**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

 

**Form10-QSB**

 

 

 
| **ý** | **QUARTERLY REPORT UNDER SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------|
|       | **For the quarterly period ended  September 30, 2001.**                                |

** **
| **o**  | **TRANSITION REPORT UNDER SECTION  13 OR 15(d) OF THE EXCHANGE ACT** |
|--------|----------------------------------------------------------------------|
|   | **For the transition period from  ___________to ____________.**      |

 

**Commissionfile number: 0-26807**

**CYTOGENIX, INC.**(Exact name of smallbusiness issuer as specified in its charter)

| **NEVADA**                                                      |   | **76-0484097**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                            |   |                               |
| **9881 South Wilcrest, Houston, Texas**                         |   | **77099**                          |
| (Address of principal  executive offices)                       |   | (Zip Code)                         |

 

Issuer’s telephone number, including area code: **(281) 988-6118**

The number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date:

As of September30, 2001, 41,727,799 of the issuer’s common stock was outstanding.

Transitional SmallBusiness Disclosure Format (check one):   Yes o   No  ý

 

 

PART I

 

ITEM 1                   FINANCIALSTATEMENTS

 

CYTOGENIX, INC. (A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET

SEPTEMBER 30, 2001

 

 

 
| **ASSETS**                                                                                                               |   |        |    |
|--------------------------------------------------------------------------------------------------------------------------|--------|-------------|---------|
|                                                                                                                     |   |        |    |
| CURRENT ASSETS                                                                                                           |   |        |    |
| Cash                                                                                                                     |   | $           | 12,017  |   |
| Prepaid expenses and  other assets                                                                                       |   | 6,371       |    |
| TOTAL CURRENT ASSETS                                                                                                     |   | 18,388      |    |
|                                                                                                                     |   |        |    |
| PROPERTY AND  EQUIPMENT, net                                                                                             |   | 138,300     |    |
|                                                                                                                     |   |        |    |
| PATENTS, net of  accumulated amortization of $23,897                                                                     |   | 351,103     |    |
|                                                                                                                     |   |        |    |
| TOTAL ASSETS                                                                                                             |   | $           | 507,791 |   |
|                                                                                                                     |   |        |    |
|                                                                                                                     |   |        |    |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                                              |   |        |    |
|                                                                                                                     |   |        |    |
| CURRENT LIABILITIES                                                                                                      |   |        |    |
| Accounts payable and  accrued liabilities                                                                                |   | $           | 897,332 |   |
|                                                                                                                     |   |        |    |
| STOCKHOLDERS’ DEFICIT                                                                                               |   |        |    |
| Common stock, $0.001  par value; authorized 150,000,000 shares; issued 44,094,366 shares;  41,727,779 shares outstanding |   | 44,094      |    |
| Additional paid-in  capital                                                                                              |   | 13,343,212  |    |
| Treasury stock,  2,366,587 shares; at cost                                                                          |   | (2,813,176  | )       |
| Deficit accumulated  during the development stage                                                                        |   | (10,963,671 | )       |
| TOTAL STOCKHOLDERS’  DEFICIT                                                                                        |   | (389,541    | )       |
|                                                                                                                     |   |        |    |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                                        |   | $           | 507,791 |   |

 

See accompanying notes tofinancial statements.

 

CYTOGENIX, INC. (ADEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

 
|                                              |   |                   |       |                  |   |               |   |       |       | **February 10,** |   |
|---------------------------------------------------|--------|------------------------|------------|-----------------------|--------|--------------------|--------|------------|------------|------------------|--------|
|                                              |   |                   |       |                  |   |               |   |       |       | **1995**         |   |
|                                              |   | **Three Months Ended** |       | **Nine Months Ended** |   | **(Inception) to** |   |
|                                              |   | **September 30,**      |       | **September 30,**     |   | **September 30,**  |   |
|                                              |   | **2001**               |       | **2000**              |   | **2001**           |   | **2000**   |       | **2001**         |   |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
| INCOME                                            |   |                   |       |                  |   |               |   |       |       |             |   |
| Gain on sale of  security                         |   | $                      | -          |                  | $      | 867                |   | $          | -          |             | $      | 15 |   | $ | 881 |   |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
| Other income                                      |   | 3,712                  |       | 3                     |   | 3,712              |   | 867        |       | 5,345            |   |
| TOTAL INCOME                                      |   | 3,712                  |       | 870                   |   | 3,712              |   | 882        |       | 6,226            |   |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
| EXPENSES                                          |   |                   |       |                  |   |               |   |       |       |             |   |
| Research and  development                         |   | 1,039,022              |       | 350,050               |   | 1,490,434          |   | 515,810    |       | 3,891,627        |   |
| General and  administrative                       |   | 435,988                |       | 439,463               |   | 1,188,546          |   | 1,239,571  |       | 6,965,103        |   |
| Depreciation and  amortization                    |   | 16,092                 |       | 3,157                 |   | 39,702             |   | 10,001     |       | 103,167          |   |
| Equity in losses of  joint venture                |   | -                      |       | -                     |   | -                  |   | -          |       | 10,000           |   |
| TOTAL EXPENSES                                    |   | 1,491,102              |       | 792,670               |   | 2,718,682          |   | 1,765,382  |       | 10,969,897       |   |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
| NET LOSS                                          |   | $                      | (1,487,390 | )                     | $      | (791,800           |   | $          | (2,714,970 | )                | $      | (1,764,500 | ) | $ | (10,963,671 | ) |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
| Basic and diluted loss  per share of common stock |   | (0.04                  | )          | (0.03                 | )      | (0.08              | )      | (0.06      | )          | (0.55            | )      |
|                                              |   |                   |       |                  |   |               |   |       |       |             |   |
| Weighted average  common shares outstanding       |   | 40,598,713             |       | 30,443,335            |   | 33,747,042         |   | 30,068,454 |       | 19,809,476       |   |

