CYTOGENIX INC, 10SB12G/A, 2000-07-19

CYTOGENIX INC
10SB12G/A, 2000-07-19
MEDICAL LABORATORIES

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-SB/A

GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934

CytoGenix, Inc.
(Name of Small Business Issuer in its charter)

Nevada 76-0484097
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

9881 South Wilcrest, Houston, Texas 77099
(Address of principal executive (Zip Code)
offices)

Issuer's telephone number, (281) 988-6118

Securities to be registered under Section 12(b) of the Act:

Title of each class Name of each exchange on which
to be so registered each class to be registered
NA NA

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

Common Stock, par value $.001 per share

(Title of class)
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CYTOGENIX, INC.
FORM 10 - SB

TABLE OF CONTENTS

CYTOGENIX, INC. FORM 10 - SB .............................................. i
PART I .................................................................... 1
ITEM 1. Description of Business ..................................... 1
ITEM 2. Management's Discussion and Analysis or Plan of Operation ... 4
ITEM 3. Description of Property ..................................... 8
ITEM 4. Security Ownership of Certain Beneficial Owners and
Management................................................. 9
ITEM 5. Directors, Executive Officers, Promoters and Control Persons 9
ITEM 6. Executive Compensation ...................................... 10
ITEM 7. Certain Relationships and Related Transactions............... 12
ITEM 8. Description of Securities ................................... 12
PART II ................................................................... 13
ITEM 1. Market Price of Dividends on the Registrant's Common Equity
and Related Stockholder Matters ............................. 13
ITEM 2. Legal Proceedings............................................ 14
ITEM 3. Changes in and Disagreement with Accountants ................ 14
ITEM 4. Recent Sales of Unregistered Securities ..................... 14
ITEM 5. Indemnification of Directors and Officers ................... 16
FINANCIAL STATEMENTS ...................................................... F-1
PART III .................................................................. 17
ITEM 1. Exhibits and Financial Statement Schedules .................. 17

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

CytoGenix, Inc. ("CytoGenix" or "the Company") is a development stage
biotechnology company that has never had any sales. The primary focus of the
Company's research is the technology applicable to implementing the final stage
delivery of therapeutic DNA molecules in cells.

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 only source of operational and research working capital since the
Company's inception.

INTRODUCTION

Widely published scientific studies conducted over the last twenty years by
leading universities, including the University of Nebraska, University of Texas
and University of Pennsylvania, private research laboratories and the National
Institute of Health have established that most diseases are the result of
malfunctioning genes in the human genome, or the activities of rogue genes
called viruses. This genetic activity causes the production of harmful proteins
that lead to the symptoms and destructive results of disease. Examples of
diseases caused by the production of such harmful proteins include cancer and
certain cardiovascular diseases.

In many instances it is possible to inhibit the production of harmful proteins
by introducing small molecules of specific genetic material into the cells
themselves. These molecules bind to the strings of messenger ribonucleic acid
(mRNA), and inhibit the mRNA from making the harmful protein. This is called
"Antisense" therapy.

The key to success with Antisense therapy is to insure that sufficient
quantities of the Antisense molecules ultimately appear in the cells. CytoGenix
has invented what functions as a tiny biological "factory" that, after
introduction into the nucleus of the cell, actually produces many copies of the
Antisense molecules in the cell. The business of CytoGenix is to refine this
technology and apply it to the delivery of various patented Antisense molecules
for the development of effective therapeutic drugs.

THE HUMAN GENOME

The U.S. Department of Energy defines the human genome as follows: "the complete
set of instructions for making an organism is called its genome. It contains the
master blueprint for all cellular structures and activities for the lifetime of
the cell or organism. Found in every nucleus of a person's many trillions of
cells, the human genome consists of tightly coiled threads of deoxyribonucleic
acid (DNA) and associated protein molecules, organized into structures called
chromosomes. For each organism, the chromosomes encode all the information
necessary for building and maintaining life, from simple bacteria to remarkably
complex human beings. Understanding how DNA performs this function requires some
knowledge of its structure and organization."

