UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM
10-K



|X|
ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934



FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2007



|_|
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934



FOR THE
TRANSITION PERIOD FROM TO



COMMISSION FILE NUMBER: 000-26807



CYTOGENIX, INC.

(Exact
name of registrant as specified in its charter)

Nevada
                                                                               
76-0484097

(State
or other jurisdiction of incorporation)
                     
(I.R.S. Employer Identification or organization No.)



3100 WILCREST, SUITE 140, HOUSTON,
TEXAS              77042



Issuers
telephone number, including area code: 713-789-0070



Securities registered under Section 12 (b) of the Exchange Act:
NONE



Securities registered under Section 12 (g) of the Exchange Act:

COMMON
STOCK WITH $.001 PAR VALUE

(Title
of Class)



Indicate by check mark if the Registrant is a well known seasoned
issuer as defined in Rule 405 of the securities Act.  Yes |_| No |X|
Indicate by check mark if Registrant is not required to file reports pursuant to
Section 13 or Section 15 (d) of the Act.  Yes |_| No |X|



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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  |X|





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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.



Large accelerated filer |_|

Accelerated Filer |X|

Non-accelerated filer ||  Smaller reporting
company [  ]



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



The
aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2007 (the last business day of the Registrants most
recently completed second fiscal quarter) was approximately $56,265,584.
 The number of outstanding shares of the Registrants Common Stock as of
the close of business on March 17, 2008was
146,660,968.



DOCUMENTS INCORPORATED BY REFERENCE



Selected portions of the definitive Proxy Statement of CytoGenix,
Inc., which will be filed with the Securities and Exchange Commission within 120
days after December 31, 2007, are incorporated by reference in Part III of this
form 10-K.



























































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CYTOGENIX, INC.

FORM
10-K INDEX



PART
  I





**Page**

Item
1.

Description
of Business
....................................................................................................................
    5



Item
1A.

Risk
Factors
.......................................................................................................
   18



Item
1B.

Unresolved
Staff Comments
.......................................................................................................
   25



Item
2.

Description
of Property
......................................................................................................
   25



Item
3.

Legal
Proceedings
..........................................................................................................
   25



Item
4.

Submission
of Matters to a Vote of Security Holders
..........................................................................................................
   26



PART
II



Item
5.

Market
for Common Equity and Related Stockholder Matters
........................................................................................................
  27



Item
6.

Selected
Financial Data
.....................................................................................................
  29



Item
7.

Managements
Discussion and Analysis of Financial Conditions and

Results
of Operations
.....................................................................................................
 29



Item
7A.

Quantitative
and Qualitative Disclosures about Market Risk
...........................................................................................................
  37



Item
8.

Financial
Statements
......................................................................................................
  37



Item
9.

Changes
in and Disagreements with Accountants on Accounting and

Financial
Disclosure
......................................................................................................   60



Item
9A.

Controls
and Procedures
.......................................................................................................  60



Item
9B.

Other
Information
......................................................................................................  60



PART
III



Item
10.

Directors
and Executive Officers of the Registrant
..........................................................................................................  61



Item
11.

Executive
Compensation
.......................................................................................................
 63



Item
12.

Security
Ownership of Certain Beneficial Owners and Management

And
Related Stockholder Matters
.....................................................................................................
 64



Item
13.

Certain
Relationships and Related Transactions
.........................................................................................................
 64





3



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Item
14.

Principal
Accountant Fees and Services
........................................................................................................
 64





PART
IV



Item
15.

Exhibits,
Financial Statement Schedules and Reports on Form
8-K........................................................................................................
 64



Signatures
....................................................................................................
 66





















































































4



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PART I





ITEM
1.

DESCRIPTION
OF BUSINESS



GENERAL OVERVIEW



CytoGenix, Inc. (CytoGenix or the Company) is a
biopharmaceutical company whose primary focus is the development and
commercialization of its proprietary technologies for identifying and silencing
disease causing genes, expressing proteins for applications such as vaccines and
isolating novel nucleic acid-based anti-microbial compounds. The Companys three
technologies include: i) gene silencing techniques (ssDNA) applicable to genes
from pathogenic organisms or selected genes from a patient to prevent the
expression of harmful proteins, thereby preventing or ameliorating disease; ii)
a novel, cell free process to produce large quantities of DNA (synDNA) for use
in its own products and for sale to other biopharmaceutical or life science
companies; and iii) a methodology to isolate and characterize novel DNA-based
drugs (Oligogenix) to which harmful bacteria have not developed immunity. The
Company seeks to generate revenues and improve the health and well-being of
humans, animals and plants by utilizing its technology to produce molecular
therapies.  In addition to development and commercialization of therapeutic
compounds, the Company seeks to provide the service of custom DNA manufacturing
as well as to sell and/or license its technology to other research facilities
and companies seeking to research or regulate a specific gene function and to
consumers of plasmid DNA.



The
Company was formed in 1995 as a biomedical research and development company.
 The original name of the Company was Cryogenic Solutions, Inc., until the
Company changed its name to CytoGenix, Inc. in January 2000.  Equity
funding has been the primary source of operational, research and
commercialization working capital since the Companys inception.  The
Company made a transition to research and development of its present
technologies in 1998.  Since then, the Company has dedicated itself to
engineering DNA-based molecules for therapeutic and drug target identification
purposes.  The Companys expertise in nucleic acid technology enables it to
focus on the development of new types of nucleic acid-based therapeutics.



GENE
EXPRESSION AND HUMAN DISEASE



Widely
published scientific studies conducted over the last 20 years by leading
universities, government research laboratories such as the National Institutes
of Health and the National Cancer Institute, and private research laboratories,
have established that most diseases are the result of malfunctioning genes in an
organisms genome, or the activities of genes expressed by pathogens such as
viruses, bacteria or fungi.  This genetic activity causes the production of
harmful proteins that lead to the symptoms and destructive results of diseases.
 Examples of diseases caused by the production of such harmful proteins
include cancer, herpes, sepsis (blood poisoning) and a host of others.  To
produce a protein, a cell first makes a positive copy (messenger RNA) of the DNA
code containing the information necessary to produce the protein.  This
messenger RNA (mRNA) is called the sense molecule.  This message-carrying
molecule then moves to



5



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another part of the cell where it participates in the assembly of
the biochemical components to produce proteins.



In many
instances it is possible to inhibit the production of these harmful proteins by
introducing or producing small molecules of specific genetic material into the
cells themselves.  This genetic activity can be interrupted and controlled
at three levels with the introduction of multiple copies of a specific sequence
of single stranded DNA (ssDNA) into the cells at the level of the genomic DNA
itself, interfering with the transcription of  the messenger RNA (mRNA)
or by directly binding to a protein to disable it.



CYTOGENIX GENE SILENCING TECHNOLOGY



CytoGenix owns patented intracellular expression system technology
to produce desired sequence-specific, ssDNA molecules in individual cells for
the purpose of triplex, antisense, catalytic DNA, and aptamer applications.



1.

Triplex: As mRNA is transcribed and the DNA strands are still
separated, a single strand of complementary DNA is inserted into the gap forming
a triple helix (triplex) structure, thus preventing the future production of
mRNA from that segment.



2.

Antisense: Messenger RNA is intercepted en route by a
complementary ssDNA sequence that it binds to and results in the destruction of
the mRNA by enzymes within the cell, thus preventing the mRNA from producing the
undesired protein.



3.

Catalytic DNA:  Similar to antisense, an ssDNA sequence
containing sequence regions binds to the mRNA, but also contains a unique
sequence region that acts to cut and destroy the mRNA, thus preventing it from
producing the undesired protein.



4.

Aptamer:  The ssDNA binds to the protein itself in the cell
and causes the undesired protein to become inactivated or dysfunctional.



The key
to success with these genetic interventions is to insure that sufficient
quantities of the ssDNA molecules ultimately are produced in targeted cells or
induced from external sources.  CytoGenix has invented a compound that
functions as a tiny biological factory and after its introduction into the
cell, actually produces many copies of specific ssDNA molecules in the cell.
 A major element of CytoGenixs business is to refine this technology and
apply it to the delivery of various patented DNA molecules for the development
of effective therapeutic drugs.



DEVELOPMENTS TO DATE (RESEARCH AND DEVELOPMENT)



The
ssDNA expression vector technology originated with the work of Dr. Charles
Conrad, which he developed while at InGene, Inc.  The original expression
cassette technology is protected by issued United States Patent No. 6,054,299
entitled, Methods and Compositions for Producing Single-stranded cloned DNA in
eukaryotic cells.  In



6



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1999, CytoGenix purchased the rights to Dr. Conrads patent as
well as other proprietary information from InGene, and has since instituted a
broad research and development program to advance single stranded DNA expression
technology.  Applications to protect

subsequent improvements and therapeutic applications of this
technology have since been filed to expand the protection of this technology in
both the US and foreign markets.  As of December 31, 2007 CytoGenix holds a
patent portfolio of approximately 13 granted and 2 allowances with approximately
55 additional foreign or US pending patent applications claiming methods and
materials in connection with our platform technologies.  This assertive
approach for protection of the Companys technology has enabled CytoGenix to
expand and refine the development of therapeutics for human, animal and
agricultural use. The Company currently holds thirteen granted patents covering
the early ssDNA expression technology in US and foreign markets, and one US and
one foreign allowance for our Herpes therapeutic.



These
patents are important to the Company because they help form the basis of the
technology needed for the production of the Companys complementary technology
and other products.  The technology has been proven in numerous laboratory
and animal experiments and has been widely published as set forth below.
 It has been reported in scientific literature, such as in Reuters Business
Insight 2000 publication, Antisense Therapy: Technical Aspects and Commercial
Opportunities by Prof. Dr. K.K. Jain, M.D. that other molecule delivery methods
have failed to provide sufficient quantities to be therapeutically effective
except in limited applications.  Laboratory cell culture studies have
demonstrated that the Companys ssDNA expression vector can adequately deliver
sequence specific DNA molecules in sufficient quantities in virtually all cell
types, thereby overcoming many of the challenges previously experienced.
 As described under CytoGenix Gene Silencing Technology above, the
Companys technology is not limited to only antisense applications, but can
target and enzymatically cleave target mRNA using DNA enzyme formulations. As
described above, the technology can also be used to (i) generate triplex forming
oligonucleotides that bind to specific sites in the genome itself to inhibit
expression by the gene at that site, (ii) generate ssDNA that bind to specific,
targeted proteins to neutralize them and (iii) competitively inhibit genetic
expression/transcription of targeted genes.  The Company has successfully
extended the results achieved in cell cultures to cells in live animals.



The
genomics field has vastly expanded the number of potential drug targets.
 The Company has utilized its ssDNA expression technology to develop a
library screening technique for gene target identification and validation.
 The CytoGenix proprietary gene neutralization system is a powerful tool in
confirming gene target function.  The screening library technique enables
efficient testing of multiple oligonucleotide sequences.  When a sequence
silences a targeted gene, the construct for introducing the identified sequence
in cellular and animal experiments is readily produced.  Use of the
screening library has led to the discovery of sequences that have been useful in
several of the Companys products under development.



The
Company has developed a novel screening library technique to identify
oligonucleotides with specific activity against bacteria in a given culture.
 This technology platform is called Oligogenix and has been used to
produce compounds with activity against bacteria using mimetic oligonucleotides
as sequences to silence targeted bacterial genes.  Targeted genes include
those necessary for the bacterias



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survival, reproduction and/or for the expression of various
toxins.  Animal studies using these compounds have demonstrated cytotoxic
activity against bacterial species including echerichia coli, methicillin
resistant and vancomycin resistant Staphylococcus aureus.



The
Company has also developed a novel cell-free large scale DNA synthesis technique
(synDNA) for producing therapeutic DNA which bypasses the bacteria-based
fermentation process.  The cell-free synthesis of DNA has various
advantages:  CytoGenixs DNA is virtually free of bacterial endotoxins, as
well as bacterial DNA, RNA and proteins which must be removed from DNA
manufactured using traditional fermentation process using live bacteria.
CytoGenixs process does not require the use of antibiotic markers and does not
require genetic sequences comprising the usual backbone of plasmid DNA.
 Elimination of the plasmid backbone enables production of DNA constructs
that are approximately 3 kilobase pairs smaller than the equivalent plasmid DNA.
 More importantly, the synDNA technology can produce therapeutic DNAs
more rapidly and with fewer complications than in the traditional fermentation
methods.



Using
its expanding technological base, the Company is seeking to develop drugs that
address significant and unmet medical needs.  The Company is conducting
research and/or preclinical development with product candidates in the following
areas: infectious disease (anti-virals and anti-bacterials), inflammation,
cancer and vaccines.



PRODUCTS UNDER DEVELOPMENT:



INFECTIOUS DISEASE PROGRAM



ANTI-VIRAL:  Our herpes therapeutic, SIMPLIVIR, is an
anti-herpes topical compound which will potentially address the needs of 70
million infected Americans.  Todays marginally effective products have
revenues in excess of $1 billion.  The most likely methods of use include
prophylactic and neonatal applications.  The Companys proprietary plasmid
DNA sequences are believed to turn-off the expression of the HSV ICP4 and ICP47
genes.  Found in HSV-1, -2, Herpes Zoster, and other viruses in that
family, the ICP4 gene is critical for the replication of the virus in the host
cell.  The ICP47 gene produces a protein that assists the virus in
interfering with a hosts immune system in recognizing the virus and eliminating
it.  Pre-clinical, in vitro studies have shown a 100-fold reduction in HSV
viral load in test cells containing the Companys proprietary plasmid DNA coded
with an ICP4 knockdown sequence.  Mouse trials have been conducted and
additional studies with cotton rats are planned.  Pre-clinical toxicology,
absorption, distribution, metabolism and excretion (ADME) studies are being
designed and will enable the filing of an Investigational New Drug (IND)
application with the Food & Drug Administration (FDA) in the near
future.



ANTI-MICROBIALS:  Using its proprietary technique
(Oligogenix), the Company has developed and tested compounds against
methicillin and vancomycin resistant Staphylococcus aureaus (MRSA and VRSA).
 Additional studies to determine dosages and minimum inhibitory
concentrations are planned.  These anti-bacterial compounds also require
ADME studies.



DNA
VACCINES: Using the synDNA process, the Company is developing DNA vaccines for
use in humans and animals.



8



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HUMAN VACCINES:

DNA vaccines against both seasonal influenza as well as the highly
pathogenic and potentially pandemic humanized avian influenza virus (H5N1) are
being developed and tested in choice animal models (mice and ferrets). Together
with ADME and toxicology studies, additional pre-clinical studies have been
planned in order to analyze the immune response triggered as well as optimize
the immunization regimen.



ANIMAL VACCINES:

Poultry: Utilizing the knowledge and experience gathered from the
development of DNA vaccines against human influenza, studies on developing
vaccines for use in poultry against avian flu are under development. Potential
collaborators in both academic and industry settings are being approached.

Aquaculture: In other extramural collaborations, the Company is
developing DNA vaccines for use in fish. Focus has been given to fish species of
high economic impact such grouper, salmon and Cobia. The Company has identified
target viral diseases and it is determining the optimal course of action to
generate and test various DNA constructs.

Cattle: Finally, in collaboration with the United States
Department of Agriculture, the Company is engaged in a project to develop a
synDNA based vaccine against brucellosis, a zoonotic disease which is easily
transmitted from animals to humans and is consequently of global importance.
Tests using various DNA vaccines developed by the Company as well as various
combinatory formulas have been completed in a laboratory animal model. Ongoing
analysis of the data gathered should provide information as to the next course
of action to be taken.





CANCER
PROGRAM



The
Company has sponsored research with scientists at Albert Einstein College of
Medicine/Montefiore Medical Center for preclinical experiments using the
Companys ssDNA expression vector technology to silence a gene that has been
shown to cause malignant transformation of tumor cells.



synDNA
PROCESS



As
briefly noted above, the Company has developed a novel method for producing
large amounts of high quality therapeutic DNA (synDNA) with reductions in
residual contaminants compared to traditional fermentation methods.
 Specifically, the Company has identified and developed a method for in
vitro DNA synthesis and amplification for the production of good manufacturing
practice-grade (GMP) drug substances.