 

See accompanying notes tofinancial statements.

 

CYTOGENIX, INC. (A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)

PERIOD FROM FEBRUARY 10, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 2001

 

 
|                                                                                                                                |   |              |   |         |         |        |   |             |   | **Deficit**     |             |                   |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------------|--------------|-------------|--------|------------------|--------|-----------------|------------------|------------------------|--------|
|                                                                                                                                |   |              |   |         |         |        |   |             |   | **Accumulated** |             | **Total**              |   |
|                                                                                                                                |   |              |   |         |         |        |   | **Additional**   |   | **During the**  |             | **Stockholders’** |   |
|                                                                                                                                |   | **Common  Stock** |   | **Treasury** |         | **Paid-in** |   | **Development**  |   | **Equity**      |             |
|                                                                                                                                |   | **Shares**        |   | **Amount**   |         | **Stock**   |   | **Capital**      |   | **Stage**       |             | **(Deficit)**          |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, February 10, 1995                                                                                                          |   | -                 |   | $            | -            |        | $      | -                |   | $               | -                |                   | $      | - |   | $ | - |   |
| Issuance of common stock                                                                                                            |   | 4,584,500         |   | 4,584        |         | -           |   | 42,799           |   | -               |             | 47,383                 |   |
| Private placements                                                                                                                  |   | 110,000           |   | 110          |         | -           |   | 20,890           |   | -               |             | 21,000                 |   |
| Deficit for period ended December 31, 1995                                                                                          |   | -                 |   | -            |         | -           |   | -                |   | (42,843         | )                | (42,843                | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 1995                                                                                                          |   | 4,694,500         |   | 4,694        |         | -           |   | 63,689           |   | (42,843         | )                | 25,540                 |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| To sole stockholder of Physical Therapy Associates                                                                                  |   | 500,000           |   | 500          |         | -           |   | 374,500          |   | -               |             | 375,000                |   |
| Deficit for year ended December 31, 1996                                                                                            |   | -                 |   | -            |         | -           |   | -                |   | (51,952         | )                | (51,952                | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 1996                                                                                                          |   | 5,194,500         |   | 5,194        |         | -           |   | 438,189          |   | (94,795         | )                | 348,588                |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| For services rendered                                                                                                               |   | 3,687,425         |   | 3,687        |         | -           |   | 687,705          |   | -               |             | 691,392                |   |
| Private placements                                                                                                                  |   | 825,974           |   | 826          |         | -           |   | 128,306          |   | -               |             | 129,132                |   |
| Deficit for year ended December 31, 1997                                                                                            |   | -                 |   | -            |         | -           |   | -                |   | (1,240,039      | )                | (1,240,039             | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 1997                                                                                                          |   | 9,707,899         |   | 9,707        |         | -           |   | 1,254,200        |   | (1,334,834      | )                | (70,927                | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Loans from stockholders                                                                                                             |   | 212,780           |   | 213          |         | -           |   | 135,777          |   | -               |             | 135,990                |   |
| For services rendered                                                                                                               |   | 3,601,021         |   | 3,601        |         | -           |   | 2,817,225        |   | -               |             | 2,820,826              |   |
| Private placements                                                                                                                  |   | 2,964,000         |   | 2,964        |         | -           |   | 590,836          |   | -               |             | 593,800                |   |
| Payment of services rendered through other stockholders’ personal  shares                                                      |   | -                 |   | -            |         | -           |   | 152,500          |   | -               |             | 152,500                |   |
| Deficit for year ended December 31, 1998                                                                                            |   | -                 |   | -            |         | -           |   | -                |   | (3,434,751      | )                | (3,434,751             | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 1998                                                                                                          |   | 16,485,700        |   | 16,485       |         | -           |   | 4,950,538        |   | (4,769,585      | )                | 197,438                |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Purchase treasury shares                                                                                                            |   | -                 |   | -            |         | (60,000     | )      | -                |   | -               |             | (60,000                | )      |
| Sale of treasury shares                                                                                                             |   | -                 |   | -            |         | 60,000      |   | -                |   | -               |             | 60,000                 |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| For services rendered                                                                                                               |   | 544,348           |   | 544          |         | -           |   | 467,778          |   | -               |             | 468,322                |   |
| Private placements                                                                                                                  |   | 317,220           |   | 317          |         | -           |   | 129,709          |   | -               |             | 130,026                |   |
| Stock warrants                                                                                                                      |   | -                 |   | -            |         | -           |   | 25,000           |   | -               |             | 25,000                 |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| In-kind stock swap                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of restricted shares into treasury                                                                                         |   | 20,000,000        |   | 20,000       |         | (10,475,016 | )      | 10,455,016       |   | -               |             | -                      |   |
| Retirement of treasury shares                                                                                                       |   | (8,229,288        | )      | (8,229       | )            | 4,310,096   |   | (4,301,867       | )      | -               |             | -                      |   |