The chromosomes are made up of complementary intertwined strands of DNA: one is
labeled positive and the other negative. The negative strand of the DNA produces
single strands of positive nucleotides (messenger RNA), each of which move
around in the cell carrying coded instructions for the production of a specific
protein.

By studying how genes function in the human genome and understanding how they go
awry, scientists are developing new therapies that attack the underlying causes
of disease, not just the symptoms. Makers of the new gene-based drugs anticipate
that they will offer advantages over existing treatments that merely attack the
symptoms of disease by providing therapies that attack the underlying causes of
disease.

ANTISENSE THERAPY

Antisense therapy is useful in treating any disease that will respond to a
reduction in the production of harmful proteins. A key distinction of Antisense
therapy is that it intervenes much earlier in the disease process than
traditional drug therapies. The following is a brief explanation of Antisense
therapy.

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To produce a protein, a cell first makes a positive copy of the DNA code
containing the information necessary to produce the protein. This messenger RNA
is called the "sense" molecule. This message-carrying molecule then moves to
another part of the cell where it assembles the biochemical components to
produce proteins.

Since the messenger RNA sequence is the complement to its originating gene
sequence, scientists use the information content, or code of the original DNA
nucleotide sequence to construct the highly specific, complementary "Antisense"
molecule. Antisense molecules are free floating single strands of (negative) DNA
that specifically bind to and neutralize the (positive) messenger RNA strands to
prevent the production of specific proteins, and must be replicated in large
numbers in the cells to be effective.

Antisense molecules do not have the potential for toxicity associated with
traditional chemical or herbal compounds because they are expressed within the
cell and because of their specificity. Extensive research has demonstrated that
Antisense molecules either bind with the messenger RNA or are simply dissolved
into natural components, which are found in and generally are not harmful to the
body. In addition, Antisense molecules can be designed to treat a wide range of
infectious and inflammatory diseases, cardiovascular diseases, and cancer.

Biotech researchers have identified and patented over 600 different species of
the single stranded DNA molecules that are potential Antisense agents. The
impediment to developing effective therapies using the Antisense molecules has
heretofore been the problem of "delivering" them into individual cells in
sufficient numbers where they can bind to the offending messenger RNA and
prevent the production of the resulting harmful proteins. This binding activity
involves the design and use of a genetically engineered single stranded DNA
intracellular molecule synthesizer called an expression vector.

CytoGenix has developed a "intracellular single stranded expression vector
(TroVec (TM)) that enables the final stage "delivery" by actually synthesizing
sequence specific Antisense DNA molecules in the cell. The vector remains in the
cell and continues to synthesize Antisense molecules to cancel the messenger RNA
and prevent the production of harmful proteins.

DEVELOPMENT TO DATE

The ssDNA expression vector technology (Antisense molecule delivery system) was
developed as the direct result of an exclusive license and sponsored research
agreement with Dr. Charles Conrad and InGene, Inc. Dr. Conrad first invented and
obtained a patent on the precursor technology of expressing single strands of
sequence specific DNA in bacteria as a research laboratory technique, not
contemplating any therapeutic use in living organisms. He developed the first
version of the vector as a commercial product, but later abandoned the
enterprise to complete his medical training.

CytoGenix negotiated the license to obtain rights to the technology, revived the
patent that had been filed by Dr. Conrad and entered into a continuing sponsored
research agreement with Dr. Conrad and an entity he had formed to develop the
technology. These activities enabled the Company's expansion and refinement of
the technolog y for possible use in human and animal therapies and agriculture.
The technology was proven by Dr. Conrad and associates in the laboratories in
July 1998 and Dr. Conrad's findings have been confirmed and submitted for
publication in the ANTISENSE AND NUCLEIC ACID DRUG DEVELOPMENT JOURNAL on April
4, 2000.