Cell-free amplification of DNA sequences has many important
benefits beginning with the size and composition of the therapeutic compound.
 Under this system, there is no need for bacterial replication genes or
selection markers such as antibiotic resistant genes found on most plasmid
vectors.  In most cases, this will reduce the size and weight of the
therapeutic DNA by at least 3,000 base pairs or a molecular weight of
approximately



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2,000 kilo Daltons (kDa).  The Dalton is a measure of
molecular weight or mass.  The total absence of bacteria and growth media
assures that there is no need to employ mechanical or chemical purification
methods to extract cell or animal proteins, RNA, genomic DNA and backbone
molecules.  This feature allows the designer more control of coding for
non-specific and specific immune responses.



Robust
biological activity



The Companys experiments have shown that the biological response
to this material (devoid of vector backbone) is similar to traditional plasmids.
 Experiments conducted in several animal models have shown that linear DNA
prepared with the CytoGenix synDNA process triggers a robust biological
response (immune or physiological, depending on the application) in treated
groups similar to plasmid DNA -treated animals.



Low
risk, competitive cost, universal accessibility and fast cycle time.



The entire process is bench-scale and requires little equipment,
space or human intervention in comparison to bioprocess or bacterial
fermentation manufacturing facilities. This process easily lends itself to
liquid-handling automation, and a skilled technician can synthesize multi-gram
quantities of this material within a few weeks, while working in a compact
room-size facility. Unlike PCR, this process requires only basic laboratory
equipment and is therefore accessible to many facilities around the world,
especially field facilities in rural settings where access to specialized
equipment is limited and often prohibitive.



Improved regulatory profile



The benefits of using this cell-free DNA manufacturing technology
are significant from a regulatory agency review and compliance perspective.
Product cGMP manufacturing procedures detailing methods for cell collection,
processing and cell culture conditions are no longer necessary and therefore
reduces the level of risk, amount of documentation, amount of required space, as
well as QA/QC and compliance costs.



CytoGenix is carrying out a multi-pronged strategy to continue
commercializing this technology.  The following summarizes the Companys
activities and plans:



o

PROCESS OPTIMIZATION AND SCALE-UP: The Company is conducting
continued experimentation to achieve yield optimization, efficiency and reduced
costs.  The process has progressed from manufacture of milligram quantities
to producing gram quantities consistently.  The Company has conducted
animal studies comparing synDNA compounds with various plasmids to verify that
the synDNA based compounds exert bioactivity equal to or greater than plasmids
produced via traditional methods.  These studies have analyzed various
Company produced DNA vaccines and compounds for expressing specific
proteins.





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o

DEVELOP REAGENT SUPPLIERS AND SOURCING:  The Company entered
into an Agreement with General Electric Healthcare Bio-Science Corporation
(GEHBC) to provide necessary enzymes and reagents for large-scale production
of DNA using the synDNA process for therapeutic applications.  GEHBC is
the Companys largest supplier of enzymes and reagents, however other sources
are available for the Companys research purposes.



o

BUSINESS DEVELOPMENT, the Company is currently evaluating options
for industry partnership for continued development of the process including
contract manufacturing.



The
Company is currently supporting the following Sponsored Research Agreements
(SRA):



1.

Dr. Cy Steins laboratory at Montefiore Medical Center is using
CytoGenixs proprietary gene silencing DNA technology against a gene found in
melanoma cells that produces a protein known to counteract the effect of several
chemotherapeutic agents in difficult to treat cancers.  This project is
completed and scientific papers summarizing study results are being
prepared.



2.

Dr. Jeffrey Actors laboratory at University of Texas Health
Science Center in Houston is conducting animal trials to determine efficacies of
CytoGenixs antimicrobial oligodeoxynucleotides (ODN) compounds.



3.

Dr. David Weiners laboratory at University of Pennsylvania has
conducted animal trials to determine efficacies of CytoGenixs synDNA vaccines
against Smallpox and HIV.  This project is completed and scientific papers
summarizing study results are being prepared.



4.

Dr. Slobodan Paessler at the University of Texas Medical Branch at
Galveston is conducting animal trials to test CytoGenixs synDNA vaccine
against avian flu (H5N1).  Several challenge rounds have been conducted
exposing vaccinated mice to lethal doses of the Vietnam strain of avian flu.
 A significant majority of vaccinated mice survived the exposure.  All
animals in the control groups died.  These experiments are continuing with
the use of  ferrets as a second animal model.  The collaboration with
Dr. Paessler has been extended for development of DNA vaccines with veterinary
applications.





COOPERATIVE AGREEMENTS



The
Company is currently working under a cooperative research and development
agreement (CRADA) with the United States Department of Agriculture to develop
and test a DNA vaccine against brucellosis.





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The Company is currently working under a CRADA with the United
States Army Medical Research Institute for Infectious Diseases to develop and
test DNA vaccines for strains of ebola and equine encephalitis.



The
Company has entered into a collaborative Agreement with Taiwan Cobia, Inc., a
Taiwanese aquaculture company, to develop DNA vaccines against fish viruses.



In
addition to the industry and government agency relationships disclosed above,
the Company is actively seeking out-licensing opportunities in the application
of the Companys core technologies in the following areas:



1.
infectious diseases;

2.
inflammation;

3.
cancer; and

4.
animal health.



There
can be no assurance the Company will be able to enter into licensing
arrangements and thereby generate licensing revenues.



PUBLICATIONS



The
Company and its cooperating university scientists have published a number of
scientific papers and presented at scientific meetings.  These publications
include:



1.

Kendirgi,
F., Nadezda E. Yun, N.E, Linde, N.S., Zacks, M.A, Smith, J.N., Smith, J.K.,
McMicken, H., Chen, Y.*, & Paessler, S. Novel linear DNA vaccines induce
protective immune responses against lethal infection with influenza virus type
A/H5N1 (under review).

2.

Benimetskaya,
L., Ayyanar, K. Kornblum, N., Castanotto, D., Rossi, J., Wu, S., Lai, J., Brown,
B., Popova, N., Miller, P., McMicken, H., Chen, Y. & Stein, C. Bcl-2 protein
in 518A2 melanoma cells in vivo and in vitro.  Clinical Cancer Research,
12:4940-4948, 2006.

3.

Xing-Xin Tan & Yin Chen, Discovery of Novel Antibiotics By
screening of an Oligodeoxynucleotide Expression Library, (invited review
article, submitted) New Research on Antisense Elements (Genetics). Frank
Columbus, Editor-in-Chief, Nova Science Publishers, Inc.

4.

Tan, X. & Chen, Y., A novel genomic approach identifies
bacterial DNA-dependent RNA polymerase as the target of an antibacterial
oligodeoxynucleotide, RBL-1 Biochemistry, 44:6708-6714, 2005.

5.

Tan, X., Actor, J.K., & Chen, Y., PNA antisense oligomer as a
therapeutic strategy against bacterial infection: proof of principle using mouse
peritonitis model, Antimicrobial Agent and Chemotherapy, 49: 3203-3207,
2005.

6.

Tan, X., & Chen, Y., Discovery of novel antibiotics using
cell-based screening (Review), Current Drug Discovery, pp. 21-23, April,
2004.

7.

Tan, X., Knesha, R., Margolin, W. and Chen, Y., DNA enzyme
generated by a novel single-stranded DNA expression vector inhibits expression
of the essential bacterial cell division gene ftsZ, Biochemistry, 43:1111-1117,
2004.



12



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8.

McMicken, H., Bates, P. and Chen, Y., Antiproliferative activity
of G-quartet-containing oligonucleotides generated by a novel single-stranded
DNA expression system, Cancer Gene Therapy, 10(12):867-869, 2003.

9.

Chen, Y. and McMicken, H., Intracellular production of DNA enzyme
by a novel single-stranded DNA expression vector, Gene Therapy, 10:1776-1780,
2003.

10.

Chen, Y., Ji, Y. and Conrad, C., Expression of single-stranded DNA
in mammalian cells, Biotechniques, 34:167-171, 2003.

11.

Chen, Y., Novel Technologies for target validation, Genetic
Engineering News, 23(11):7-9, 2003.

12.

Chen, Y., A novel single-stranded DNA (ssDNA) expression vector
(Review), Expert Opinion on Biological Therapy, 2:735-740, 2002.

13.

Chen, Y., Meeting highlights, 10th International
conference on gene therapy of cancer, Expert Opinion on Biological Therapy,
2:443-445, 2002.

14.

Chen, Y., Growth of oligo-based drugs, Genomics & Proteomics,
October, 2002.

15.

Datta, H. and Glazer, P., Intracellular generation of
single-stranded DNA for chromosomal triplex formation and induced recombination,
Nucleic Acid Research, 29:5140-5147, 2001.  A marvel of biochemical
engineering means cells can produce DNA enzyme to attach cancer, New Scientist,
January, 2001.

16.

Chen, Y., Ji, Y., Roxby, R. and Conrad, C., In vivo expression of
single-stranded DNA in mammalian cells with DNA enzyme sequences targeted to
c-raf, Antisense & Nucleic Acid Drug Development, 10:415-422, 2000.



BUSINESS STRATEGY



The
goal and the focus of the Company are to leverage its proprietary technology to
maximize shareholder value.  The Company is developing anti-viral and
anti-bacterial products based on its proprietary technologies including: topical
compounds for herpes infections, DNA vaccines, and compounds against methicillin
and vancomycin resistant bacteria.  Upon initiation of clinical trials, the
Company intends to seek license and distribution agreements with domestic and
foreign pharmaceutical companies.  To this end:



o

The Company will pursue partnerships with pharmaceutical or
biotechnology companies to develop DNA expression-based therapeutics.



o

The Company will seek to maintain and expand its patent portfolio
and proprietary technology.  The Company aggressively pursues patent
protection to maintain worldwide rights relating to the development, manufacture
and sale of oligodeoxynucleotide mediated therapeutics and services and products
related to the manufacture of synDNA and ssDNA.



o

The Company intends to leverage its oligonucleotide expertise
through licensing, process development and pilot manufacturing.  The
Company believes that it has established one of the leading nucleic acid
chemistry groups that can provide medicinal chemistry, process development and
manufacturing to others in need of this expertise.  The Company believes
that



13



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it will be able to capitalize on its continuing investment in
oligonucleotide and nucleic acid technology by entering into licensing, process
development and pilot manufacturing arrangements with collaborators to generate
revenues, while retaining this capability for its own drug development.



o

The Company plans to expand its customer base of non-competitors
for uses of synDNA as it advances the ability to amplify and purify diverse
sequences.  The sales will come from excess capacity above the material the
Company needs for its own product development.  The Company will seek
strategic partners to expand the production and distribution of synDNA based
products.



MARKETING STRATEGY



The
Company plans to market initial products, when developed, and for which it will
obtain regulatory approval, through marketing arrangements or other licensing
arrangements with pharmaceutical companies.  Implementation of this
strategy will depend on many factors, including the market potential of any
products the Company develops, and its financial resources.  To market
products that will serve a large, geographically diverse patient population, we
expect to enter into licensing, distribution, or partnering agreements with
pharmaceutical companies that have large, established sales organizations.
 The timing of the Companys entry into marketing arrangements or other
licensing arrangements with large pharmaceutical companies will depend on
successful product development and regulatory approval within the regulatory
framework established by the Federal Food, Drug and Cosmetics Act, as amended,
and regulations promulgated there under.  Although the implementation of
initial aspects of the Companys marketing strategy may be undertaken before
this process is completed, the development and approval process typically is not
completed in less than three to five years after the filing of an
Investigational New Drug (IND) application and its marketing strategy
therefore may not be implemented for several years.  See Drug Approval
Process and Other Governmental Regulation below.



INTELLECTUAL PROPERTY RIGHTS



The
Company has developed or acquired a comprehensive body of intellectual rights.
 The proprietary nature of, and protection for, the Companys technology,
processes and know-how are important to its business.  The Company plans to
prosecute and aggressively defend its patents and proprietary technology.
 Our policy is to seek patent protection for technologies, inventions, and
improvements that are considered important to the development of our business.
 The Company also depends upon trade secrets, know-how, and continuing
technological innovation to develop and maintain its competitive position.



CytoGenix currently holds 13 granted and 2 allowances with
approximately 55 additional foreign or US pending patent applications claiming
methods and materials in connection with these platform technologies.  The
Company intends to protect its proprietary technology with additional filings as
appropriate.







14



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DRUG APPROVAL PROCESS AND OTHER GOVERNMENT REGULATION



The
system of reviewing and approving drugs in the United States is considered the
most rigorous in the world.  Estimates of the upper range of costs to bring
a single product from research through market approval and launch into commerce
range from $800 million (Pharmaceutical Research and Manufacturers Association)
to $1.7 billion in 2000 through 2002 (FDA), with the timing to do so typically
ranging between 10 and 15 years.  The Pharmaceutical Research and
Manufacturers Association estimates that of every 5,000 medicines tested, on
average, only five are tested in clinical trials, and only one of those is
approved for human use. These estimates may vary depending on the nature of the
drug and the mechanism by which it works.



DRUG
DISCOVERY



The
drug discovery process can take several years.  Once a company locates a
screening lead, or starting point for drug development, isolation and structural
determination may begin.  The development process results in numerous
chemical modifications to the screening lead in an attempt to improve its drug
properties.  After a compound emerges from the above process, the next
steps are to conduct further preliminary studies on the mechanism of action,
further in vitro (test tube) screening against particular disease targets and,
finally, some in vivo (animal) screening.  If the compound passes these
barriers, the toxic effects of the compound, if any, are analyzed by performing
preliminary exploratory animal toxicology.  If the results are positive,
the compound emerges from the basic research mode and moves into the
pre-clinical phase.



Preclinical Testing



During
the pre-clinical testing stage, laboratory and animal studies are conducted to
show biological activity of the compound against the targeted disease, and the
compound is evaluated for safety, stability, biodistribution (where the drug
goes in the body) and genomic integration (where the DNA is incorporated in any
of the bodys cells genome).



Investigational New Drug Application



During
the pre-clinical testing, an Investigational New Drug Application (IND) is
filed with the FDA to seek permission to begin human testing of the drug.
 The IND becomes active if not rejected by the FDA within 30 days.
 The IND must indicate the results of previous experiments, how, where and
by whom the studies were conducted, the chemical structure of the compound, the
method by which it is believed to work in the human body, any toxic effects of
the compound found in the animal studies and how the compound is manufactured.
 Progress reports detailing the results of the clinical trials must be
submitted at least annually to the FDA.



Phase I
Clinical Trials



After
an IND becomes active, Phase I human clinical trials may begin.  These
tests, involving usually between 20 and 80 patients or healthy volunteers,
typically take approximately one year to complete and cost between $300,000 and
$500,000 per trial.  The Phase I clinical studies also determine how a drug
is absorbed, distributed,



15



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metabolized and excreted by the body, and the duration of its
action.  Phase I trials are not normally conducted for anticancer product
candidates.  A Phase Ib study involves patients with the targeted disease
cancer and is focused on safety.



Phase
II Clinical Trials



In
Phase II Clinical trials, controlled studies are conducted on approximately 100
to 300 volunteer patients with the targeted disease.  The preliminary
purpose of these tests is to evaluate the effectiveness of the drug on the
volunteer patients as well as to determine if there are any side effects.
 These studies generally take approximately two years and cost between
$500,000 and $4 million per trial.  In addition, Phase I/ II clinical
trials may be conducted to evaluate not only the efficacy of the drug on the
patient population, but also its safety.



Phase
III Clinical Trials



This
phase typically lasts about three years, usually involves 1,000 to 3,000
patients and costs between $5 million and $50 million per trial.  During
the Phase III clinical trials, physicians monitor the patients to determine
efficacy and to observe and report any reactions that may result from long-term
use of the drug.