| Sale of treasury stock subject to mandatory repurchase                                                                              |   | -                 |   | -            |         | 354,803     |   | (354,803         | )      | -               |             | -                      |   |
| Additional penalty on treasury shares sold subject to mandatory  repurchase                                                         |   | -                 |   | -            |         | 125,765     |   | (125,765         | )      | -               |             | -                      |   |
| Deficit for year ended December 31, 1999, as restated                                                                          |   | -                 |   | -            |         | -           |   | -                |   | (1,459,511      | )                | (1,459,511             | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 1999                                                                                                     |   | 29,117,980        |   | 29,117       |         | (5,684,352  | )      | 11,245,606       |   | (6,229,096      | )                | (638,725               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Prior-period adjustment                                                                                                             |   | -                 |   | -            |         | (819,427    | )      | 819,427          |   | -               |             | -                      |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 1999, as restated                                                                                             |   | 29,117,980        |   | 29,117       |         | (6,503,779  | )      | 12,065,033       |   | (6,229,096      | )                | (638,725               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| For services rendered                                                                                                               |   | 546,171           |   | 546          |         | -           |   | 490,927          |   | -               |             | 491,473                |   |
| Private placements                                                                                                                  |   | 1,018,989         |   | 1,019        |         | -           |   | 384,781          |   | -               |             | 385,800                |   |
| For purchase of patents                                                                                                             |   | 500,000           |   | 500          |         | -           |   | 374,500          |   | -               |             | 375,000                |   |
| Stock warrants exercised                                                                                                            |   | 250,000           |   | 250          |         | -           |   | 224,750          |   | -               |             | 225,000                |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Sale of treasury stock subject to mandatory repurchase, net of  reclass of prior year treasury stock sales from liability to equity |   | -                 |   | -            |         | 1,765,703   |   | (1,285,135       | )      | -               |             | 480,568                |   |
| Receipt of shares for collection of note receivable                                                                                 |   | -                 |   | -            |         | (25,100     | )      | -                |   | -               |             | (25,100                | )      |
| Deficit for year ended December 31, 2000                                                                                            |   | -                 |   | -            |         | -           |   | -                |   | (2,019,605      | )                | (2,019,605             | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, December 31, 2000                                                                                                          |   | 31,433,140        |   | 31,432       |         | (4,763,176  | )      | 12,254,856       |   | (8,248,701      | )                | (725,589               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| For services rendered                                                                                                               |   | 809,366           |   | 809          |         | -           |   | 166,472          |   | -               |             | 167,281                |   |
| Private placements                                                                                                                  |   | 857,100           |   | 857          |         | -           |   | 212,393          |   | -               |             | 213,250                |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Reclass of prior year treasury stock sales from liability to equity                                                                 |   | -                 |   | -            |         | 750,000     |   | -                |   | -               |             | 750,000                |   |
| Deficit for quarter ended March 31, 2001                                                                                            |   | -                 |   | -            |         | -           |   | -                |   | (574,180        | )                | (574,180               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, March 31, 2001                                                                                                             |   | 33,099,606        |   | 33,098       |         | (4,013,176  | )      | 12,633,721       |   | (8,822,881      | )                | (169,238               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| For services rendered                                                                                                               |   | 219,941           |   | 220          |         | -           |   | 15,185           |   | -               |             | 15,405                 |   |
| Private placements                                                                                                                  |   | 2,772,504         |   | 2,774        |         | -           |   | 358,706          |   | -               |             | 361,480                |   |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Deficit for quarter ended June 30, 2001                                                                                             |   | -                 |   | -            |         | -           |   | -                |   | (653,400        | )                | (653,400               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, June 30, 2001                                                                                                              |   | 36,092,051        |   | 36,092       |         | (4,013,176  | )      | 13,007,612       |   | (9,476,281      | )                | (445,753               | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Issuance of shares                                                                                                                  |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| For services rendered                                                                                                               |   | 4,366,829         |   | 4,367        |         | -           |   | 1,075,687        |   | -               |             | 1,080,054              |   |
| Private placements                                                                                                                  |   | 4,635,486         |   | 4,635        |         | -           |   | 458,913          |   | -               |             | 463,548                |   |
| Retirement of treasury stock                                                                                                        |   | (1,000,000        | )      | (1,000       | )            | 1,200,000   |   | (1,199,000       | )      | -               |             | -                      |   |
| Deficit for quarter ended September 30, 2001                                                                                        |   | -                 |   | -            |         | -           |   | -                |   | (1,487,390      | )                | (1,487,390             | )      |
|                                                                                                                                |   |              |   |         |         |        |   |             |   |            |             |                   |   |
| Balance, September 30, 2001                                                                                                         |   | 44,094,366        |   | $            |  44,094 |        | $      |  (2,813,176 | )      | $               |  13,343,212 |                   | $      |  (10,963,671 | ) | $ |  (389,541 | ) |
|                                                                                                                                     |        |                   |        |              |              |             |        |                  |        |                 |                  |                        |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanyingnotes to financial statements.