On December 28, 1998 the United States Patent Office (USPTO) notified the
Company that it has allowed all the claims contained in the patent application
for the Company's single stranded DNA expression vector. On April 25, 2000 , Dr.
Charles Conrad was issued the patent for its stranded DNA expression vector
under United States Patent No. 6,054,299 entitled, "Methods and Compositions for
Producing Single-stranded cloned DNA in eukaryotic cells", which the Company has
the exclusive worldwide license to utilize. There are nine additional pending
patent applications describing the Company's technology. Two other patent
applications filed through the Patent Cooperation Treaty (PCT) were published on
April 20, 2000. The first patent was No. WO 00/22113 entitled, "Enzymatic
Synthesis of ssDNA." The second patent was No. WO 00/22114 and entitled
"Production of ssDNA in vivo." These patents are important to the Company
because they help form the basis of the technology needed for the production of
TroVec (TM) and other products.

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The Company has budgeted for five live animal studies in 2000. The first is in
progress at the Southwest Foundation for Biomedical Research in San Antonio. It
has begun with tissue studies and will progress to mouse studies and eventually
primate studies to Antisense SIV, the monkey version of the human HIV virus.

A second animal trial is being conducted under a sponsored research agreement at
Baylor College of Medicine. This study will test the vector in combination with
an Antisense molecule for the treatment of pulmonary inflammation.

A second sponsored research agreement at Baylor College of Medicine has also
been initiated. The objectives of this study are to verify effective Antisense
molecules for psoriasis and melanoma.

The specifics of the additional budgeted animal tests are not yet decided,
however animal tests are required to gather data before human testing can be
undertaken by persons wishing deliver their Antisense molecules using the
Company's vector delivery system.

It has been reported in the scientific literature, such as in the Reuters
Business Insight 2000 publication, ANTISENSE THERAPY: TECHNICAL ASPECTS AND
COMMERCIAL OPPORTUNITIES by Prof. Dr. K.K. Jain M.D., that other Antisense
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 Antisense molecules in sufficient
quantities in virtually all cell types, thereby overcoming many of the problems
expressed in the literature. The Company plans to extend expression achieved in
cell cultures to cells in live animals as has been discussed above.

The Company has submitted for publication a comprehensive manuscript describing
these studies showing evidence of expression of various Antisense molecules in
the cell cultures investigated. The authors of this manuscript are Charles
Conrad, MD, Yin Chen, Ph.D. and Robert Roxby, Ph.D. Dr. Chen is now working
full-time in the Company's on-site laboratory.

The Company has spent approximately $1,000,000 per year for the past two years
on its research and development activities.

The Company has the following 8 full-time employees:

Dr. Malcolm Skolnick has served as the Company's President and Chief Executive
Officer since September 1, 1999. Dr. Skolnick oversees all business operations
management team. Dr. Skolnick retired from his position as Professor of
Technology and Health Law at the University of Texas School of Public Health on
June 1, 2000, and also serves on the Boards of Biodyne,Inc., Public Health
Services, Inc., QBIT, Inc. and several non-profit foundations.

Dr. Jonathan Elliston has served as the Company's Director of Strategic Planning
and Intellectual Property since September 1, 1999 and as the Company's Vice
President of Research and Development since April 11, 2000. He is in charge of
managing and creating intellectual property and manages laboratory operations.
He is also the primary contact for science and technology.

Ms. Kim Totsky was hired as an Executive Assistant on November 1, 1999. She
assists management with day-to-day operations, bookkeeping and scheduling.

Mr. Dell Gibson has been employed by the Company since its inception in February
1995 and is its Executive Vice President. Mr. Gibson is responsible for Investor
Relations, Corporate Communications, and business planning and direction.

Mr. Lawrence Wunderlich has served as the Company's Chief Financial Officer
since August 17, 1998. Mr. Wunderlich manages the financial and accounting
functions of the Company and governmental regulatory compliance issues.

Mr. Maury Fogle has served as the Company's Corporate Finance Associate since
January 17, 2000. Mr. Fogle assists Mr. Wunderlich with regulatory issues and
conducts corporate research for business prospects and opportunities.

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Ms. Harilyn McMicken has served as the Company's Chief Research Technician since
May 5, 2000. Ms. McMicken supervises and conducts laboratory research and
experiments.

Dr. Yin Chen has served as the Company's Chief Research Scientist since February
11, 2000. Dr. Chen oversees laboratory operations and initiates research
projects and experiments.