New
Drug Application



After
the completion of the requisite three phases of clinical trials, if the data
indicate that the drug has an acceptable benefit to risk assessment and it is
found to be safe and effective, a New Drug Application (NDA) is filed with the
FDA.  The requirements for submitting an NDA are defined by the FDA.
 These applications are comprehensive, including all information obtained
throughout all clinical trials as well as all data pertaining to the
manufacturing and testing of the product.  In general, these filings can
far exceed 100,000 pages.  With the implementation of the Prescription Drug
Users Fee Act (PDUFA), review fees are provided at the time of NDA filing.
 In 2007, each NDA with clinical data must be accompanied by an $896,200
review fee.  If the NDA is assessed as unacceptable in the initial 30 day
review, it is returned to the submitter, with 50% of the fee.  The
historical average review time for a New Molecular Entity (NME) has remained
static at approximately 16 months, however, a new NME can be approved in as
little as six months.



Marketing Approval



If the
FDA approves the NDA, the drug becomes available for physicians to prescribe.
 Periodic reports must be submitted to the FDA, including descriptions of
any adverse reactions reported.  The FDA may request additional studies
(Phase IV) to evaluate long-term effects.



Phase
IV Clinical Trials and Post Marketing Studies



In
addition to studies requested by the FDA after approval, these trials and
studies are conducted to explore new indications.  The purpose of these
trials and studies and related



16



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publications is to broaden the application and use of the drug and
its acceptance in the medical community.



COMPETITION



The
pharmaceutical and biotechnology industries are highly competitive.  The
Company faces competition from biotechnology and pharmaceutical companies using
more traditional approaches to treating human diseases.  The Companys
competitors may develop safer, more effective or less costly gene-based
therapeutics.  In addition, the Company faces and will continue to face
competition from other companies for corporate collaborations with
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions and for licenses to proprietary technology,
including intellectual property.



Many of
the Companys competitors and potential competitors have substantially greater
product development capabilities and financial, scientific, manufacturing,
managerial and human resources than the Company.  There can be no assurance
that research and development by others will not render the Companys products,
or the products developed by corporate partners using its licensed technologies
obsolete, or non-competitive, or that any product the Company or its corporate
partners develop will be preferred to any existing or newly developed
technologies.  In addition, there can be no assurance that the Companys
competitors will not develop safer, more effective or less costly cardiovascular
therapies, gene delivery systems, gene therapeutics, non-gene therapies, or
other therapies, achieve superior patent protection or obtain regulatory
approval of product commercialization earlier than the Company, any of which
could have a material adverse effect on its business, financial condition or
results of operations.



RESEARCH AND DEVELOPMENT



The
Company expensed $2,106,746, $4,970,410, and $1,724,317 on research and
development activities during the years ended December 31, 2007, 2006, and 2005,
respectively.  Research and development (R&D) expenses include related
salaries and other share based compensation, contractor fees, materials, and
utilities.



R&D
expenses also consist of independent R&D costs and costs associated with
collaborative development arrangements with other companies and research
institutions. Research and development costs are expensed as incurred.



EMPLOYEES



As of
December 31, 2007, the Company has 8 employees, 6 of whom hold advanced degrees.
 None of the Companys employees are covered by collective bargaining
agreements, and the Company considers relations with its employees to be
good.



HOW YOU
CAN FIND ADDITIONAL INFORMATION



The
Company is a reporting company and files annual, quarterly and current reports,
proxy statements and other information with the SEC.  For further
information with respect to the Company, you may read and copy its reports,
proxy statements and other



17



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information, at the SEC public reference rooms at 100 F.
 Street, N.E., Washington, D.C. 20549, as well as at the SECs regional
offices at 500 West Madison Street, Suite 1400, Chicago, IL 60661 and at 233
Broadway, New York, NY 10279.  You can request copies of these documents by
writing to the SEC and paying a fee for the copying cost.  Please call the
SEC at 1-800-SEC-0330 for more information about the operation of the public
reference rooms.  The Companys SEC filings are also available at the SECs
web site at http://www.sec.gov.  In addition, you can read and copy the
Companys SEC filings at the office of the National Association of Securities
Dealers, Inc.  at 1735 K Street, N.W., Washington, D.C. 2006.



Copies
of CytoGenixs Annual Reports on Form 10K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are
all available on its website (www.cytogenix.com) or by sending a request for a
paper copy to: CytoGenix, Inc. 3100 Wilcrest, Suite 140, Houston, TX
 77042, attn. Investor Relations.



ITEM 1A.

RISK FACTORS



RISKS
AFFECTING FUTURE OPERATING RESULTS



The
Company does not provide forecasts of its future financial performance.
 While the Company is optimistic about its long-term prospects, the
following factors should be considered in evaluating its outlook.  If the
possibilities described as risks below actually occur, the Companys operating
results and financial condition would likely suffer and the trading price of its
common stock may fall, causing a loss of some or all of an investment in its
common stock.



There is substantial doubt about CytoGenixs ability to
continue as a going concern.



CytoGenix has had negligible revenues since inception and only
approximately $144,000 in the last two years.  The Company has incurred
losses totaling $37,726,040 from inception through December 31, 2007.
 Because of these conditions, CytoGenix will require additional working
capital to develop business operations which it can in no way be assured of
doing.



There
are no assurances that CytoGenix will be able to achieve a level of revenue
adequate to generate sufficient cash flow from operations or obtain additional
financing necessary to support CytoGenixs working capital requirements.
 To the extent that funds generated from any private placements, public
offerings and/ or bank financing are insufficient, CytoGenix will have to raise
additional working capital.  No assurance can be given that additional
financing will be available, or if available, will be on terms acceptable to
CytoGenix.  If adequate working capital is not available, CytoGenix may not
increase its operations.



CytoGenixs products are in the pre-clinical stage of
development and may not be determined to be safe or effective.





18



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The Company is in the pre-clinical stages of development with its
biopharmaceutical products.  The Company has devoted almost all of its time
to research and development of its technology and products, protecting its
proprietary rights and establishing strategic alliances.  The Companys
proposed products are in the pre-clinical stages of development and will require
significant further research, development, clinical testing and regulatory
clearances.  The proposed products are subject to development risks.
 These risks include the possibilities that any of the products could be
found to be ineffective or toxic, or could fail to receive necessary regulatory
clearances.  The Company has not received any significant revenues from the
sale of products, and the Company may not successfully develop marketable
products that will increase sales and, given adequate margins, make it
profitable.  Competitors may develop superior or equivalent, but less
expensive, products.  The Company has incurred net losses since its
inception, and the Company may not achieve or sustain profitability.



The
Company incurred a net loss of $ 6.26 million in 2007, $8.40 million in 2006 and
$3.53 million in 2005.  As of December 31, 2007, total shareholders
deficit was $1,210,188.  Losses have resulted principally from expenses
incurred in research and development of technology and products, and general and
administrative expenses that the Company has incurred while building its
business infrastructure.  The Company expects to continue to incur
significant operating losses in the future as it continues its research and
development efforts and seeks to obtain regulatory approval of its products.
 The Companys ability to achieve profitability depends on its ability to
raise additional capital, complete development of its products, obtain
regulatory approvals and market those products.  It is uncertain when, if
ever, the Company will become profitable.



If
the Company fails to attract significant additional capital, the Company may be
unable to continue to successfully develop its products.



Since
the Company began operations, the Company has obtained operating funds primarily
by selling common stock.  Based on its current plans, the Company does not
believe that current cash balances will be sufficient to meet its operating and
capital needs throughout 2008.  Furthermore, the actual amount of funds
that will be needed will be determined by many factors, some of which are beyond
the Companys control.  These factors include the success of its research
and development efforts, the status of its pre-clinical and clinical testing,
costs relating to securing regulatory approvals and the costs and timing of
obtaining new patent rights, regulatory changes, competition and technological
developments in the market.  The Company may need funds sooner than
currently anticipated.



If
necessary, potential sources of additional funding could include strategic
relationships, public or private sales of shares of common stock or debt or
other arrangements.  The Company may not obtain additional funding when the
Company needs it on terms that will be acceptable to it or at all.  If the
Company raises funds by selling additional shares of common stock or securities
convertible into common stock, the ownership interest of existing shareholders
will be diluted.  If the Company is unable to obtain financing when needed,
its business and future prospects could be materially adversely affected.



If the
Company fails to receive necessary regulatory approvals, the Company will be
unable to commercialize its products.  All of the Companys products are
subject to



19



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extensive regulation by the United States Food and Drug
Administration, or FDA, and by comparable agencies in other countries.  The
FDA and comparable agencies require new pharmaceutical products to undergo
lengthy and detailed clinical testing procedures and other costly and
time-consuming compliance procedures.  The Company does not know when or if
it will be able to submit its products for regulatory review.  Even if the
Company submits a new drug application, there may be delays in obtaining
regulatory approvals, if the Company obtains them at all.  Sales of the
Companys products outside the United States will also be subject to regulatory
requirements governing clinical trials and product approval.  These
requirements vary from country to country and could delay introduction of
products in those countries.  The Company cannot provide assurance that any
of its products will receive marketing approval from the FDA or comparable
foreign agencies.



The
Company may fail to compete effectively, particularly against larger, more
established pharmaceutical companies, causing its business to suffer.



The
biotechnology industry is highly competitive.  The Company competes with
companies in the United States and abroad that are engaged in the development of
similar pharmaceutical technologies and products.  They include:
biotechnology, pharmaceutical, chemical and other companies; academic and
scientific institutions; governmental agencies, and public and private research
organizations.



Many of
these companies and many other competitors have significantly greater financial
and technical resources as well as superior production and marketing
capabilities than the Company does.  The biopharmaceutical industry is
characterized by extensive research and development and rapid technological
progress.  Competitors may successfully develop and market superior or less
expensive products which render the Companys products less valuable or
unmarketable.



The
Company has limited operating experience.



The
Company has engaged solely in the development of biopharmaceutical technology.
 Although some members of the Companys management team have experience in
biotechnology operations, the Company has limited experience in manufacturing or
selling biopharmaceutical products.  The Company also has only limited
experience in negotiating and maintaining strategic relationships, and in
conducting clinical trials and other later-stage phases of the regulatory
approval process.  The Company may not successfully engage in some or all
of these activities.



The
Company has limited manufacturing capability.



While
the Company believes that it can produce materials for clinical trials and
produce products for human use at its  synDNA production suite, the
Company may need to expand its commercial manufacturing capabilities for
products in the future if the Company elects not to or cannot successfully
partner with others to manufacture its products.  This expansion may occur
in stages, each of which would require regulatory approval, and product demand
could at times exceed supply capacity.  The Company has not obtained
regulatory approvals for any production facilities for its products, nor can the
Company assure investors that it will be able to do so.



20



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If
the Company loses key personnel or is unable to attract and retain additional,
highly skilled personnel required for its activities, its business will
suffer.



Competition for qualified personnel in the biopharmaceutical
industry is intense, and the Companys success will depend on its ability to
attract and retain highly skilled personnel. The Company is not aware of any key
personnel who plan to retire or otherwise leave the Company in the near future
other than Malcolm Skolnick who has expressed his desire to retire after the
Company identifies a new Chief Executive Officer.



Asserting, defending and maintaining the Companys intellectual
property rights could be difficult and costly, and failure to do so will harm
its ability to compete.



The
Companys success will depend on existing patents and licenses, and its ability
to obtain additional patents in the future.  The purpose of our patent
portfolio of approximately 70 domestic and foreign patents and patent
applications is to protect the Companys technologies.



The
Company cannot assure investors that its pending patent applications will result
in patents being issued in the United States or foreign countries.  In
addition, the patents which have been or will be issued may not afford
meaningful protection for its technology and products.  Competitors may
develop products similar to the Companys which do not conflict with its
patents.  Others may challenge the Companys patents and, as a result, the
patents could be narrowed or invalidated.  The patent position of
biotechnology firms generally is highly uncertain, involves complex legal and
factual questions, and has recently been the subject of much litigation.
 No consistent policy has emerged from the United States Patent and
Trademark Office (USPTO), or the courts regarding the breadth of claims allowed,
or the degree of protection afforded under biotechnology patents.  In
addition, there is a substantial backlog of biotechnology patent applications at
the USPTO and the approval or rejection of patents may take several years.



CytoGenixs success will also depend partly on its ability to
operate without infringing upon the proprietary rights of others, as well as its
ability to prevent others from infringing on its proprietary rights.  The
Company may be required at times to take legal action to protect its proprietary
rights and, despite its best efforts, the Company may be sued for infringing on
the patent rights of others.  The Company has not received any
communications or other indications from owners of related patents or others
that such persons believe the Companys products or technology may infringe
their patents.  Patent litigation is costly and, even if the Company
prevails, the cost of such litigation could adversely affect its financial
condition.  If the Company does not prevail, in addition to any damages the
Company might have to pay, the Company could be required to stop the infringing
activity or obtain a license.  Any required license may not be available to
the Company on acceptable terms, or at all.  If the Company fails to obtain
a license, its business might be materially adversely affected.



To help
protect its proprietary rights in unpatented trade secrets, the Company requires
its employees, consultants and advisors to execute confidentiality agreements.
 However, such agreements may not provide the Company with adequate
protection if confidential information is used or disclosed improperly.
 In



21



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addition, in some situations, these agreements may conflict with,
or be subject to, the rights of third parties with whom the Companys employees,
consultants or advisors have prior employment or consulting relationships.
 Furthermore, others may independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Companys trade secrets.



If
CytoGenixs strategic relationships are unsuccessful, its business could be
harmed.



The
Companys strategic relationships with its collaborators and partners are
important to its success.  The development, improvement and marketing of
many of its key therapeutic products are or will be dependent, in part, on the
efforts of the Companys strategic partners.  For example, under the GE
Healthcare relationship, the Company may fail to achieve product development
milestones; GE Healthcare may fail to perform its obligations under the
agreement, such as failing to produce an adequate supply of sufficient quality
raw materials to produce synDNA; and the agreement with GE Healthcare may be
subject to termination in the event of a breach.  The Company may not be
commercially successful in its effort to produce and/or sell synDNA.  The
transactions contemplated by its agreements with strategic partners, including
equity purchases and cash payments, are subject to numerous risks and
conditions.  The occurrence of any of these events could severely harm
CytoGenixs business.



The
Companys near-term strategy is to develop its own products as well as
co-develop products with strategic partners, or to license the marketing rights
for its products to pharmaceutical partners after the Company completes one or
more Phase II clinical trials.  In this manner, the extensive costs
associated with late-stage clinical development and marketing will be shared
with, or will be the responsibility of, the Companys strategic partners.



To
fully realize the potential of its products, including development, production
and marketing, the Company may need to establish other strategic
relationships.



The
Company has limited sales capability and may not be able to successfully
commercialize its products.



The
Company has been engaged solely in the development of biopharmaceutical
technology.  Although some of its management have experience in
biotechnology company operations, the Company has limited experience in
manufacturing or selling pharmaceutical products.  The Company also has
only limited experience in negotiating and maintaining strategic relationships,
and in conducting clinical trials and other later-stage phases of the regulatory
approval process.  To the extent the Company relies on strategic partners
to fully commercialize its products, the Company will be dependent on their
efforts.  The Company may not successfully engage in any of these
activities.



The
Company may be subject to product liability lawsuits and its insurance may not
be adequate to cover damages.





22



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The
Company believes it carries adequate insurance for the product development
research it currently conducts.  In the future, when the Company has
products available for commercial sale and use, the use of its products will
expose it to the risk of product liability claims.  Although the Company
intends to obtain product liability insurance coverage, product liability
insurance may not continue to be available to it on acceptable terms and its
coverage may not be sufficient to cover all claims.  A product liability
claim, even one without merit or for which the Company has substantial coverage,
could result in significant legal defense costs, thereby increasing expenses,
lowering earnings and, depending on revenues, potentially resulting in
additional losses.



Continuing efforts of government and third party payers to
contain or reduce the costs of health care may adversely affect the Companys
revenues and future profitability.



In
addition to obtaining regulatory approval, the successful commercialization of
its products will depend on the Companys ability to obtain reimbursement for
the cost of the product and treatment.  Government authorities, private
health insurers and other organizations, such as health maintenance
organizations are increasingly challenging the prices charged for medical
products and services.  Also, the trend toward managed health care in the
United States, the growth of healthcare organizations such as HMOs, and
legislative proposals to reform healthcare and government insurance programs
could significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for products.  The cost
containment measures that healthcare providers are instituting and any
healthcare reform could affect the Companys ability to sell its products and
may have a material adverse effect on operations.  Reimbursement in the
United States or foreign countries may not be available for any of the Companys
products, any reimbursement granted may be reduced or discontinued, and limits
on reimbursement available from third-party payers may reduce the demand for, or
the price of, its products.  The lack or inadequacy of third-party
reimbursements for its products could have a material adverse effect on the
Companys operations.  Additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in
the future that adversely affects the Companys products and its business.