 

CYTOGENIX, INC. (A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

 
|                                                                          |   |                  |       |               |   | **February 10,** |   |
|-------------------------------------------------------------------------------|--------|-----------------------|------------|--------------------|--------|------------------|--------|
|                                                                          |   |                  |       |               |   | **1995**         |   |
|                                                                          |   | **Nine Months Ended** |       | **(Inception) to** |   |
|                                                                          |   | **September 30,**     |       | **September 30,**  |   |
|                                                                          |   | **2001**              |       | **2000**           |   | **2001**         |   |
|                                                                          |   |                  |       |               |   |             |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                         |   |                  |       |               |   |             |   |
| Net loss                                                                      |   | $                     | (2,714,970 | )                  | $      | (1,764,500       | )      | $ | (10,963,671 | ) |
| Adjustments to  reconcile net loss to net cash used in operations:            |   |                  |       |               |   |             |   |
| Depreciation and  amortization                                                |   | 39,702                |       | 10,001             |   | 103,168          |   |
| Common stock issued  for services                                             |   | 1,203,859             |       | 845,092            |   | 6,138,543        |   |
| Equity in losses of  joint venture                                            |   | -                     |       | -                  |   | 10,000           |   |
| Additional penalty on  treasury shares                                        |   | -                     |       | (137,245           | )      | 125,765          |   |
| Changes in operating  assets and liabilities:                                 |   |                  |       |               |   |             |   |
| Prepaid expenses and  other assets                                            |   | (5,254                | )          | (249               | )      | (6,442           | )      |
| Notes receivables                                                             |   | -                     |       | -                  |   | (25,100          | )      |
| Accounts payable and  accrued liabilities                                     |   | 509,663               |       | (60,420            | )      | 1,021,042        |   |
| Stockholders’ loans                                                      |   | -                     |       | -                  |   | 135,990          |   |
| NET CASH USED IN  OPERATING ACTIVITIES                                        |   | (967,000              | )          | (1,107,321         | )      | (3,460,705       | )      |
|                                                                          |   |                  |       |               |   |             |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                         |   |                  |       |               |   |             |   |
| Payments for additions  to property and equipment                             |   | -                     |       | (10,584            | )      | (217,500         | )      |
| Investment in joint  venture                                                  |   | -                     |       | (223,508           | )      | (10,000          | )      |
| NET CASH USED IN  INVESTING ACTIVITIES                                        |   | -                     |       | (234,092           | )      | (227,500         | )      |
|                                                                          |   |                  |       |               |   |             |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                         |   |                  |       |               |   |             |   |
| Proceeds from note  payable                                                   |   | 250,000               |       | -                  |   | 250,000          |   |
| Payment on note  payable                                                      |   | (250,000              | )          | -                  |   | (250,000         | )      |
| Treasury shares sold  subject to mandatory repurchase                         |   | -                     |       | 887,245            |   | 1,104,803        |   |
| Proceeds from issuance  of common stock and exercise of common stock warrants |   | 1,038,278             |       | 432,278            |   | 2,570,419        |   |
| Proceeds from issuance  of common stock warrants                              |   | -                     |       | -                  |   | 25,000           |   |
| Bank overdraft                                                                |   | (59,261               | )          | -                  |   | -                |   |
| NET CASH PROVIDED BY  FINANCING ACTIVITIES                                    |   | 979,017               |       | 1,319,523          |   | 3,700,222        |   |
|                                                                          |   |                  |       |               |   |             |   |
| INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS                             |   | 12,017                |       | (21,890            | )      | 12,017           |   |
|                                                                          |   |                  |       |               |   |             |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                               |   | -                     |       | 29,554             |   | -                |   |
|                                                                          |   |                  |       |               |   |             |   |
| CASH AND CASH EQUIVALENTS,  end of period                                     |   | $                     | 12,017     |               | $      | 7,664            |   | $ | 12,017 |   |

 

See accompanying notes tofinancial statements.