Michelle Sheffield consults part time for the Company. Ms. Sheffield is a
licensed attorney who is completing her Ph.D. at the School of Public Health of
the University of Texas Health Science Center. Her primary activity is devoted
to regulatory issues with the U.S. Food and Drug Administration.

All primary research and development at CytoGenix is conducted in the on-site
laboratory located adjacent to the executive offices at the same address.

The four executive officers of the Company are described further in Item 5,
"Directors, Officers, Promoters and Control Persons."

REGULATORY ISSUES

The United States Food and Drug Administration (FDA) approves compounds that
have been demonstrated as being both safe and effective as individual parts and
in combination for medical use in humans. The FDA also recognizes different
categories of disease which deserve different approval standards. The most
lenient standard is accorded to those drugs that have been designated
"compassionate use" in that any dangers or side effects they may exhibit are
less harmful than those inherent in the disease itself when compared with the
potential benefits.

Certain diseases have been designated as "orphan" diseases in that there are so
few cases that the major drug companies cannot justify the expense of
investigational development and submitting to the full approval process. Many of
the orphan diseases, although rare, are nonetheless devastating to the patients
and their families from both a physical and financial point of view. The FDA
therefore, has afforded less rigorous requirements for their approval. The
Company will work within the existing FDA guidelines described above to achieve
approval for the use of the Company's technology.

Once a therapeutic drug has been demonstrated in the laboratory, typically in
cell cultures where Antisense compounds are investigated, the drug may be
studied in animals. Laboratory and animal data may be used to apply for a new
drug application (NDA) from the FDA and to support protocols and study designs
for clinical trials submitted to an Institutional Review Board (IRB). Data from
the clinical trials may be submitted to the FDA to complete the NDA process.
Once the FDA approves the NDA, the company may market the drug.

CytoGenix has produced demonstrations in several cell cultures of the expression
capabilities of TroVec (TM). It may require an additional one to three years to
complete adequate animal trials to support initiation of clinical trials for a
specific Antisense compound against a disease. These clinical trials may take
from one to three years. At this time the Company has not yet produced any final
products subject to the approval regulations of the FDA and therefore, cannot
anticipate any approval timetable.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Management's Discussion and Analysis of Plan of Operation contains
forward-looking statements, which involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements.

The Company has budgeted $2,000,000 for operations in fiscal year 2000, of which
$840,000 has been allocated for General and Administrative costs and $930,000
has been allocated for Research and Development, including five live animal
studies, which are estimated at a cost of $50,000 per study. The scientific
protocols have been determined by Dr. Jonathan Elliston of CytoGenix for three
of these studies. A total of $230,000 has been reserved for contingencies. The
Company will rely on equity financing to satisfy its working capital
requirements, and has as of June 13, 2000, $184,577 of cash on hand for fiscal
year 2000.

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There are currently over 600 U.S. patents for Antisense molecules with
therapeutic potential, each of which is a prospective licensee for TroVec(TM).
The Company's standard license calls for a $100,000 initiation fee, and either a
minimum royalty fee of $50,000 per year or a 15% royalty fee of the licensee's
net sales, whichever is greater. The Company, based on the continuing interest
in our technology, believes, but can give no assurance, that an estimated 12 to
15 licenses could be granted during the calendar year 2000 to date. The first
was executed in February 2000 with PharmaGenix, LLC, an affiliate of the
Company.

In November 1999, CytoGenix formed PharmaGenix, LLC a joint venture with
Professional Compounding Centers of America (PCCA), that will apply part of the
nucleic acid technology (synthesized DNA and RNA sequences) to developing
products for the 2,500 member compounding pharmacies that are affiliated with
PCCA. These future products will incorporate Antisense molecules within
formulations that could be used for dermatological applications including herpes
simplex infections, psoriasis, shingles, allopoecia, rosacea, and genital warts.
This venture is intended to provide a source of revenue to CytoGenix.