If
the Company fails to establish strategic relationships with larger
pharmaceutical partners, its business may suffer.



The
Company does not intend to conduct late-stage (Phase III) human clinical trials
on its own.  The Company anticipates entering into relationships with
larger pharmaceutical companies to conduct later trials and to market its
products.  The Company also plans to continue to use contract manufacturing
for late stage clinical and commercial quantities of its products.  The
Company may be unable to enter into corporate partnerships which could impede
its ability to bring its products to market.  Any such corporate
partnerships, if entered into, may not be on favorable terms and may not result
in the successful development or marketing of the Companys products.  If
the Company is unsuccessful in establishing advantageous clinical testing,
manufacturing and marketing relationships, it is not likely to generate
significant revenues and become profitable.





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RISKS
RELATED TO SHARE OWNERSHIP



CytoGenixs right to issue preferred stock and/or its
classified Board of Directors may delay a takeover attempt and prevent or
frustrate any attempt to replace or remove the then current management of the
Company by shareholders.



Authorized capital consists of 300,000,000 shares of common stock
and 50,000,000 shares of preferred stock.  The Companys board of
directors, without any further vote by the shareholders, has the authority to
issue preferred shares and to determine the price, preference, rights and
restrictions, including voting and dividend rights, of these shares.  The
rights of the holders of shares of common stock may be affected by the rights of
holders of any preferred shares that the board of directors may issue in the
future.  For example, the board of directors may allow the issuance of
preferred shares with more voting rights, higher dividend payments or more
favorable rights upon dissolution, than the shares of common stock or special
rights to elect directors.



The
Company has a classified board of directors, which means that only one-third
of its directors are eligible for election each year.  Therefore, if
shareholders wish to change the composition of the Board of Directors, it could
take at least two years to remove a majority of the existing directors or three
years to change all directors.  Having a classified board of directors may,
in some cases, delay mergers, tender offers or other possible transactions which
may be favored by some or a majority of the Companys shareholders and may delay
or frustrate action by shareholders to change the then current Board of
Directors and management.



CytoGenixs stock price is volatile and may fluctuate due to
factors beyond its control.



Historically, the market price of the Companys stock has been
highly volatile as reflected in the table in Part II, Item 5 of this report.
 The following types of announcements could have a significant impact on
the price of the Companys common stock: positive or negative results of testing
and clinical trials by the Company or its competitors; delays in entering into
corporate partnerships; technological innovations or commercial product
introductions by the Company or its competitors; changes in government
regulations; developments concerning proprietary rights, including patents and
litigation matters; public concern relating to the commercial value or safety of
any of the Companys products; financing or other corporate transactions; or
general stock market conditions.



Further, the stock market experiences significant price and volume
fluctuations.  These fluctuations have particularly affected the market
prices of equity securities of many biopharmaceutical companies that are not yet
profitable.  Often, the effect on the price of such securities is unrelated
or disproportionate to the operating performance of such companies.  These
broad market fluctuations may adversely affect the ability of a shareholder to
dispose of his or her shares at a price equal to or above the price at which the
shares were purchased.



The
significant number of the Companys shares of Common Stock eligible for future
sale may cause the price of its common stock to fall.





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The
Company has 146,309,719 shares of common stock outstanding as of December 31,
2007 and substantially all are eligible for sale under Rule 144 or are otherwise
freely tradable.



CytoGenixs employees have been granted options to buy a total of
24,286,000 shares of common stock as of December 31, 2007.  The options
granted have exercise prices between $.185 and $1.01 per share.  The shares
of common stock granted in the options under the stock option plan have not been
registered as of December 31, 2007.



The
Company may issue options to purchase up to an additional 11,714,000 shares of
common stock as of December 31, 2007 under its stock option plans.



Sales
of substantial amounts of shares into the public market could lower the market
price of the common stock.



The
Company does not expect to pay dividends in the foreseeable future.



The
Company has never paid dividends on its shares of common stock and does not
intend to pay dividends in the foreseeable future.  Therefore, an
investment should only be made with the expectation of realizing a return
through capital appreciation.  An investment should not be made with the
expectation of dividend income.



ITEM 1B.

UNRESOLVED STAFF COMMENTS



On
August 9, 2007, the Company received a letter from the SEC with comments
regarding it filings on Form 10-K for the fiscal year ended December 31, 2006
and on its Form 10-Qs for the fiscal quarters ending March 31, 2007, June 30,
2007 and September 31, 2007.  The Company responded to the letter and
entered into discussions with the staff regarding its filings and subsequently
restated its filings for the indicated periods.  The Company believes there
are no unresolved staff comments but the staff may provide further comments
regarding its 10-K/A and 10-Q/As.



ITEM 2.

DESCRIPTION OF PROPERTY



The
Companys corporate executive offices are located at 3100 Wilcrest, Suite 140,
Houston, Texas 77042.  The Company has occupied approximately 6000 square
feet of executive office and laboratory space since December 2003.  The
facility is in reasonable condition and is adequate for the Companys current
operations.  Rent on the facility averages to be $5,701 per month with a
lease term ending September 2009.  The Company believes its current and
contracted for facilities are suitable and adequate for its present and
immediately foreseeable future operational requirements.



ITEM 3.

LEGAL PROCEEDINGS



WILLIAM
B. WALDROFF AND APPLIED VETERINARY GENOMICS, INC. V. CYTOGENIX, INC.



25



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Waldroff and Applied
Veterinary Genomics, Inc. - Litigation initiated in March 2004 over the validity
of license agreements between CytoGenix (licensor) and William Waldroff
(licensee) for use of CytoGenix ssDNA expression technology in shrimp and horse
therapeutic applications. AVGI, as sublicensee, was a third party in this
action. A jury trial held in February 2005 resulted in entry of a judgment
against CytoGenix requiring performance on the contracts and payment of attorney
fees. CytoGenix subsequently appealed this decision and in December 2006 the 1st
Court of Appeals reversed the trial court's judgment, finding no need for
CytoGenix to perform on the contracts and no need for either party to pay the
opposing party's attorney fees. Waldroff and Applied Veterinary Genomics filed a
motion for a rehearing and CytoGenix filed a timely response to that
motion.On March 3, 2007, the Court of
Appeals denied Waldroff/AVGIs Motion forRehearing.  Waldroff filed a
petition for review by the Supreme Court of Texas which was denied.  The
Supreme Court directed the Court of appeals to issue a Mandate to finalize the
action.  The Mandate was issued and the Company recovered its appeal bond
and the matter was finalized.

DEFAMATORY
ACTIONS

The Company has actively
pursued legal action against various parties involved in the posting of
defamatory comments about the Company and several of its officers on public
investor chat-room websites. A settlement was reached with a poster who
published an apology on Investors Hub (www.investorshub.com) in March 2007.

EMPLOYMENT
ACTIONS

In
November of 2006, the former Chief Financial Officer (CFO), Lawrence Wunderlich,
and the former Chief Operations Officer (COO), Frank Vazquez, resigned from the
Company.  The Company and former officers are currently pursuing
arbitration to resolve claims by Messrs Vazquez and Wunderlich and counterclaims
by the Company.  In conjunction with the former officers resignations, the
former CFO filed a SOX Whistleblower Complaint with the Department of Labor in
January of 2007.  The action is against the Company and the Chief Executive
Officer, Malcolm Skolnick. The SEC has requested information from the Company
addressing the allegations and the Company has responded in compliance with that
request.  The Companys Board of Directors instituted a special committee
of independent directors who appointed an independent, outside counsel to
conduct an independent investigation.  The investigation was completed and
the investigators report found that the allegations made in the SOX complaint
had no merit.  This matter is set for arbitration in May 2008.
 Depositions have been taken of the parties and Management intends to
vigorously defend its position.



ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



There were no matters submitted to a vote of
securities holders during the fourth quarter of our fiscal year ended December
31, 2007.





26



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PART
II



ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



Authorized capital stock consists of 300,000,000 shares of common
stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, par
value $0.001 per share.  There were 146,660,968 shares of common stock and
no shares of preferred stock outstanding as of March 31, 2008.  The
Companys common stock is traded on the NASDAQ, OTC Bulletin Board under the
ticker symbol CYGX.OB.



The
high and low bid prices for the Companys common stock for each quarter within
the last two fiscal years, as quoted by the OTC Bulletin Board, were as follows.
 The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.





Fiscal Year Ending December 31, 2005

High

Low

Quarter 1

$0.95

$0.43

Quarter 2

$0.79

$0.46

Quarter 3

$0.67

$0.34

Quarter 4

$1.15

$0.44



Fiscal
Year Ending December 31, 2006

Quarter 1

$1.54

$0.73

Quarter 2

$1.54

$0.85

Quarter 3

$1.09

$0.67

Quarter 4

$0.88

$0.56



Fiscal
Year Ending December 31, 2007

Quarter 1

$0.66

$0.37

Quarter 2

$0.56

$0.30

Quarter 3

$0.40

$0.23

Quarter 4

$0.35

$0.11

Quarter 1 to March 17, 2008

$0.16

$0.06

STOCKHOLDERS



As of
March 31, 2008 there were approximately 649 shareholders of record of Common
Stock, one of which is Cede & Co., a nominee for Depository Trust Company
(or DTC).  All of the shares of Common Stock held by brokerage firms,
banks, and other financial institutions as nominees for beneficial owners are
deposited into participant accounts at DTC, and are considered to be held of
record by Cede & Co. as one shareholder.  The Company has not paid any
dividends on its Common Stock and the Board does not intend to declare any
dividends in the foreseeable future.



27



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PERFORMANCE GRAPH



The Companys common
stock began trading on the OTC Bulletin Board in August 2001.  The
following graph depicts the Companys total return to stockholders from August
2001 through December 31, 2007, relative to the performance of the Amex Biotech
Index and NASDAQ Composite Index.  All of the cumulative total returns are
computed assuming the value of the investment in Common Stock and each indexed
as $100.00 on August 16, 2001 and the reinvestment of dividend at the frequency
with which dividends were paid during applicable years.

















|                       | Base      | INDEXED RETURNS |          
|---------------------- | --------- | --------------- | ---------
|                       | Period    | Years Ending    |          
|Company/Index          | 24-Aug-01 | 31-Dec-01       | 31-Dec-02
|CYTOGENIX, INC. | 100       | 77              | 39       
|AMEX BIOTECH INDEX     | 100       | 106             | 61       
|NASDAQ COMPOSITE INDEX | 100       | 102             | 70       



CHANGES
IN SECURITIES



All of
the Companys securities sold during 2007 have been either previously reported
on its Form 10-Qs and Form 8-Ks filed with the Securities and Exchange
Commission.



On
November 30, 2007, the Company completed a private placement of 4,441,000 shares
(4,389,750 shares issued as of December 31, 2007, 101,250 issued subsequent to
December 31, 2007) of restricted common stock at $0.16 per share for gross
proceeds of $718,560.  The difference between the selling price and the
market value on the date the shares were sold was approximately $0.09 per share
($399,690).  In 2007 the Company issued 1,256,008 shares for services;
approximately 333,336 were issued each to TMS Investments, Inc., Harris Forbes,
Inc., and Chasseur Corporation; approximately 156,000 were issued to



28



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directors; and approximately 100,000 shares were issued to Fusion
Capital Fund II, LLC. In 2007 and in 2006, there were no shares issued for debt.



ITEM 6.
 SELECTED FINANCIAL DATA



The
following selected financial data should be read in conjunction with Item 7.
Managements Discussion and Analysis or Plan of Operation and Item 8.
Financial Statements.











ITEM 7.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS



FORWARD-LOOKING INFORMATION



This
report contains forward-looking statements regarding the Companys plans,
expectations, estimates and beliefs.  Actual results could differ
materially from those discussed in, or implied by, these forward-looking
statements.  Forward-looking statements are identified by words such as
believe, anticipate, expect, intend, plan, will, may, and other
similar expressions.  In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements.  The Company has based these
forward-looking statements largely on its expectations.  Forward-looking
statements in this report include, but are not necessarily limited to, those
relating to the Companys:



o

intention to introduce new products,

o

receipt of any required FDA or other regulatory approval for its
products,

o

expectations about the markets for its products,

o

acceptance of its products, when introduced, in the
marketplace,

o

future capital needs, and

o

success of its patent applications.



Forward-looking statements are subject to risks and uncertainties,
certain of which are beyond the Companys control.  Actual results could
differ materially from those anticipated as a result of the factors described in
the Risk Factors and detailed in the Companys other Securities and Exchange
Commission filings, including among others:



o

the effect of regulation by the FDA and other governmental
agencies,

o

delays in obtaining, or its inability to obtain, approval by the
FDA or other regulatory authorities for its products,

o

research and development efforts, including delays in developing,
or the failure to develop, its products,

o

the development of competing or more effective products by other
parties,

o

the results of pre-clinical and clinical testing,

o

uncertainty of market of acceptance of its products,

29



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o

problems that it may face in manufacturing, marketing, and
distributing its products,

o

inability to raise additional capital when needed,

o

delays in the issuance of, or the failure to obtain, patents for
certain of its products and technologies, and

o

problems with important suppliers and business partners.



Because
of these risks and uncertainties, the forward-looking events and circumstances
discussed in this report or incorporated by reference might not transpire.
 Factors that cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the Risk Factors section and elsewhere in this report.



OVERVIEW



From
its inception in 1995, the Company has devoted its resources primarily to fund
its research and development efforts.   The Company has been
unprofitable since inception and, other than limited interest and grant revenue,
has had minimal revenues from the sale of products and other sources. The
Company expects to continue to incur losses for the foreseeable future as it
continues to expand its research and development efforts and enter additional
collaborative efforts.  As of December 31, 2007, the Companys accumulated
deficit was $37,726,040.



RESULTS
OF OPERATIONS



Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006



For the
year ended December 31, 2007, the Company reported a net loss of $6,266,075, or
less than $0.04 per share, and $66,043 of revenue as compared with a net loss of
$8,401,911, or less than $0.07 per share, and $76,993 of revenue for the twelve
months ended December 31, 2006.



Research and Development Expenses.  Research and development
expenses decreased to $2,106,746 for the twelve months ended December 31, 2007
compared to $4,970,410 for the same period in 2006 primarily due to declines in
compensation in the research and development department for non-cash stock
option compensation expense and decreases in the number of employees.



General
and Administrative Expenses.  General and administrative expenses decreased
to $2,531,807 for the twelve months ended December 31, 2007 compared to
$3,069,945 for the same period in 2006.  This decline was due to a decrease
in personnel costs by approximately 781,000 most of which is attributable to
non-cash stock-based compensation from the Companys 2003 and 2005 employee
stock option plans.  Additional decreases included approximately $26,000 in
personnel costs, approximately $30,000 in investor relations costs and
approximately $26,000 in travel and entertainment costs. These decreases were
offset by increases of approximately $21,000 in accounting fees; approximately
$43,000 in insurance costs; and approximately $293,000 in legal fees primarily
due to the cost of the Companys ongoing arbitration with two of its former
executive officers.



30



---





Consulting Expenses.  Consulting expenses increased to
$415,258 for the twelve months ended December 31, 2007 compared to $345,937 for
the same period in 2006.  Approximately $60,000 of this increase is
attributed to the services of a construction management firm to oversee and
manage the Companys abandoned construction project.



Depreciation and Amortization Expense.  Depreciation and
amortization expenses increased to $64,879 for the twelve months ended December
31, 2007 compared to $48,754 for the same period in 2006 primarily due to
equipment purchased to expand the lab to accommodate synDNA sales production.



Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005



For the
year ended December 31, 2006, the Company reported a net loss of $8,401,911, or
less than $0.07 per share, and $76,993 of revenue as compared with a net loss of
$3,533,125, or less than $0.03 per share, and no revenue for the twelve months
ended December 31, 2005.