 

CYTOGENIX, INC. (ADEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2001

 

 

NOTE A – BASIS OF PRESENTATION

 

The accompanyingunaudited financial statements have been prepared by Cytogenix, Inc. (the“Company”) and include all adjustments that are, in the opinion of management,necessary for a fair presentation of financial results for the nine monthsended September 30, 2001, pursuant to the rules and regulations of theSecurities and Exchange Commission.  Alladjustments and provisions included in these statements are of a normalrecurring nature.

 

The information containedherein is condensed from that which would appear in the annual financialstatements; accordingly, the financial statements included herein should bereviewed in conjunction with the financial statements and related notes theretocontained in the Annual Report on Form 10-KSB filed by the Company with the Securitiesand Exchange Commission for the fiscal year ended December 31, 2000.  Accounting measurements at interim datesinherently involve greater reliance on estimates than at year end.  The results of operations for the interimperiod presented are not necessarily indicative of the results that can beexpected for the entire year.

 

 

NOTE B – GOING CONCERN

 

Since inception, the Company has been considered a development stagecompany and has not generated any operating revenue.  To fund its development stage activities to date, the Company hasrelied on the sale of its common stock. Based on historical annual financial requirements, operating capital ofapproximately $2.2 million will be needed for the calendar year 2001.  There is substantial doubt that the Companywill generate sufficient revenues during 2001 and 2002 to meet its operatingcash requirements. Accordingly, the Company’s ability to continue operationsthrough 2001 and beyond depends on its success in obtaining equity or debtfinancing in an amount sufficient to support its operations.  This raises substantial doubt about itsability to continue as a going concern. The financial statements do not include any adjustments that mightresult from this uncertainty.

 

 

NOTE C – SALE OF STOCK

 

In January 1999, rules governing Regulation D, 504 Private Placementswere amended by the U.S. Securities and Exchange Commission whereby issuerswere compelled to offer one year restricted stock to investors.  Prior to this amendment, issuers werepermitted to offer freely transferable shares to investors, typically at aslight discount to market in order to secure equity financing.

 

In order to continue to fund future operations of the Company, theCompany’s management decided on May 13, 1999 to offer all current Stockholdersthe opportunity to exchange their freely transferable shares for one yearrestricted shares at a ratio of two shares of restricted stock for one share offreely transferable stock.  It was theCompany’s belief at that time that the unrestricted shares could be sold by theCompany to individual investors without registration as a means to fund theCompany.

 

The Company initially proposed to issue a total of 20,000,000restricted shares in exchange for 10,000,000 free trading shares.  The free trading shares would then be soldby the Company in the market and in private transactions.  Between May 16, 1999 andAugust 21, 1999, a total of 5,885,356 free trading shares were exchangedfor 11,770,712 restricted shares.  TheCompany then, in a series of brokerage and private transactions, sold a totalof 1,813,272 and 725,577 shares in the market in 2000 and 1999,respectively.  In addition to the stocksold from the Company’s treasury from the in-kind stock swap, the Company alsosold 72,727 shares in 1999 from previously existing treasury stock.  From shares received from the stock swap,the Company received $750,000 and $354,803 in 2000 and 1999, respectively, fromtreasury shares sold.

 

Accordingly, it is possible that the sale of the 2,611,576 shares intreasury described above may have violated securities registration provisionsof the federal and state securities laws which could subject the Company tofines, penalties or other regulatory enforcement action.  Additionally, although it is possible thatStockholders who purchased the shares described above in market transactionsmay have had the right under state and federal securities laws to require theCompany within one year from date of issuance of such shares to repurchasetheir shares, for the amount originally paid, plus interest, no stockholder hasmade such a claim and the one year statute expired in February 2001.  Accordingly, the $750,000 of treasury sharessold subject to mandatory repurchase was reclassified from a liability toequity during the nine months ended September 30, 2001.

 

 

NOTE D – STOCK BASEDCOMPENSATION

 

During September 1999,the Company established an Employee Stock Purchase Plan (the “Purchase Plan”),under which employees may purchase common shares at par value quarterly up to25% of their gross salary computed at the closing price on the last day of eachpay period.  The purchase plan was maderetroactive to January 1, 1999 and is compensatory since only a maximumdiscount of 15% is allowed for the purchase plan to be non-compensatory.

 

For the nine months endedSeptember 30, 2001, the Company issued 5,396,136 shares of its common stock inreturn for services; 1,178,372 shares were issued to employees of the Companyand 4,217,764 shares were issued for consulting services provided bynon-employees.  Compensation cost andthe aggregate fair value of consulting services for the nine months endedSeptember 30, 2001 was $135,083 and $1,053,318, respectively.

 

 

NOTE E – NON-CASHINVESTING AND FINANCING ACTIVITIES

 

The Company had thefollowing non-cash financing activity for the period ended September 30, 2001:

 

| Issuance of common  stock for payment of liabilities |   | $ | 58,881 |   |
|------------------------------------------------------|--------|---|--------|--------|

 

NOTE F – NOTE PAYABLE

 

During the second quarterof 2001, the Company obtained debt financing from an unrelated party for$250,000.  The note agreement bears nointerest unless the loan defaults, as defined, and is secured by certainpatents and patents pending.  The notematures July 2001 and contains various covenants including maintenance andprotection of the collateral.  There isa commitment fee on the note equal to 10% interest in all patents and patentspending of the Company.  The Company mayrepurchase, at its option, the 10% interest from the lender for $1,000,000within two years from the date of the note agreement.