On March 6, 2000 the Company entered into an Agreement with Quantum Bit
Induction Technology, Inc. (QBIT). This Agreement provides for the exchange of
3,000,000 shares of QBIT common stock and the molecular biology intellectual
property developed by QBIT or its assignees for 3,000,000 shares of CytoGenix
common stock. CytoGenix owns 6.3% of the outstanding capital stock of QBIT as a
result this transaction and management believes this transaction will help
CytoGenix by improving its technological base.

The Company's ability to continue operations in 2000 depends on its success in
obtaining equity financing in an amount sufficient to support its operations
through the end of the year. There is substantial doubt that the Company will
generate sufficient revenues or be able to raise adequate capital to remain a
going concern. Based on historical yearly financial requirements, operating
capital of approximately $2 million will be needed for the calendar year 2000.

The Company expects its sources of revenue, for the next several years, to
consist primarily of payments under future product development joint ventures
and of licensing agreements as well as possible royalties. The process of
developing the Company's products will require significant additional research
and development, preclinical testing and clinical trials, as well as regulatory
approvals. These activities, together with the Company's general and
administrative expenses, are expected to result in operating losses for at least
two more years. The Company will not receive product revenue from therapeutic
products unless it completes clinical trials and successfully commercializes or
arranges for the commercialization of one or more products, the accomplishment
of which no assurance can be given.

The Company is subject to risks common to biopharmaceutical companies, including
risks inherent in its research and development efforts and clinical trials,
reliance on collaborative partners, enforcement of patent and proprietary
rights, the need for future capital, potential competition and uncertainty in
obtaining required regulatory approval. In order for a product to be
commercialized, it will be necessary for the Company and its collaborators to
conduct pre-clinical tests and clinical trials, demonstrate efficacy and safety
of the Company's product candidates, obtain regulatory clearances and enter into
distribution and marketing arrangements either directly or through sublicenses.

From the Company's inception through the date of this document, the major role
of management has been to obtain sufficient funding for required research,
monitoring research progress and developing and licensing intellectual property.
The Company's operating strategy has been as follows:

1) Equity funding has been the primary source of working capital for the Company
along with limited government and private grants, whenever possible. Debt
financing has not been available to the Company on acceptable terms.

2) The management team has attempted to keep overhead low and dedicated the
largest share of available funds for research and development.

3) The Company has vigorously pursued prosecution of its patents (both its
licensed technology and internally developed technology).

The Company's plans for the next 2 years are:

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1) Complete the animal studies now underway.

2) Commission additional animal studies that meet the necessary criteria of
applicability and extrapolation to clinical studies, or where the market
(defined by animal disease prevalence) is demonstrated.

3) Identify promising "compassionate use" therapies that qualify for fast-track
FDA approval to demonstrate safety and efficacy in human trials.

4) Identify Antisense molecules related to specific dermatological conditions
and develop cosmetic preparations, which can be compounded and applied by
patients for these conditions.

In addition, the Company is posting Requests for Proposals (RFP)
from independent research facilities to conduct additional animal studies
suggested by the CytoGenix Scientific Advisory Board. The protocols for the
future animal studies have not been determined at this time.

SCIENTIFIC ADVISORY BOARD

The Scientific Advisory Board (SAB) for CytoGenix is administered by SAB
Executive Secretary, Jonathan Elliston, PhD, the Vice President of Research and
Development for the company. The SAB was formed on August 20, 1998, by the Board
of Directors, to advise the Company on scientific protocol and future
experimental and research endeavors.

The following individuals are the members of the Company's Scientific Advisory
Board:

PETER M. GLAZER, MD, PHD. holds academic degrees from Harvard (BA), Oxford (MS),
and Yale (PhD) and a Medical Degree from Yale University School of Medicine
where he is an Associate Professor of Therapeutic Radiology and Genetics. His
research interests include gene targeting and gene therapy, genetic instability
in cancer, mutagenesis, and DNA repair.

MALCOLM H. SKOLNICK, PH.D., J.D., is a former Professor of Technology and Health
Law at the School of Public Health in the University of Texas Health Sciences
Center at Houston. Dr. Skolnick pursues research on policy issues at the
interface of science and law.

CHARLES A. CONRAD, M.D. is Board Certified in Psychiatry & Neurology and is in
private practice. He conducts research in molecular biology related to genetic
factors in tumorogenesis and in Antisense technology.