Research and Development Expenses.  Research and development
expenses increased approximately $3,246,093 to $4,970,410 for the twelve months
ended December 31, 2006 compared to $1,724,317 for the same period in 2005
primarily due to non-cash stock option compensation expense for employees in the
research and development department.  Additional increase came from
increased research activity and consultant assistance in obtaining
communications with several federal agencies of the US Government.
 Approximately $310,660 of the additional amount results from the increased
activity costs of antibacterial and DNA vaccine research and the remaining
$164,171 of the increase were additional costs incurred for R&D
consultants.



General
and Administrative Expenses.  General and administrative expenses increased
to $3,069,945 for the twelve months ended December 31, 2006 compared to
$1,495,454 for the same period in 2005.  Non-cash stock compensation from
stock options accounted for $1,535,115 of the increase. Additional increase of
$39,376 is due primarily to the increased costs in accounting fees for
Sarbanes-Oxley compliance.



Consulting Expenses.  Consulting expenses increased to
$345,637 for the twelve months ended December 31, 2006 compared to $290,000 for
the same period in 2005.  This increase is primarily attributed to the
services of Jacobs Engineering relating to the then proposed construction of an
office and manufacturing facility that we abandoned in 2008.  Other costs
included commissions paid for synDNA sales referrals and consulting costs used
to evaluate development of existing research platforms and business directives
for the Company.  In 2006 the Company issued 320,000 shares of common stock
valued at $0.86 per share for services for preparing and coordinating with the
Company and others in the development of business plans, investor presentations,
and financial models, which represents $275,200 of the $345,637.  In 2005,
the Company issued 500,000 shares of common stock valued at $0.58 per share for
services for preparing and coordinating with the Company and others in the
development of business plans, investor presentations, and financial models,
which represents the entire $290,000.





31



---



Depreciation and Amortization Expense.  Depreciation and
amortization expenses increased to $48,754 for the twelve months ended December
31, 2006 compared to $25,391 for the same period in 2005 primarily due to
equipment purchased to expand the lab to accommodate synDNA sales production.
 In 2006, the Company also installed a new server to optimize security and
data retention.



LIQUIDITY AND CAPITAL RESOURCES



The
Company has financed its operations since inception primarily through equity
sales totaling approximately $18,000,000, and from grants and contract research
funding of $200,000 from various sources.  The Company expects to continue
to incur losses as it expands its research and development activities and
related regulatory work and increases its collaborative efforts.  For 2008,
the Company expects expenditures for operations, including its collaborative
efforts to be approximately $3 to $4 million.  The increase compared to
2007 expenditures is expected to result from additional production staff and
expansion of preclinical product development efforts.  However, if need be
in 2008, the Company could reduce its expenditures because the vast majority of
its costs are variable.  Those estimated expenditures include amounts
necessary to fulfill its obligations under various collaborative, research and
licensing agreements during 2008.



On
December 4, 2006, Lawrence Wunderlich, the Companys former Chief Financial
Officer and a former director, and Frank Vazquez, the Companys former chief
operating officer and a former director, filed a complaint with the American
Arbitration Association to recover over $800,000 in severance payments that they
allege the Company owes them.  In the event Messrs. Wunderlich and Vazquez
are successful in their claims against the Company, it will have a material
adverse impact on the liquidity of the Company.  See Part I, Item 3, Legal
Proceedings for a more detailed description of this dispute.



Because
of the cost (up to $1.7 billion) and timeframe (up to 15 years) traditionally
associated with developing a potential drug or pharmaceutical product to FDA
approval for human sales is received, the Companys business strategy is to
develop its products to initial Phase I or II clinical trials and look for third
parties to fund completion of development of the product and market the product
through strategic partnerships, license agreements or other relationships.
 The Company also looks for collaborative and other efforts utilizing its
technology to increase shareholder value.  The Company currently uses this
strategy to limit the potential cost the Company would incur in developing a
product.  The Companys expected costs under our various contracts and for
various drug development products can be estimated for the next year or two, but
not much beyond that due to the uncertainty of clinical trial and research
results.  Because of the various factors noted above and the expectation
that, until the Company establishes revenue sources, the Company will license
to, or jointly develop its prospective products with, strategic partners, the
Company reviews, at least annually, each research program and clinical trial,
based on results and progress during the prior year and estimates its needs for
that program or trial for the coming year, making adjustments based on the
progress of the program during the year.  The Company does not set
long-term development budgets or development schedules for bringing its products
to market or track its research costs on a product basis.



32



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Cash
and cash equivalents were $162,042 at December 31, 2007, compared with
$2,854,197 at December 31, 2006.  The decrease of $2,692,155 was due to the
result of operations for the year.  See Results of Operations above.



To fund
operations in 2008 and beyond the Company will need to raise additional capital.
 The Company will continue to look for opportunities to finance its ongoing
activities and operations through accessing corporate partners or the equity
markets, as the Company currently has no credit facility, nor does the Company
currently intend to seek one.



CONTRACTUAL PAYMENT OBLIGATIONS



The
Companys off-balance sheet arrangements are limited to rents on its primary
facility.  These off-balance sheet arrangements are expensed as incurred.
 A summary of contractual commitments and obligations as of December 31,
2007 is as follows:



PAYMENTS DUE BY PERIOD



CONTRACTUAL

OBLIGATION

Total

2008

2009



Operating leases

$  153,584

$     76,792

$   76,792



On March 20, 2008, the Company received notice of termination of
the GSL Earnest Money Contract due to an alleged default by the Company and as
such does not believe it has any ongoing contractual obligation with regard to
this contract.  Approximately $1,201,160 previously paid was forfeited.

The
Companys future expenditures and capital requirements depend on numerous
factors, most of which are difficult to project beyond the short term,
including, without limitation, the progress of research and development
programs, the progress of pre-clinical and clinical trials, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights, competing technological and market developments, its ability to
establish collaborative arrangements and the terms of any such arrangements, and
the costs associated with commercialization of its products.  Cash
requirements are expected to continue to increase each year as the Company
expands its activities and operations.  There can be no assurance, however,
that the Company will ever be able to generate product revenues or achieve or
sustain profitability.



NEW
ACCOUNTING PRONOUNCEMENTS



In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements.  This statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007.  Management is currently evaluating the impact SFAS No. 157 will have
on the Companys financial position, results of operations, and cash flows.



33



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In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities  including an amendment of FASB
statement No. 115. This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the fair value
option). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intent of an entity to
hold other debt securities to maturity in the future. This statement is
effective as of the first fiscal year that begins after November 15, 2007.
 The Company is currently analyzing the effects of SFAS 159 but does not
expect its implementation will have a significant impact on the Company's
financial condition or results of operations.



In July
2006, the FASB issued FASB Interpretation (FIN) No. 48 Accounting for
Uncertainly in Income Taxes  An Interpretation of FASB Statement No. 109. 
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement, and disclosure of uncertain tax positions recognized in an
enterprises financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes.  Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods.  FIN 48 will be effective for fiscal
years beginning after December 15, 2006, and the provisions of FIN 48 will be
applied to all positions upon the adoption of the Interpretation.  The
cumulative effect of applying the provisions of this Interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year.  Management is currently evaluating the impact of FIN 48 on
the financial statements but does not believe that its adoption will have a
material effect on the Companys financial position, results of operations, or
cash flows.



In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when quantifying
Misstatements in Current Year Financial Statements (SAB 108).
SAB 108 requires companies to evaluate the materiality of identified
unadjusted errors on each financial statement and related financial statement
disclosure using both the rollover approach and the iron curtain approach, as
those terms are defined in SAB 108. The rollover approach quantifies
misstatements based on the amount of the error in the current year financial
statement, whereas the iron curtain approach quantifies misstatements based on
the effects of correcting the misstatement existing in the balance sheet at the
end of the current year, irrespective of the misstatements year(s) of origin.
Financial statements would require adjustment when either approach results in
quantifying a misstatement that is material. Correcting prior year financial
statements for immaterial errors would not require previously filed reports to
be amended. If a Company determines that an adjustment to prior year financial
statements is required upon adoption of SAB 108 and does not elect to
restate its previous financial statements, then it must recognize the cumulative
effect of applying SAB 108 in fiscal 2006 beginning balances of the
affected assets and liabilities with a corresponding adjustment to the fiscal
2006 opening balance in



34



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retained earnings. SAB 108 is effective for interim periods
of the first fiscal year ending after November 15, 2006, and will be
adopted by the Company in the first quarter of 2007.  The Company does not
expect the adoption of this interpretation to have an impact on its financial
position or results of operations.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



The
discussion and analysis of the Companys financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
 The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities.  On an ongoing basis, the Company evaluates its estimates,
including those related to valuation of investments, long-lived assets, and
revenue recognition.  The Company bases their estimates on historical
experience and on various other assumptions.  Actual results may differ
from these estimates under different assumptions or conditions.  The
Company believes the following critical accounting policies and the related
judgments and estimates affect the preparation of its financial statements.



Cash
and Cash Equivalents



Cash
and cash equivalents include highly liquid, temporary cash investments having
original maturity dates of three months or less.  For reporting purposes,
such cash equivalents are stated at cost plus accrued interest which
approximates fair value.



Accounts Receivable



The
companys accounts receivable primarily consist of trade receivables.
 Management reviews accounts receivable on a monthly basis to determine if
any receivables will potentially be uncollectible.  The company includes
any accounts receivable balances that are determined to be uncollectible in its
allowance for doubtful accounts.  As of December 31, 2007 and 2006 the
allowance for doubtful accounts is zero.



Inventory



Inventory includes raw materials (liquid buffers and enzyme mix)
that are used to produce enzymatically synthesized DNA (synDNA(TM)).
 Inventory is stated at the lower of cost or market, cost being determined
using the first-in, first out ("FIFO") method.  Reserves are established
for excess or obsolete inventories. Inventory is included in the cost of revenue
when sold.



Property and Equipment



Property and equipment is recorded at cost and depreciation is
computed using the straight-line method over the useful lives of the assets.
 Major renewals and improvements are capitalized; minor replacements,
maintenance and repairs are charged to current operations.



35



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Impairment of Long-lived Assets



CytoGenix performs reviews for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.



Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment of or Disposal of Long-Lived Assets, sets forth
guidance as to when to recognize an impairment of long-lived assets and how to
measure such impairment.  The standards require certain assets be reviewed
for impairment whenever events or circumstances indicate the carrying amount may
not be recoverable.



Revenue
Recognition



CytoGenixs revenues are primarily derived from selling synDNA.
 CytoGenix recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collection is probable.



Research and Development



Internal research and development costs are expensed as incurred.
 Research and development costs include salaries and personnel-related
costs, supplies and materials, facility costs, depreciation of facility
property, and outside services required to conduct the preclinical
development.



Income
Taxes



The
asset and liability approach is used to account for income taxes by recognizing
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities.  CytoGenix records a valuation allowance to reduce the
deferred tax assets to the amount that is more likely than not to be
realized.



Earnings Per Common Share



Basic
and diluted net loss per share excludes dilution and is computed by dividing net
loss by the weighted average number of common shares outstanding for the period
presented



Stock-Based Compensation



Effective January 1,
2006, the Company adopted SFAS No. 123 (revised),
"Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R) we accounted for
stock option grant in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees," and
accordingly, recognized compensation expense for stock option grants
using the intrinsic value method.



36



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Under
the modified prospective approach, SFAS 123(R) applies to new awards
and to awards that were outstanding on January 1, 2006 that
are subsequently modified, repurchased or cancelled.  Under the
modified prospective approach, compensation cost recognized in
the first quarter of fiscal 2006 includes compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant-date fair value estimated in accordance with the
original  provisions of SFAS 123, and compensation cost for all
share-based payments granted subsequent  to January 1, 2006 based
on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R).  For all quarters after the first quarter of
fiscal 2006, compensation costs recognized will include compensation costs for
all share-based payments granted based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).  As of December 31, 2007 no
options have been exercised.





ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



During 2007 the 1st Court of Appeals issued a Mandate
in favor of the Company.  Shortly after issuance, the $115,500 CD
previously held as a security for the Waldroff litigation matter as previously
discussed was released to the Company.



ITEM 8.

FINANCIAL STATEMENTS





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of
Directors andStockholders of CytoGenix, Inc.



We have
audited CytoGenix, Inc.s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). CytoGenix, Inc.s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management Assessment of the
Effectiveness of Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the companys internal control over financial
reporting based on our audit.



We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.



37



---





A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.



Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



A
material weakness is a control deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Companys annual or interim
financial statements will not be prevented or detected on a timely basis. The
following deficiencies which, together, constitute a material weakness, have
been identified and included in managements assessment:



·

The Company has inadequate segregation of duties within its cash
disbursement control design.

·

The Companys physical inventory controls are not operating
effectively and inventory is prone to misstatement.

·

The Company lacks procedures to properly account for non-routine
or complex accounting issues and for evaluating alternative accounting
treatments for significant transactions that are documented and approved by
management.

·

The Company lacks procedures for the identification of other
financial disclosure items such as related parties, subsequent events, and
contingent transactions.

·

There was an inadequate time period between the formation of some
of the controls and the testing period to determine whether the policies and
procedures were adequate and effective.



This
material weakness was considered in determining the nature, timing, and extent
of audit tests applied in our audit of the 2007 financial statements, and this
report does not affect our report dated April 4, 2008 on those financial
statements.



In our
opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, CytoGenix, Inc. has not
maintained effective internal control over financial reporting as of December
31, 2007, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).



38



---





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets as of December 31, 2007 and
2006, and the related statements of income, stockholders equity (deficit), and
cash flows of CytoGenix, Inc. for each of the years in the three years ended
December 31, 2007, and our report dated April 4, 2008 expressed an unqualified,
but modified for going concern,  opinion thereon.



/s/ LBB & ASSOCIATGES LTD, LLPLBB &
ASSOCIATES LTD., LLP

Houston, Texas

April 4, 2008









39



---







Managements Report on Internal Control Over Financial
Reporting



Board of Directors
and Shareholders of CytoGenix, Inc.



The
Management of CytoGenix, Inc. (the Company) is responsible for establishing
and maintaining adequate internal control over financial reporting.  The
Companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U. S. generally accepted accounting principles.  Internal control over
financial reporting includes policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statement in accordance with U. S. generally accepted
accounting principles, and that  receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding
prevention of timely detection of unauthorized acquisition, use or disposition
of the Companys assets that could have a material effect on the financial
statements.



All
internal control systems, no matter how well designed, have inherent
limitations, Therefore, even those systems determined to be effective may not
prevent or detect misstatements.



The
Companys management assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2007.  In making this
assessment, the Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.



Managements assessment included an evaluation of such elements as
the design and operational effectiveness of key financial reporting controls,
process documentation, accounting policies overall control environment and
information systems control environment.



A
material weakness is a control deficiency, or combination of control
deficiencies, that results in a more than remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.  We identified the following deficiencies which together
constitute a material weakness in our assessment of the effectiveness of
internal control over financial reporting as of December 31, 2007:



·

The Company has inadequate segregation of duties within its cash
disbursement control design.

·

The Companys physical inventory controls are not operating
effectively and inventory is prone to misstatement.

·

The Company lacks procedures to properly account for non-routine
or complex accounting issues and for evaluating alternative accounting
treatments for significant transactions that are documented and approved by
management.



40



---



·

The Company lacks procedures for the identification of other
financial disclosure items such as related parties, subsequent events, and
contingent transactions.

·

There was an inadequate time period between the formation of some
of the controls and the testing period to determine whether the policies and
procedures were adequate and effective.



Because
of the aforementioned deficiencies, which together constitute a material
weakness, the Companys management has concluded that the Companys internal
control over financial reporting as of December 31, 2007 was ineffective.



The
Company is continuing the process of remediating its control deficiencies.
 However, the material weakness in internal control over financial
reporting that has been identified will not be remediated until numerous
internal controls are implemented and operate for a period of time, are tested,
and the Company is 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 control over financial
reporting in the future.