 

The note was fully repaidduring the quarter ended September 30, 2001.

##  

## **Item 2                     Management’s Discussion andAnalysis or Plan of Operation.**

 

IN ACCORDANCE WITH THE "SAFE HARBOR"PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANYNOTES THAT CERTAIN STATEMENTS IN THIS FORM 10-QSB WHICH ARE FORWARD-LOOKING ANDWHICH PROVIDE OTHER THAN HISTORICAL INFORMATION, INVOLVE RISKS ANDUNCERTAINTIES THAT MAY IMPACT THE COMPANY'S RESULTS OF OPERATIONS. THESEFORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, STATEMENTS CONCERNING THECOMPANY'S GENERAL BUSINESS STRATEGIES, FINANCING DECISIONS, AND EXPECTATIONSFOR FUNDING CAPITAL EXPENDITURES AND OPERATIONS IN THE FUTURE. WHEN USEDHEREIN, THE WORDS "BELIEVE," "PLAN," "CONTINUE,""HOPE," "ESTIMATE," "PROJECT,""INTEND," "EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TOIDENTIFY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THATTHE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ONREASONABLE ASSUMPTIONS, NO STATEMENTS CONTAINED IN THIS FORM 10-QSB SHOULD BERELIED UPON AS PREDICTIONS OF FUTURE EVENTS. SUCH STATEMENTS ARE NECESSARILYDEPENDENT ON ASSUMPTIONS, DATA OR METHODS THAT MAY BE INCORRECT OR IMPRECISEAND MAY BE INCAPABLE OF BEING REALIZED. THE RISKS AND UNCERTAINTIES INHERENT INTHESE FORWARD-LOOKING STATEMENTS COULD CAUSE ACTUAL RESULTS TO DIFFERMATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY THESE STATEMENTS.

 

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

 

IMPORTANT RISK FACTORS THAT COULD CAUSE ACTUAL RESULTSTO DIFFER MATERIALLY FROM THE EXPECTATIONS REFLECTED IN ANY FORWARD-LOOKINGSTATEMENT HEREIN INCLUDE AMONG OTHER THINGS: (1) THE ABILITY OF THE COMPANY TOQUICKLY PENETRATE THE MARKET WITH ITS CURRENT THERAPEUTIC PRODUCTS AGAINSTLARGER, WELL-FINANCED COMPETITORS WITHIN THE MARKETPLACE; (2) THE ABILITY OFTHE COMPANY TO GENERATE REVENUES IS SUBSTANTIALLY DEPENDENT UPON CONTINUEDRESEARCH AND DEVELOPMENT FOR, AND FDA APPROVAL OF, THERAPEUTIC PRODUCTS; (3)THE ABILITY OF THE COMPANY TO ATTRACT AND RETAIN KEY OFFICERS, KNOWLEDGEABLESALES AND MARKETING PERSONNEL AND HIGHLY TRAINED TECHNICAL PERSONNEL; (4) THE ABILITYOF THE COMPANY TO OBTAIN ADDITIONAL FINANCING FROM PUBLIC AND PRIVATE EQUITYMARKETS TO FUND OPERATIONS AND FUTURE GROWTH; AND (5) THE ABILITY OF THECOMPANY TO GENERATE REVENUES TO COVER OPERATING LOSSES AND POSITION THE COMPANYTO ACHIEVE POSITIVE CASH FLOW.

 

The Company has budgeted $2,260,720 for operations infiscal year 2001, of which $823,300 has been allocated for general andadministrative costs and $1,437,420 has been allocated for research anddevelopment, including five live animal studies that are estimated to cost$50,000 per study. Dr. Jonathan Elliston of CytoGenix has determined thescientific protocols for three of these studies. A total of $382,270 has beenreserved for contingencies. The Company will rely on equity financing to satisfyits working capital requirements, and has as of September 30, 2001, $12,017cash on hand. Of the $1,437,420 budgeted for research and development expenses,the Company anticipates $498,650 will be paid pursuant to the terms of theCompany's sponsored research agreements with Columbia University, YaleUniversity, The Children's Research Center and Baylor College of Medicine,$235,000 will be paid as patent attorneys fees and expenses, $162,000 will bepaid as salary to the Company's employees and researchers and $46,000 will bepaid for supplies. The remaining $495,770 will be used for miscellaneousresearch expenses and for initiating future research projects.

 

There are currently over 600 U.S. patents forAntisense molecules with therapeutic potential, each of which is a prospectivelicensee for TroVec(TM). The Company anticipates entering into licenses for a$100,000 initiation fee and either a minimum royalty fee of $50,000 per year ora royalty fee equal to 15% of the licensee's net sales, whichever is greater.

