlement Agreement.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In February and March 2009, the Company received $165,000 for 11,000,000 shares
of restricted common stock from a private placement offering begun in February
2009 at a share price of $0.015 per share. 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* 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)
10.1* Loan Agreement dated January 7, 2008 between CytoGenix,
Inc., and KV Mechanical Construction and Restoration Co.,
Inc.
10.2* 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
32.1 Certification by Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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* Included in previous filings.
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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 20, 2009 By: /s/ Lex Cowsert
----------------
Lex Cowsert, PH.D.
President and Chief
Executive Officer
15