Managements assessment of the effectiveness of the Companys
internal control over financial reporting as of December 31, 2007 has been
audited by LBB & Associates Ltd., LLP (LBB), an independent registered
public accounting firm.  LBBs report on internal control over financial
reporting is included in this Annual Report on Form 10-K.



CytoGenix, Inc.



/s/
 MALCOLM SKOLNICK

Malcolm Skolnick

PRESIDENT & CEO (PRINCIPAL
EXECUTIVE OFFICER)



/s/
 GREG S. TAYLOR

Greg S. Taylor

CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)











41



---







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and
ShareholdersCytoGenix, Inc.:





We have audited the accompanying balance
sheets of CytoGenix, Inc. (Company) as of December 31, 2007 and 2006, and
the related statements of operations, shareholders equity (deficit), and cash
flows for each of the years in the three-year period ended December 31,
2007. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.



We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we 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.
We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial
position of CytoGenix, Inc. as of December 31, 2007 and 2006, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles.



As discussed in Note 3 to
the financial  statements,  the  Company's  absence of
significant  revenues,  recurring  losses  from
 operations,  and its  need  for additional  financing
 in  order  to fund  its  projected  loss  in
 2008  raise substantial  doubt about its ability to
 continue as a going  concern.  The 2007 financial statement do
not include any adjustments that might result from the outcome of this
uncertainty.



We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of December 31,
2007, based on criteria established inInternal Control  Integrated
Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated April 4, 2008, expressed an adverse opinion on the
effectiveness of the Companys internal control over financial reporting.





/s/ LBB &
Associates LTD, LLP

LBB & ASSOCIATES LTD., LLP

Houston, TX

April 4, 2008



42



---









|**CYTOGENIX,
INC.**               
|----------------------------------
|****                              
|**BALANCE SHEETS**                
|****                              
|****                              
|****                              
|                                  
|                                  
|                                  
|Current Assets:                   
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|Property and equipment, net       
|Deposits                          
|Long-term investments -
restricted
|                                  
|                                  
|                                  
|                                  
|                                  
|Current Liabilities:              
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|COMMITMENTS AND CONTINGENCIES     
|                                  
|STOCKHOLDERS' EQUITY (DEFICIT):   
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  







43



---







|**CYTOGENIX,
INC.**                 
|------------------------------------
|****                                
|**STATEMENTS OF
OPERATIONS**        
|****                                
|****                                
|****                                
|                                    
|                                    
|                                    
|REVENUES                            
|                                    
|COSTS OF REVENUES                   
|                                    
|                                    
|                                    
|COSTS AND EXPENSES:                 
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|LOSS FROM OPERATIONS                
|                                    
|OTHER INCOME(EXPENSE):              
|                                    
|                                    
|                                    
|NET LOSS                            
|                                    
|Net loss per share:                 
|                                    
|                                    
|Weighted average shares
outstanding:
|                                    
|                                    
|                                    



44



---







|**CYTOGENIX, INC.**                            
|-----------------------------------------------
|****                                           
|**STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT)**
|****                                           
|****                                           
|Paid -in                                       
|Shares                                         
|                                               
|BALANCE, December 31, 2004                     
|                                               
|Shares issued for cash, net
fundraising        
|Shares issued for debt                         
|Shares issued for services                     
|Net loss                                       
|                                               
|BALANCE, December 31, 2005                     
|                                               
|Shares issued for cash, net
fundraising        
|Shares issued for services                     
|Stock based compensation                       
|Net loss                                       
|                                               
|BALANCE, December 31, 2006
(Restated)          
|                                               
|Shares issued for cash, net
fundraising        
|Shares issued for services                     
|Stock based compensation                       
|Net loss                                       
|                                               
|BALANCE, December 31, 2007                     
|                                               
|                                               

---

|**CYTOGENIX,
INC.**                      
|-----------------------------------------
|****                                     
|**STATEMENTS OF CASH
FLOWS**             
|****                                     
|****                                     
|****                                     
|                                         
|                                         
|                                         
|OPERATING ACTIVITIES:                    
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Net cash used in operation
activities    
|                                         
|INVESTING ACTIVITIES:                    
|                                         
|                                         
|                                         
|                                         
|Net cash used in investing
activities    
|                                         
|FINANCING ACTIVITIES:                    
|                                         
|                                         
|                                         
|                                         
|Net cash provided by financing
activities
|                                         
|NET CHANGE IN CASH                       
|CASH, beginning of period                
|                                         
|CASH, end of period                      
|                                         
|SUPPLEMENTAL CASH FLOW
INFORMATION:      
|                                         
|                                         
|                                         
|                                         
|NONCASH TRANSACTIONS:                    
|                                         
|                                         
|                                         



46



---







CYTOGENIX, INC.

NOTES TO
FINANCIAL STATEMENTS

December
31, 2007





NOTE 1
 SUMMARY OF ACCOUNTING POLICIES



Nature
of Business



CytoGenix, Inc. (CytoGenix) 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.



Basis
of Presentation



These
financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America.



Use of
Estimates



The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the balance sheet.  Actual results could differ
from those estimates.



Cash
and Cash Equivalents



Cash
and cash equivalents include highly liquid, temporary cash investments having
original maturity dates of three months or less.  For reporting purposes,
such cash equivalents are stated at cost plus accrued interest which
approximates fair value.



Accounts Receivable



The
Companys accounts receivable primarily consist of trade receivables.
 Management reviews accounts receivable on a monthly basis to determine if
any receivables will potentially be uncollectible.  The company includes
any accounts receivable balances that are determined to be uncollectible in its
allowance for doubtful accounts.  As of December 31, 2007 and 2006 the
allowance for doubtful accounts is zero.



Inventory



Inventory includes raw materials (liquid buffers and enzyme mix)
that are used to produce enzymatically synthesized DNA (synDNA).
 Inventory is stated at the lower of cost or market, cost being determined
using the first-in, first out ("FIFO") method.  Reserves are established
for excess or obsolete inventories. Inventory is included in the cost of revenue
when sold.



47



---







Inventory detail is as follows:



|                |                   |  |                  
|--------------- | ----------------- |  | -----------------
|                | December 31, 2007 |  | December 31, 2006
|                |                   |  |                  
|Inventory       |                   |  |                  
|Raw materials   | $241,790          |  | $421,957         
|Finished goods  | 10,354            |  | -                
|Total Inventory | $252,144          |  | $421,957         





Property and Equipment



Property and equipment is recorded at cost and depreciation is
computed using the straight-line method over the useful lives of the assets.
 Major renewals and improvements are capitalized; minor replacements,
maintenance and repairs are charged to current operations.



Impairment of Long-lived Assets



CytoGenix performs reviews for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.



Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment of or Disposal of Long-Lived Assets, sets forth
guidance as to when to recognize an impairment of long-lived assets and how to
measure such impairment.  The standards require certain assets be reviewed
for impairment whenever events or circumstances indicate the carrying amount may
not be recoverable.



Revenue
Recognition



CytoGenixs revenues are primarily derived from selling synDNA.
 CytoGenix recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collection is probable.



Research and Development



Internal research and development costs are expensed as incurred.
 Research and development costs include salaries and personnel-related
costs, supplies and materials, facility costs, depreciation of facility
property, and outside services required to conduct the preclinical
development.



Income
Taxes



The
asset and liability approach is used to account for income taxes by recognizing
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities.  CytoGenix records a valuation allowance to reduce the
deferred tax assets to the amount that is more likely than not to be
realized.



48



---





Earnings Per Common Share



Basic
and diluted net loss per share excludes dilution and is computed by dividing net
loss by the weighted average number of common shares outstanding for the period
presented.



Stock-Based Compensation



Effective January 1,
2006, the Company adopted SFAS No. 123 (revised),
"Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R) we accounted for
stock option grant in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees," and
accordingly, recognized compensation expense for stock option grants
using the intrinsic value method.



Under
the modified prospective approach, SFAS 123(R) applies to new awards
and to awards that were outstanding on January 1, 2006 that
are subsequently modified, repurchased or cancelled.  Under the
modified prospective approach, compensation cost recognized in
the first quarter of fiscal 2006 includes compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant-date fair value estimated in accordance with the
original  provisions of SFAS 123, and compensation cost for all
share-based payments granted subsequent  to January 1, 2006 based
on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R).  For all quarters after the first quarter of
fiscal 2006, compensation costs recognized will include compensation costs for
all share-based payments granted based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).



For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
Set forth below is a summary of the Company's net income and earnings per share
as reported and pro forma as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied. The pro forma compensation expense may
not be representative of future amounts because options vest over several years
and generally expire upon termination of employment, and additional options may
be granted in future years.



The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.









The
fair value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield $0, expected volatility of 116% -- 250%, risk-free
interest rate of 4.5%, and expected lives of 10 years.



49



---







Segment
Reporting



The Company operates in one industry
segment  biotechnology research and development. The Company operates in
one geographic area, being the United States of America.



FASB Statement No. 131,Disclosures about Segments of an Enterprise
and Related Information,
establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Companys chief operating
decision maker is its Chief Executive Officer. The Companys Chief Executive
Officer reviews financial information presented on a consolidated basis for
purposes of allocating resources and evaluating financial performance. The
Company has one business activity and there are no segment managers who are held
accountable for operations, operating results and plans for products or
components below the consolidated unit level. Accordingly, the Company reports
as a single operating segment.



Recent
Accounting Pronouncements



In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements.  This statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007.  Management is currently evaluating the impact SFAS No. 157 will have
on the Companys financial position, results of operations, and cash
flows.



In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities  including an amendment of FASB
statement No. 115. This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the fair value
option). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intent of an entity to
hold other debt securities to maturity in the future. This statement is
effective as of the first fiscal year that begins after November 15, 2007.
 The Company is currently analyzing the effects of SFAS 159 but does not
expect its implementation will have a significant impact on the Company's
financial condition or results of operations.



50



---





In July
2006, the FASB issued FASB Interpretation (FIN) No. 48 Accounting for
Uncertainly in Income Taxes  An Interpretation of FASB Statement No. 109. 
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement, and disclosure of uncertain tax positions recognized in an
enterprises financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes.  Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods.  FIN 48 will be effective for fiscal
years beginning after December 15, 2006, and the provisions of FIN 48 will be
applied to all positions upon the adoption of the Interpretation.  The
cumulative effect of this applying the provisions of this Interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year.  Management is currently evaluating the impact of FIN 48 on
the financial statements but does not believe that its adoption will have a
material effect on the Companys financial position, results of operations, or
cash flows.



In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when quantifying
Misstatements in Current Year Financial Statements (SAB 108).
SAB 108 requires companies to evaluate the materiality of identified
unadjusted errors on each financial statement and related financial statement
disclosure using both the rollover approach and the iron curtain approach, as
those terms are defined in SAB 108. The rollover approach quantifies
misstatements based on the amount of the error in the current year financial
statement, whereas the iron curtain approach quantifies misstatements based on
the effects of correcting the misstatement existing in the balance sheet at the
end of the current year, irrespective of the misstatements year(s) of origin.
Financial statements would require adjustment when either approach results in
quantifying a misstatement that is material. Correcting prior year financial
statements for immaterial errors would not require previously filed reports to
be amended. If a Company determines that an adjustment to prior year financial
statements is required upon adoption of SAB 108 and does not elect to
restate its previous financial statements, then it must recognize the cumulative
effect of applying SAB 108 in fiscal 2006 beginning balances of the
affected assets and liabilities with a corresponding adjustment to the fiscal
2006 opening balance in retained earnings. SAB 108 is effective for interim
periods of the first fiscal year ending after November 15, 2006, and was
adopted by the Company as of January 1, 2007.  The adoption of this
interpretation did not have an impact on its financial position or results of
operations.



NOTE 2
 RESTATEMENT



In
connection with the establishment of the Companys stock option plans of 2003
and 2005, the Company did not recognize any compensation cost under SFAS 123(R).
 As a result of a recent letter from the staff of the SEC, we restated our
financial statements (The Restatement) and associated disclosures to include
compensation cost upon vesting of options.  We understated non-cash
expenses and net loss by $4,306,377 in the year ending December 31, 2006.
 The restatement impacted certain line items within cash flows from
operations, but had no effect on total cash flows from operations and did not
impact cash flows from financing or investing activities.  This restatement
had no impact on the balance sheets, statements of operations or the net
decrease in cash and cash equivalents reported in the statements of cash flows
for any periods as of or reported prior to December 31, 2005.



51



---





The
restatement also effected Note 10







|                                                                                    |                             |                            |                   |             |             |              |            
|----------------------------------------------------------------------------------- | --------------------------- | -------------------------- | ----------------- | ----------- | ----------- | ------------ | -----------
|The effect of the restatement on specific
items in the balance sheet is as follows: |                             |                            |                  
|                                                                                    |                             |                            |                   |             |             |              |            
|                                                                                    |                             |                            |                   |             |             |              |            
|                                                                                    |                             |                            | December 31,
2006
|                                                                                    |                             |                            | As Previously     |             |             |              |            
|                                                                                    |                             |                            | Reported          |             | Adjustments |              | As Restated
|STOCKHOLDERS' EQUITY:                                                               |                             |                            |                   |             |            
|                                                                                    | Additonal paid-in capital   | $30,544,649                |                   | $4,306,377  |             | $34,851,026 
|                                                                                    |                             |                            |                   |             |             |              |            
|                                                                                    | Retained earnings (deficit) | (27,153,588)               |                   | (4,306,377) |             | (31,459,965)
|                                                                                    |                             |                            |                   |             |             |              |            
|                                                                                    |                             | Total Stockholders' Equity | 2,901,753         |             | -           |              | 2,901,753  
|                                                                                    |                             |                            |                   |             |             |              |            







|                                                                                              |                            |            |                   |            |             |            |            
|--------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ----------------- | ---------- | ----------- | ---------- | -----------
|The effect of the restatement on specific
items in the statement of operations is as follows: |                            |           
|                                                                                              |                            |            |                   |            |             |            |            
|                                                                                              |                            |            |                   |            |             |            |            
|                                                                                              |                            |            | December 31,
2006
|                                                                                              |                            |            | As Previously     |            |             |            |            
|                                                                                              |                            |            | Reported          |            | Adjustments |            | As Restated
|COSTS AND EXPENSES:                                                                           |                            |            |                   |            |            
|                                                                                              | Research and development   | $2,199,148 |                   | $2,771,262 |             | $4,970,410
|                                                                                              | General and administrative | 1,534,830  |                   | 1,535,115  |             | 3,069,945 
|                                                                                              |                            |            |                   |            |             |            |            
|LOSS FROM OPERATIONS                                                                          | 4,096,923                  |            | 4,306,377         |            | 8,403,300  









|                                                                                              |                                               |                                  |                   |              |             |              |            
|--------------------------------------------------------------------------------------------- | --------------------------------------------- | -------------------------------- | ----------------- | ------------ | ----------- | ------------ | -----------
|The effect of the restatement on specific
items in the statement of operations is as follows: |                                               |                                 
|                                                                                              |                                               |                                  |                   |              |             |              |            
|                                                                                              |                                               |                                  |                   |              |             |              |            
|                                                                                              |                                               |                                  | December 31,
2006
|                                                                                              |                                               |                                  | As Previously     |              |             |              |            
|                                                                                              |                                               |                                  | Reported          |              | Adjustments |              | As Restated
|OPERATING ACTIVITIES:                                                                         |                                               |                                  |                   |              |            
|                                                                                              | Net Loss                                      | $(4,095,534)                     |                   | $(4,306,377) |             | $(8,401,911)
|                                                                                              | Adjustments to reconcile net loss to net
cash |                                  |                   |              |             |             
|                                                                                              |                                               | Share-based compensation expense | -                 |              | 4,306,377   |              | 4,306,377  
|                                                                                              |                                               |                                  |                   |              |             |              |            
|Net cash used in operation
activities                                                         | (4,058,084)                                   |                                  | -                 |              | (4,058,084)



NOTE 3
 GOING CONCERN



CytoGenix has had negligible revenues since inception and only
approximately $143,000 in the last two years.  The Company has incurred
losses totaling $37,726,040 from inception through December 31, 2007.
 Because of these conditions, CytoGenix will require additional working
capital to develop business operations.  CytoGenix intends to raise
additional working capital either through private placements, public offerings
and/ or bank financing.