 

The Company's ability to continue operations throughDecember 31, 2001 and beyond depends on its success in obtaining equityfinancing in an amount sufficient to support its operations through that date.There is substantial doubt that the Company will be able to generate sufficientrevenues or be able to raise adequate capital to remain a going concern throughDecember 31, 2001. Based on historical yearly financial requirements, operatingcapital of approximately $2.2 million will be needed for each of the calendaryears 2001 and 2002.

 

The Company expects its sources of revenue for thenext several years to consist primarily of payments under future productdevelopment joint ventures and of licensing agreements as well as possibleroyalties. The process of developing the Company's products will requiresignificant additional research and development, preclinical testing andclinical trials, as well as regulatory approvals. These activities, togetherwith the Company's general and administrative expenses, are expected to resultin operating losses for at least two more years. The Company will not receiveproduct revenue from therapeutic products unless it completes clinical trialsand successfully commercializes or arranges for the commercialization of one ormore products, the accomplishment of which no assurance can be given.

 

The Company is subject to risks common tobiopharmaceutical companies, including risks inherent in its research anddevelopment efforts and clinical trials, reliance on collaborative partners,enforcement of patent and proprietary rights, the need for future capital,potential competition and uncertainty in obtaining required regulatoryapproval. In order for a product to be commercialized, it will be necessary forthe Company and its collaborators to conduct pre-clinical tests and clinicaltrials, demonstrate efficacy and safety of the Company's product candidates,obtain regulatory clearances and enter into distribution and marketingarrangements either directly or through sublicenses. From the Company'sinception through the date of this document, the major role of management hasbeen to obtain sufficient funding for required research, monitoring researchprogress and developing and licensing intellectual property.

 

The Company expects to incur losses for theforeseeable future due to the ongoing activities of the Company to develop newproducts through research and development and to develop joint ventures andlicensing agreements with third parties. The Company expects its existing operations to continue to result innegative cash flow and working capital deficiencies that will require theCompany to continue to obtain additional capital. There can be no assurancethat the necessary financing will be available to the Company or, if available,that the same will be on terms satisfactory or favorable to it. It is possiblethat additional equity financing will be highly dilutive to existingshareholders.

 

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

 

PART II

 

## **ITEM 1.                 **LEGAL PROCEEDINGS.

 

                                Onor about October 8, 2001, the Company was served notice of Cause Number 2001-48844,styled as Elliston v. Cryogenic Solutions, in the 269TH JudicialDistrict of Harris County, Texas. Jonathan Elliston is a former employee of theCompany.  Dr. Ellistoy filed the suitalleging wrongful termination as of July 10, 2001.

 

## **ITEM 2.                 **CHANGES IN SECURITIES

 

On July 9, 2001, the Company issued 152,508 shares ofCommon Stock. These shares were issued to executive officers (MalcolmSkolnick-34,375, Jonathan Elliston-20,625, Dell Gibson-20,625 and LawrenceWunderlich-20,625) and employees (Kim Totsky-9,852, Maury Fogle- 18,906, YinChen- 13,750 and Harilyn McMicken- 13,750) of the Company for an aggregateprice of $33,278 (based on gross salary for each pay period) in reliance on theexemption from registration provided by Section 4(2) of the Securities Act of1933 for transactions not involving a public offering.  Of the 152,508 shares, $152 was receivedfrom the employees in cash and the remainder represents stock compensation.

 

On July 10, 2001 the Company issued 4,825,000 sharesof common stock.  1,100,000 shares weresold for an aggregate cash price of $110,000 (or $0.10 per share) in a private placement to accreditedinvestors (Chou Ming Tu-600,000 and Ting Shung Lee- 500,000) pursuant to theexemption from registration provided by Section 3(b) of the Securities Act of1933 and Rule 504 thereunder. Also, 25,000 shares were issued to Maury Fogle asa bonus for compensation for an aggregate price of $6,500 ( or an average of$0.26 per share) these shares were issued in reliance on the exemption fromregistration provided by Section 4(2) of the Securities Act of 1933 fortransactions not involving a public offering. The remaining 3,700,000 wereissued relating to consulting services for the acquisition of intellectualproperty (Mike Skillern- 1,000,000, Alejandro Bernal- 1,000,000, Allan J.Richardson- 600,000, Quantum Bit Induction- 250,000, Donna Skillern- 250,000,Linda Taylor- 250,000, Chad Reed- 150,000, Chabad of Sarasota- 200,000) for anaggregate cost of $962,000( or an average price of $0.26 per share). Theseshares were issued in reliance on the exemption from registration provided bySection 4(2) of the Securities Act of 1933 for transactions not involving apublic offering.