There
are no assurances that CytoGenix will be able to achieve a level of revenue
adequate to generate sufficient cash flow from operations or obtain additional
financing through private placements, public offerings and/ or bank financing
necessary to support CytoGenixs working capital requirements.  To the
extent that funds generated from any private placements, public offerings and/
or bank financing are insufficient, CytoGenix will have to raise additional
working capital.  No assurance can be given that additional financing will
be available, or if available, will be on terms acceptable to CytoGenix.
 If adequate working capital is not available CytoGenix may not increase
its operations.



These
conditions raise substantial doubt about CytoGenixs ability to continue as a
going concern.  The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might be necessary should
CytoGenix be unable to continue as a going concern.



NOTE 4
 LONG TERM INVESTMENT - RESTRICTED



The
Company established a CD for $50,000 with Frost National bank which matures July
18, 2008.  This CD earned interest at 4.65% and in 2007 and 2006 interest
earned was $2,345 and $1,057 respectively.  The CD was required by Frost
National Bank to partially secure the equipment loan discussed in Note 7.



52



---





The Company had a restricted long-term CD investment for the
Waldroff litigation matter discussed in Note 13 to the financial statements.
 Pending appeal of this case CytoGenix had established a long-term CD in
the amount of $115,500 to comply with a court order.  This CD earned
interest at a rate of 3.4% annually.  This CD was maintained until a
mandate was issued by the 1st Court of Appeals.  In 2007 the mandate was
issued and the CD was released to the Company.



NOTE 5
 PROPERTY AND EQUIPMENT, NET



Property consisted of the following as of December 31:



2007

2006

Lab equipment

5-7 years

$ 338,295        $ 299,005

Office Furniture & Fixtures

3-7 years

62,592

62,592

Office Equipment

3-7 years

63,034

63,246

Leasehold Improvements

Lease Term

16,804

16,804

Less: accumulated depreciation

(243,371)

(179,854)

-----------

-----------

Net book value

$ 237,354

$  261,793

=======

=======



Depreciation expense totaled $64,879, $48,754 and $25,391 for
2007, 2006 and 2005 respectively.



NOTE 6
 DEPOSITS



The
Companys deposits at December 31, 2007 include a deposit on the current office
and lab facilities in the amount of $6,399.



Additionally, the balance includes $901,160 of payments made by
the Company to a contractor under an earnest money contract relating to the
construction of a new office and lab facility for the Company in Houston, Texas.
 The Company was notified in March 2008 of its default to the contract
based on not having met the terms for additional deposits.  At this time,
the entire deposit balance was deemed unrecoverable by the Company and was fully
impaired for financial statement purposes at December 31, 3007.



NOTE 7
 ACCRUED EXPENSES



Accrued
expenses consist mainly of unpaid salaries and unpaid payroll taxes on cash
compensation and stock based compensation.  Total accrued payroll taxes for
previously issued stock compensation as of December 31, 2007 and 2006 was
$207,154.  Accrued bonus compensation per employment agreements as of
December 31, 2007 and 2006 was and $361,946.



NOTE 8
 DEBT

53



---





CytoGenix entered into an $80,000, 36 month promissory note with a
bank on July 18, 2006 to finance the cost of equipment.  The note requires
monthly payments of $2,569 including interest at 9.51%.  Interest paid for
the year ended December 31, 2007 and 2006 was $5,672 and 1,272 respectively.



Annual maturities of
debt during each of the years ended December 31, are as follows:









NOTE 9
 COMMON STOCK ISSUANCES



On
November 30, 2007, the Company completed a private placement of 4,491,000 shares
(4,389,750 shares issued as of December 31, 2007, 101,250 issued subsequent to
December 31, 2007) of restricted common stock at $.16 per share for gross
proceeds of $718,560.  The difference between the selling price and the
market value on the date the shares were sold was approximately $.09 per share
($404,190). In 2007 the Company issued 1,256,008 shares with a value of $345,343
for services.



During
2006, the Company issued 15,882,991 shares through private placement with net
proceeds totaling $6,314,566, and issued 320,000 shares valued at $275,200 for
services.



During
2005, the company issued 13,928,967 shares through private placement with net
proceeds totaling $3,585,080, and issued 647,701 shares valued at $542,126 in
settlement of debt, and 679,963 shares valued at $328,500 for services.



STOCK
ISSUED FOR DEBT:



In 2007
and in 2006, there were no shares issued for debt. In 2005, 647,701 shares were
issued for debt totaling $542,126.



NOTE 10
 STOCK OPTIONS AND WARRANTS



In
2004, CytoGenix issued 1,242,856 warrants as part of a private placement
memorandum.  The warrants are exercisable at $0.28 per share, vest
immediately and expire one year from the grant date.  Of these warrants
642,857 were not exercised and expired in 2005.  There were no warrants
outstanding as of December 31, 2007, 2006 or 2005.



On June 24, 2003, the Company adopted the 2003 Stock Option Plan
(the 2003 Plan) to provide for the granting of incentive stock options to
executive officers and employees of the Company, as determined by a committee of
the Companys board of directors.  Non-qualified options may also be
granted under the 2003 Plan to non-employee directors and consultants of the
Company.



54



---



A total of 18,000,000 shares of common stock have been reserved
for issuance under the 2003 Plan.  All stock options granted under the 2003
Plan vest, subject to a Condition Precedent, 33.3% at grant date and at each of
the first and second anniversaries of the grant date and expire no later than
ten years from the date of the plan on June 24, 2013. Awards granted under the
Option Plan are to be determined from time to time by a compensation committee.
If an option expires or is terminated, surrendered or cancelled without having
been fully exercised, the unused shares covered by any such Option shall again
be available for grant under the Option Plan.  As of December 31, 2007,
2,925,000 common stock shares are available to be awarded under this plan.
 No option issued under the 2003 Plan is exercisable, even if vested,
unless and until such time that the underlying shares to be issued are publicly
registered with the Securities and Exchange Committee, such registration
constituting the Condition Precedent.  According to the terms of the Option
Plan, the Company is under no obligation to register the underlying shares, nor
is there any recourse by the option holder in the event their options expire or
otherwise terminate prior to the Condition Precedent being met.

On June 14, 2005 the Company adopted the 2005 Stock Option Plan
(the 2005 Plan) to provide for the granting of incentive stock options to
executive officers and employees of the Company, as determined by a committee of
the Companys board of directors.  Non-qualified options may also be
granted under the 2005 Plan to non-employee directors and consultants of the
Company

A total of 18,000,000 shares of common stock have been reserved
for issuance under the 2005 Plan.  All stock options granted under the 2003
Plan vest, subject to a Condition Precedent, 33.3% at grant date and at each of
the first and second anniversaries of the grant date and expire no later than
ten years from the date of the plan on June 14, 2015. Awards granted under the
Option Plan are to be determined from time to time by a compensation committee.
If an option expires or is terminated, surrendered or cancelled without having
been fully exercised, the unused share covered by any such Option shall again be
available for grant under the Option Plan.  As of December 31, 2007,
8,789,000 common stock shares are available to be awarded under this plan.
 No option issued under the 2005 Plan is exercisable, even if vested,
unless and until such time that the underlying shares to be issued are publicly
registered with the Securities and Exchange Committee, such registration
constituting a Condition Precedent.  According to the terms of the Option
Plan, the Company is under no obligation to register the underlying shares, nor
is there any recourse by the option holder in the event their options expire or
otherwise terminate prior to the Condition Precedent being met.



Restatement of Stock Options



In
connection with the establishment of the Companys stock option plans of 2003
and 2005, the Company took the position that no compensation cost should be
recognized by the Company until such time as the underlying shares were
registered, as this constituted a performance condition under SFAS 123(R) and
that such condition was not deemed probable at the time of the filing.  The
Company later determined that its position was incorrect and restated its
financial statements and associated disclosures to include compensation costs
assuming the options as exercisable as they vest.  The error resulted in
the understatement of non-cash expense and a corresponding understatement of net
loss of $4,306,377 for the year ended December 31, 2006.  The restatement
impacted certain line items within the cash flows from operations but no effect
on total cash flows from operations and did not impact cash flows from financing
or investing activities.  This restatement had no impact on the balance
sheets, statements of operations or the net decrease in cash and cash
equivalents reported in the statements of cash flows for any periods reported as
of or prior to December 31, 2005.



55



---





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





2006

2007

Research
and development

$2,771,262

452,886

General
and administrative

1,535,115

637,345

Total

$4,306,377

$1,090,231







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



Volatility

92%
to 250%

Risk-Fee
Interest Rate



4.50%

Dividend
Yield



0.00%

Expected
Term (years)

10.00





A summary for our
stock-based compensation activity is presented below:



|                                 |                   |              |         |            |             |  |  |  | 
|-------------------------------- | ----------------- | ------------ | ------- | ---------- | ----------- |  |  |  | 
|                                 |                   |              |         | Average    | Aggregated 
|                                 |                   |              | Average | Life       | Fair       
|                                 |                   | Options      | Price 1 | (years)2   | Value      
|Outstanding at December 31, 2004 | 14,550,000        | $0.20        | 8.50    | $2,969,167
|                                 |                   |              |         |            |            
|                                 | Granted           | 18,450,000   | 0.70    | 10.00      | 12,615,230 
|                                 | Exercised         | -            | -       | -          | -          
|                                 | Forfeited/expired | -            | -       | -          | -          
|                                 |                   |              |         |            |            
|Outstanding at December 31, 2005 | 33,000,000        | 0.48         | 8.40    | 15,584,397
|                                 |                   |              |         |            |            
|                                 | Granted           | 2,004,000    | 1.01    | 10.00      | 1,789,644  
|                                 | Exercised         | -            | -       | -          | -          
|                                 | Forfeited/expired | (12,825,000) | 0.50    | 8.40       | (6,280,191)
|                                 |                   |              |         |            |            
|Outstanding at December 31, 2006 | 22,179,000        | 0.52         | 7.50    | 11,093,850
|                                 | Granted           | 3,400,000    | 0.30    | 10.00      | 879,240    
|                                 | Exercised         | -            | -       | -          | -          
|                                 | Forfeited/expired | (1,293,000)  | 0.66    | 7.00       | (914,019)  
|                                 |                   |              |         |            |            
|Outstanding at December 31, 2007 | 24,286,000        | 0.48         | 6.85    | 11,059,071
|                                 |                   |              |         |            |            
|Exercisable at December 31, 2007 | 21,565,667        | 0.48         | 6.50    | 10,079,349
|                                 |                   |              |         |            |            
|Exercisable at December 31, 2006 | 17,401,333        | 0.45         | 7.30    | 7,628,763 
|                                 |                   |              |         |            |            
|Exercisable at December 31, 2005 | 20,583,333        | 0.35         | 8.00    | 7,157,107 
|                                 |                   |              |         |            |            
|                                 |                   |              |         |           
|                                 |                   |              |         |            |            

1
Weighted-average exercise price

2 Weighted-average
contractual life remaining



56



---





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



The
unvested options fair value will be recognized over their respective vesting
periods which ends August 2009.



NOTE 11
 INCOME TAXES



For the
period from inception through December 31, 2007, CytoGenix has incurred net
losses and, therefore, has no tax liability.  The net deferred tax asset
generated by the loss carry-forward has been fully reserved.  The valuation
allowance increased approximately $1,726,000, $1,400,000, and $1,205,000 during
the years ended December 31, 2007, 2006 and 2005, respectively.  The
cumulative net operating loss carry-forward is approximately $25,003,000 at
December 31, 2007, and will expire in the years 2013 through 2022.



Deferred income taxes consist of the following at December 31,



2007

2006

Long-term:

Deferred tax assets

$

8,501,000

$     6,775,000

Valuation allowance

(8,501,000)

(6,775,000)

--------------------

------------------

$
                       -

$
                  -

=============

===========



NOTE 12
 CONCENTRATIONS



The
Company had gross sales of $ 66,043, $76,993, and $0 for the years ended 2007,
2006 and 2005, respectively.  The Company has two customers that represent
100% of the gross sales for the year ended December 31, 2007 and three customers
that represented 100% of the gross sales for the year-ended December 31, 2006.
 The Company has one supplier that provides all the materials necessary to
generate the sales for the year ended December 31, 2007.  Due to the nature
of the materials, it might be difficult to find a new supplier should that be
necessary.



The
Company has cash balances in a single financial institution which, from time to
time, exceed the federally insured limit of $100,000. As of December 31, 2007,
the Companys cash balance exceeded the federally insured limit by $62,042.
 No loss has been incurred related to this concentration of cash.



57



---





NOTE 13
 COMMITMENTS AND CONTIGENCIES



Lease



CytoGenix leases office facilities under an operating lease that
expires on December 31, 2009.  Rent expense was $ 76,414, $69,749, and
$66,455 for 2007, 2006 and 2005, respectively.  Annual future rent payments
are as follows:









Over
the term of the lease the rent works out to an average of $5,701 per month
starting December 2003 and ending September 2009.  As of December 31, 2007
and 2006 deferred rent was $18,645 and $25,981, respectively and is included in
accrued expenses.



Land
& Building



On October 30, 2006, the Company entered into an earnest money
contract with GSL Constructors, Ltd. (GSL) for a design/build project located
in the Westchase District of Houston for $3,796,577 and paid GSL a deposit of
$474,572.  On March 20, 2008, the Company received notice of termination of
this contract due to an alleged default by the Company.  GSL purports to
have terminated the earnest money contract pursuant to the terms of Section 11
thereof, and pursuant to that section GSL would be entitled to the deposit and
all payments previously made by the Company as liquidated damages.  The
Company has paid approximately $1,201,160 under the contract.  GSL has not
released the Company from any of its obligations under the contract.

Research



CytoGenix has entered into Sponsored Research Agreements (SRA)
with several universities.  The universities do research for CytoGenix
related to CytoGenixs proprietary technology.  As work progresses, the
universities invoice CytoGenix for reimbursement of expenses related to the
research.  The SRAs have established budgets.  As of December 31,
2007 unbilled amounts under the SRAs totaled approximately $116,000.



Employment



Per the
employment agreement of the CEO, there is a severance pay obligation for early
termination for any reason other than cause, permanent disability, or if the
employee voluntarily resigns following a constructive termination, (collectively
a Termination Event) then the Company shall pay the employee base compensation
for a period of twelve (12) months following termination.  In addition, the
Company shall also reimburse the Employee for the payment of the Employee COBRA
or equivalent other replacement medical and dental insurance premiums for the
period of twelve (12) months. The cash obligation under this arrangement if the
CEO were to be terminated on January 1, 2008 could result in a cash outflow of
approximately $515,000.



58



---





Board of Directors



There
are currently four outside Directors who received $40,000 each in stock
compensation for the year ending December 31, 2007



Inventory



The
Company has entered an agreement with GE Healthcare Bio-Sciences Corp. whereas
GEHC will provide the Company with DNA production reagents for use in the
manufacture of vaccines and therapeutic compounds.  The Company plans to
begin the process of negotiating with GE for the optional extensions of the
contract for 2008 and beyond.  As of the date of this filing no agreement
has been finalized.



Litigation



William B Waldroff and Applied Veterinary Genomics,
Inc.

Waldroff and Applied
Veterinary Genomics, Inc. (AVGI) - Litigation initiated in March 2004 over the
validity of license agreements between CytoGenix (licensor) and William Waldroff
(licensee) for use of CytoGenix ssDNA expression technology in shrimp and horse
therapeutic applications. On March 3, 2007, the Court of Appeals denied
Waldroff/AVGIs Motion forRehearing bringing this matter to
a final conclusion in favor of the Company.

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. The Company has also filed counterclaims against the former
officers.  Depositions have
been taken and the arbitration hearing is scheduled for early May.  The
Company intends to vigorously defend the actions brought by the former COO and
CFO.



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



NOTE 14
- SUBSEQUENT EVENTS



Subsequent to the year end, the Company issued 101,250 shares as
part of its November 30, 2007 private placement.  See Note 9  Common
Stock Issuances above.  Additionally, the Company issued 249,999 shares
with a value of $40,000 for services rendered.



As
described in Note 6, the Company was notified in March 2008 of its default under
the terms of an earnest money contract it had entered into with a construction
contractor for the construction of a new office and lab facility for the
Company.  Accordingly, the Companys deposits were forfeited.
 Forfeited deposits included $901,160 made as of December 31, 2007, as well
as an additional payment of $300,000 made in the first quarter of 2008.



59



---





NOTE 15
 UNAUDITED QUARTERLY FINANCIAL DATA



First Quarter

Second Quarter

Third Quarter

Fourth Quarter



Year
Ended December 31, 2007

Net Sales

$
               -

$        39,459

$          2,555

$        24,029

Gross Profit

-

27,211

1,801

13,492

Net Loss

(1,588,538)

(1,013,232)

(1,423,420)

(2,240,885)

Basic Loss Per Share

(0.01)

(0.01)

(0.01)

(0.01)

Year
Ended December 31, 2006

Net Sales

$
               -

$
          37,180

$          8,115

$         31,698

Gross Profit

-

25,524

(11,327)

17,249

Net Loss

(3,212,522)

(1,669,680)

(1,972,616)

(1,547,093)

Basic Loss Per Share

(0.03)

(0.01)

(0.01)

(0.01)

Year
Ended December 31, 2005

Net Sales

$
               -

$
                -

$
                 -

$
                -

Gross Profit

-

-

-

-

Net Loss

(686,845)

(591,514)

(1,065,266)

(1189,500)

Basic Loss Per Share

(0.01)

(0.00)

(0.01)

(0.01)



The first three quarters in the year ended
December 31, 2007 and in the four quarters in the period ended December 31, 2006
have been restated.































ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES



None.





ITEM 9A.

CONTROLS AND PROCEDURES



Evaluation of Disclosures Controls and Procedures



In
order to ensure that the information we must disclose in our filings with the
Securities and Exchange Commission is recorded, processed, summarized, and
reported on a timely basis, we have formalized our disclosure controls and
procedures.  Our principal executive officer and principal financial
officer have reviewed and evaluated the effectiveness of our disclosure controls
and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of
December 31, 2007.  Based on such evaluations, such officers have concluded
that, as of December 31, 2007, our disclosure controls and procedures are not
effective in timely alerting them to material information relating to us
required to be included in our periodic SEC filings.



See
Managements Report on Internal Control over Financial Reporting in Item 8,
which is incorporated herein by reference.



ITEM 9B.

OTHER INFORMATION



None



60



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PART
III





ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



EXECUTIVE OFFICERS OF THE COMPANY AND OTHER KEY EMPLOYEES



Set
forth below are the names, ages as of March 31, 2008 and titles of the persons
currently serving as Director, Executive Officers and Significant Employees of
the Company:









DR.
MALCOLM H. 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 M.S. and Ph.D. degrees in physics
from Cornell University and a J.D. from the University of Houston.  Dr.
Skolnick has conducted basic science and clinical research and is a patented
inventor.  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
 Southwest Health Technology Foundation, Citizens League for Environmental
Action Now (CLEAN), and Frank Evans Center for Conflict Resolution and
Responsible Community Designs (a private company).



MR.
GREG S. TAYLOR was appointed CFO effective on September 1, 2007 and holds the
position of Vice President of Finance and Administration.  Mr. Taylor has
served as Managing Director of Monterey Capital Partners, a private equity
investment firm from 1996 to the present. From 2003 to 2005, Mr. Taylor was Vice
President of Finance and Business Administration, Chief Financial Officer, at
the College of Biblical Studies. Previously he served as a Vice President with
the investment banking division of Sumitomo Trust and Banking and with Bunker
Hill Associates, a merchant-banking firm. Mr. Taylor began his career as a CPA
with Ernst and Whinney, a national public accounting firm and received a
Bachelor of Business Administration and a Masters of Taxation both from Baylor
University



DR. YIN
CHEN earned this Ph.D. in Molecular Biology & Biochemistry at the University
of Maine in 1996.  Subsequently, he was a post-doctoral fellow at Beth
Israel Deaconess Medical Center, a teaching hospital of Harvard Medical School.
 In 1999, he joined InGene, Inc. of Kansas City, MO as senior research
scientist and then CytoGenix, as chief research scientist in February 2000.
 He is one of co-inventors of the Companys proprietary ssDNA expression
systems.  He was appointed as Chief Scientific Officer and Vice President
of Research and Development on November 7, 2001 and is Executive Secretary of
the Scientific Advisory Committee.



DR.
CINDEE EWELL brings a combination of scientific, legal,  and intellectual
property experience that is critical to securing and maintaining the legal
protection of the technology as well as our Company agreement with outside third
parties.  Dr. Ewell holds a Bachelor  of Science  degree from
 Cornell  University,  a Doctor of  Philosophy degree from
the  University  of Texas Health  Science  Center at
Houston, a Juris Doctorate from South Texas College of Law, and has over seven
years of post-doctoral experience working in the Department of Cell Biology at
Baylor College of Medicine. Dr. Ewell initially worked in the biotechnology
industry as a microbiologist and then moved on into academics where she worked
more as a cellular molecular biologist. Her legal expertise includes
approximately three years law firm experience where she worked with large
pharmaceutical and chemical clients in the areas of patent prosecution and
freedom to operate.



61



---





DR. XIN
XING TAN joined the Company on October 1, 2002 as a Senior Research Scientist.
 His responsibilities and expertise lay in the areas of DNA/RNA
manipulation,  cDNA library screening, gene  expression regulation and
 Photosystem II protein complexes.  Dr Tan graduated from Wuhan
University in Wuhan, P.R. China.  He attained his doctorate in biochemistry
at the Chinese Academy of Sciences. Following graduation he maintained a
position as an NIH Postdoctoral Fellow at Rice University before joining
CytoGenix, Inc.



DR.
FREDERIC KENDIRGI  is a Senior Research Scientist bringing broad experience
in  eukaryotic gene expression as well as developing assays for
 protein  detection/function and  expression  vectors in
eukaryotic  systems.  Dr. Kendirgi earned his M.Sc. in Virology and
Immunology in 1995 from the University of Quebec/INRS-Institut Armand-Frappier,
Canada, and his Ph.D. in Biochemistry and Molecular Biology in 2000 from the
University of Calgary, Canada. Following 4 years of postdoctoral studies in Cell
biology at Washington University and Vanderbilt University. He is co-inventor of
the synDNA technology and oversees manufacturing operations as well
as the synDNA vaccine platform.



SCOTT
E. PARAZYNSKI, M.D.  Dr. Parazynski is a graduate of Stanford University
and Stanford Medical School and pursued clinical training at the Brigham and
Women's  Hospital (Boston, MA) and emergency  medicine  residency
 training in Denver, CO. He has published articles in the field of space
physiology and has expertise in human adaptation to stressful environments.
 Dr.  Parazynski is a member  of  the  Aerospace
Medical   Association, the American  Society  for
Gravitational  and Space Biology and has  received  numerous
 special  honors, including the National Institutes of Health
Pre-doctoral Training Award in Cancer Biology, NASA Graduate Student
Researcher's Award and Research Honors Award from Stanford Medical School. Dr.
Parazynski has been an astronaut since 1992 and has logged over 262 hours in
space.  He first flew in 1994 on the Atmospheric Laboratory for
Applications and Science (ATLAS-3) mission, which was part of an on-going
program to determine the Earth's energy balance and atmospheric change over an
11-year solar cycle.  During this mission, he and his crewmates also
evaluated the Interlimb Resistance Device, a free-floating exercise he developed
to prevent musculoskeletal atrophy in microgravity.



CY A.
STEIN, M.D., PH.D.  Dr. Stein is currently Professor of Medicine, Urology
and Molecular Pharmacology in the Oncology Department of Albert Einstein College
of Medicine, New York. In addition to his clinical and faculty activities, he is
co-editor-in-chief of Oligonucleotides, sits on seven editorial advisory boards,
serves on eight scientific advisory boards and is an ad hoc reviewer for
numerous peer reviewed journals.  He has authored 115 peer reviewed journal
articles.  He has written 75 book chapters, reviews and editorials, and he
holds 13 patents issued and a patent pending.  He attended Brown University
(BA), Stanford University (PhD in Organic Chemistry), Albert Einstein College of
Medicine (MD), and New York Hospital-Cornell Medical Center (Internship and
Residency in Internal Medicine). Dr Stein was a Clinical Associate and Senior
Staff Fellow at The National Cancer Institute, Bethesda, Maryland.



62



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JOHN J.
ROSSI, PH.D., Associate Director for Laboratory Research, City of Hope
Comprehensive Cancer Center.  Dr. Rossi began his employment with City of
Hope (COH) in 1980 as an assistant research scientist in the Department of
Molecular Genetics.  He was promoted to chairman of the Division of Biology
in 1992.  In 1993, COH bestowed  its highest  honor upon him by
naming him to its Gallery of Medical and  Scientific  Achievement
 for his  pioneering  work at the molecular level in the battle
 against AIDS and other major  diseases.  In 1998, Dr. Rossi was
appointed as the Dean of the City of Hope Graduate School of Biological
Sciences. Dr. Rossi is an expert in ribozymes (molecular scissors).  One of
his most notable projects is in the area of ribozyme research in AIDS.  He
led the research team that first suggested applying ribozymes to treat HIV. His
research in molecular genetics and microbiology has resulted in eight patents
being granted and has served as the basis for more than 120 scientific papers.
Dr. Rossi received his bachelor's degree from the University of New Hampshire
and earned his doctorate at the University of Connecticut.  Prior to his
working at COH, Dr. Rossi completed four years of post Ph.D. training at Brown
University in Providence, Rhode Island.



RAYMOND
L. OCAMPO JR.  has served as President and Chief Executive Officer of
Samurai Surfer LLC, a private consulting and investment company, since April
2004. Since 1997 Mr. Ocampo has been a member of the board of directors of
several companies and is currently a member of the board of directors of H5
Technologies, Intraware, Inc., Keynote Systems, Inc. and PMI Group, Inc.
 Mr. Ocampo co-founded the Berkeley Center for Law & Technology and
served as Executive Director from August 1997 through December 1999.  He
was Senior Vice President, General Counsel and Secretary at Oracle Corporation
from September 1990 until his retirement in November 1996.  Mr. Ocampo
joined Oracle in July 1986 and held various senior and executive positions with
Oracle until retirement.   Before joining Oracle, Mr. Ocampo was in
the private practice of law for ten years at several law firms in San Francisco,
California.  He was the 2001-02 Chair of the American Bar Association's
Section of Science & Technology Law and a past chair of numerous ABA
committees involving technology. He is the author and co-author, respectively,
of Surfing the Law and Technology Tsunami and Negotiating and Drafting
Software Consulting Agreements.  Mr. Ocampo is a graduate of UCLA and
Boalt Hall School of Law at U.C. Berkeley.



The
Company has adopted a Code of Ethics and Business Conduct that applies to the
Companys principal executive officers, the principal financial officer and the
principal accounting officer or the controller as well as to all employees.



ITEM 11.

EXECUTIVE COMPENSATION



The information required by Item 11 of Form 10-K is incorporated
by reference to the Companys Proxy Statement.



63



---







ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.



The information required by Item 12 of Form 10-K is incorporated
herein by reference to the Companys Proxy Statement.





ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



The information required by Item 13 of Form 10-K is incorporated
herein by reference to the Companys Proxy Statement.





ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES



The information required by Item 14 of Form 10-K is incorporated
by reference to the Companys Proxy Statement.



ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS



(A)

(1) AND (2) Financial Statements and Financial Statement Schedules
See Index to Consolidated Financial Statements on page F-1



(A)

(3)  EXHIBITS



EXHIBIT

NUMBER



DESCRIPTION



3.1

--Articles of Incorporation of Cryogenic Solutions, Inc.

(incorporated by reference to exhibit 3.1 to the
registrants

registration statement on Form 10-SB, as amended

(File No. 000-26807), filed with the Securities
& Exchange

Commission (SEC) initially on July 23, 1999
the (Form 10-SB)).



3.2

--Certificate of Amendment dated November 1, 1995 of Articles of

Incorporation of Cryogenic Solutions, Inc.
(incorporated by re-

ference to exhibit 3.2 of the Form 10-SB).



3.3

--Certificate of Amendment dated January 13, 2000 of Articles
of

Incorporation of CytoGenix, Inc. (incorporated
by reference to

exhibit 3.3 of the Form 10-SB).



3.4

--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 SEC on December 23, 2003).



3.5

--Certificate of Amendment dated April 6, 2004 of Articles of

Incorporation of CytoGenix, Inc. (incorporated
by reference to

Exhibit 3.5 to the registrants Form 10-KSB for
the year ended

December 31, 2003 filed with the SEC on April 14,
2004).





64



---





3.6

--Bylaws of Cryogenic Solutions, Inc (incorporated by reference
to

exhibit 3.4 of the Form 10-SB).



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 SEC on December 23,
2003).



10.1+

--Employment Agreement dated January 1, 2005 between

CytoGenix, Inc. and Malcolm H. Skolnick
(incorporated

by reference to exhibit 10.1 of the Form 10-K/A
for

Year ended December 31, 2005 filed with the SEC
Inc. on

April 21, 2006).



10.2

--License Agreement dated February 3, 2000, between CytoGenix,

Inc. and PharmaGenix, LLC. (incorporated by
reference to

exhibit 10.3 of the Form 10-SB).



10.3

--Technology Transfer Agreement dated June 26, 1998 between

Cryogenic Solutions, Inc. and InGene, Inc.
(incorporated by

reference to exhibit 10.4 of the Form 10-SB)



10.4

--Sponsored Research Agreement between CytoGenix, Inc. and

Baylor College of Medicine as of March 1, 2000
(incorporated

by reference to exhibit 10.7 of the Form
10-SB).



10.5+

--Stock Option Plan (incorporated by reference to Annex III of

the definitive proxy statement on schedule 14A
filed with the

SEC on December 23, 2003).



10.6+

--Stock Option Plan (incorporated by reference to Annex I of
the

definitive proxy statement on schedule 14A filed
with the

SEC on June 17, 2005).



10.7

--Supply Agreement dated March 22, 2006, between CytoGenix,

Inc. and GE Healthcare Bio-Science Corporation
(incorporated

by reference to Exhibit 10 to the registrants
current report on

Form 8-K filed with the SEC on March 28,
2006).





31.1

--Certifications of Principal Executive Officer pursuant to Rule

13a-14(a) of the Securities Exchange Act of
1934, the Act.



31.2

--Certifications of Principal Financial Officer pursuant to
Rule

13a-14(a) of the Act.



32.1

--Certifications of Principal Executive Officer pursuant to 18

U.S.C. Section 1350.



32.2

--Certifications of Principal Financial Officer pursuant to 18

U.S.C. Section 1350.



-------------------------------------

+ Management contract or compensatory plan or arrangement.





65



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SIGNATURES



In
accordance with Section 13 or 15(d) Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.



CYTOGENIX, INC.



By:       /s/ Malcolm Skolnick

-------------------------------------------------------

MALCOLM SKOLNICK, PH.D.

PRESIDENT AND CHIEF EXECUTIVE OFFICER



Date:
April 14, 2008



In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.



Date: April 14, 2008

By:

/s/ Malcolm Skolnick

-------------------------------------------------------

MALCOLM SKOLNICK, PH.D.

PRESIDENT AND CHIEF EXECUTIVE OFFICER

(PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR)



Date: April 14, 2008

By:

/s/ Raymond L Ocampo, Jr.

-------------------------------------------------------

RAYMOND L. OCAMPO, JR.

DIRECTOR



Date: April 14, 2008

By:

/s/ Scott E. Parazynski

-------------------------------------------------------

SCOTT E. PARAZYNSKI

DIRECTOR



Date: April 14, 2008

By:

/s/ Cy A. Stein

-------------------------------------------------------

CY A. STEIN

DIRECTOR



Date: April 14, 2008

By:

/s/ John J. Rossi

-------------------------------------------------------

JOHN J. ROSSI

DIRECTOR





Date: April 14, 2008

By:

/s/ Greg S. Taylor

-------------------------------------------------------

GREG S. TAYLOR

CHIEF FINANCIAL OFFICER





66