 

On August 16, 2001 the company issued and sold2,458,322 shares of common stock for an aggregate price of $245,832 (or anaverage of $0.10 per share) in a private placement to accredited investors(Hydeman Family Partners- 250,000, Charles M. Bardwell-3,322, Roland LViolette-500,000, Series UnLTD,INC-250,000, Robert J. Brueck-100,000, Gary& Linda Sanford JTWROS-250,000, Francis Nelkin-45,000, Paul Nelkin-30,000,John Gattineri-30,000, Jett-1,000,000) pursuant to the exemption fromregistration provided by Section 3(b) of the Securities Act of 1933 and Rule 504thereunder.

 

On July 24, 2001, 499,464 shares were sold for anaggregate cash price of  $49,946 (or$0.10 per share) in a private placement to accredited investors (Huey TsurHsiao-50,000, Chuan Te Sung-10,000, Lee Wang Kuang Jean-50,000, Chung ChuanTu-90,000, Charles Bardwell-49,464, and Tina Phillips-250,000) pursuant to theexemption from registration provided by Section 3(b) of the Securities Act of1933 and Rule 504 thereunder. An additional 500 shares were issued to ThomasSheppard for services rendered aggregating $65 (or $0.13 per share).

 

On July 31, 2001, 467,700 shares were sold for anaggregate cash price of  $46,770 (or$0.10 per share) in a private placement to accredited investors (R. KirkHuntsman-37,500, John V. Townsend-180,200, Nicolas Wonnell-150,000 and WisteriaTrading Co LTD-100,000) pursuant to the exemption from registration provided bySection 3(b) of the Securities Act of 1933 and Rule 504 thereunder. Anadditional 488,821 shares were issued (to Peter Glazer-2,551, Charles M. Bardwell-18,020,Hydeman Family Partners-237,250, Douglas C. Nelkin-202,500, Bob L.McGiboney-5,000, Rick Barry-22,500 and Douglas Weedon-1,000)  for services rendered aggregating $78,211(or $0.16  per share).

 

On August 8, 2001 1,000,000 shares of common stock wereretired from treasury.

 

In August 2001, 110,000 shares were sold for anaggregate cash price of  $11,000 (or$0.10 per share) in a private placement to accredited investor Jisook Cammackand were distributed (Jisook K Cammack-30,000, Christopher M Cammack-20,000,Michelle D. Parsons-20,000, Andrew J Ford-20,000, Jordon S Niles-10,000, andMason C. Niles-10,000) pursuant to the exemption from registration provided bySection 3(b) of the Securities Act of 1933 and Rule 504 thereunder.

 
| **ITEM 3.** |   |                              | **DEFAULTS UPON SENIOR SECURITIES.**                                                                       |
|-------------|--------|-----------------------------------|------------------------------------------------------------------------------------------------------------|
|        |   |                              |                                                                                                       |
|        |   | None.                             |                                                                                                       |
|        |   |                              |                                                                                                       |
| **ITEM 4.** |   |                              | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS.**                                                  |
|        |   |                              |                                                                                                       |
|        |   | None.                             |                                                                                                       |
|        |   |                              |                                                                                                       |
| **ITEM 5.** |   |                              | **OTHER INFORMATION.**                                                                                     |
|        |   |                              |                                                                                                       |
|        |   | None.                             |                                                                                                       |
|        |   |                              |                                                                                                       |
| **ITEM 6**  |   | EXHIBITS AND REPORTS ON  FORM 8-K |
|        |   |                              |                                                                                                       |
|        | (a)    | Exhibits.                         |
|        |   |                              |
|        |   | Exhibit Number                    | Description                                                                                                |
|        |   | 3.1*                              | Articles of Incorporation of Cryogenic Solutions,  Inc.                                                    |
|        |   |                              |                                                                                                       |
|        |   | 3.2*                              | Certificate of Amendment dated November 1, 1995 of  Articles of Incorporation of Cryogenic Solutions, Inc. |
|        |   |                              |                                                                                                       |
|        |   | 3.3*                              | Bylaws of Cryogenic Solutions, Inc.                                                                        |
|             |        |                                   |                                                                                                            |  |

 

 

----

*  Incorporated by reference tosuch Exhibit to the 10-SB of the Company filed on January 31, 2001.
|                                       |                                                                                                               |                           |   |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------------------|--------------------------------|--------|
|                                       | (b)                                                                                                                | Financial Statement Schedules. |
|                                       |                                                                                                               |                           |   |
|                                       | All schedules are omitted because they are not  applicable or because the required information is contained in the |
| Financial Statements or the Notes thereto. |
|                                       |                                                                                                               |                           |   |
|                                       | (c)                                                                                                                | Reports on Form 8-K.           |
|                                       |                                                                                                               |                           |
|                                       |                                                                                                               | None.                          |   |

 

 

SIGNATURES

 

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

 
|                                                                                                                                                                                           | CYTOGENIX, INC. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
|                                                                                                                                                                                           |            |
|  
Date: November 14, 2001

By: 

/s/  Malcolm  Skolnick 

 

 

 

Malcolm Skolnick 

 

 

 

President and Chief 

 

Executive Officer

  |