STEPHEN M. HEWITT, M.D., PH.D. is currently conducting medical research as a
resident in Anatomic Pathology in the Laboratory of Pathology, National Cancer
Institute, National Institute of Health.

MARK R EMMETT, PH.D. is Associate Director and Director of Biological
Applications of the Ion Cyclotron Resonance Center for Interdisciplinary
Magnetic Resonance, National Magnetic Field Laboratory of Florida State
University. Dr. Emmett's research centers on molecular biological applications
in neurochemistry and neuropharmacology.

IN-KIND STOCK SWAP

In January 1999, rules governing Regulation D, 504 private placements under the
Securities Act of 1933 were amended by the U.S. Securities and Exchange
Commission whereby issuers were compelled to only offer restricted stock to
investors if a public offering cannot be undertaken. Prior to this amendment,
issuers were permitted to offer and sell up to $1,000,000 of freely transferable
shares per annum to investors, typically at a slight discount to market in order
to secure equity financing.

In order to continue to fund future operations of the Company, the Company's
management decided on May 13, 1999, to offer all current shareholders the
opportunity to exchange their shares that are not restricted for restricted
shares at a ratio of two shares of restricted stock per one share of outstanding
stock. It was the Company's belief at

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that time that the unrestricted shares could be sold by the Company to
individual investors without registration as a means to fund the Company.

The Company initially proposed to issue a total of 20,000,000 restricted shares
in exchange for 10,000,000 outstanding shares. The outstanding shares would then
be sold by the Company in the market and in private transactions. Between, May
16, 1999 and August 21, 1999, a total of 424 existing shareholders agreed to
exchange a total of 5,825,761 outstanding shares for 11,651,526 restricted
shares. The Company then, in a series of brokerage and private transactions,
sold a total of 2,611,576 shares of which 798,304 shares were sold through
December 31, 1999 for $480,568 and the remaining 1,813,272 shares were sold
through March 31, 2000 for $887,254 as a result of this activity. The Company
retained a total of 3,214,189 shares that it received from shareholders in the
treasury of the Company.

It is possible that the sale of the 2,611,576 shares described above may have
violated securities registration provisions of the federal and state securities
laws which could subject the Company to fines, penalties or other regulatory
enforcement action. There can be no assurance that the SEC or applicable state
authorities will not pursue any enforcement action. Additionally, it is possible
that shareholders who purchased the shares described above in market
transactions may have the right under state and federal securities laws to
require the Company to repurchase their shares, for the amount originally paid,
plus interest.

Based upon the best information available to the Company at this time, the
Company has calculated the amount of possible exposure that exists for the
Company in light of the possible civil liabilities described above. In the event
that these possible civil liabilities are asserted, the Company could be liable
to certain shareholders who originally purchased the securities in market
transactions in an amount of approximately $ 1,367,813 plus interest. The
exposure was calculated by multiplying the average closing price for a share of
the Company's common stock, weighted for reported daily volume, during the
period May 16, 1999 to January 31, 2000 (which was $0.523), by 2,611,576 shares
sold during the same period of time.

The results of the completion of the in kind stock swap are:

Number of restricted shares issued: 11,651,526 shares
Number of outstanding shares transferred to treasury: 5,825,761 shares
Number of shares sold from treasury: 2,611,576 shares
Number of shares remaining in treasury: 3,214,189 shares

None of the remaining shares placed in the Company treasury from the in-kind
stock swap will be sold without being registered or without a valid exemption
from registration.

The total number of shares of common stock outstanding as of December 31, 1999
is 29,010,503.

QUANTUM BIT INDUCTION TECHNOLOGY, INC. COMMERCIALIZATION AGREEMENT

On January 18, 2000 the Company entered into an agreement with Quantum Bit
Induction Technology, Inc. ("QBIT") of Houston, Texas, an entity in which
certain directors of the Company own 4,000,000 (or 8.4%) of the 47,470,500
outstanding shares of capital stock of QBIT (the "QBIT Agreement"). Pursuant to
the QBIT Agreement, the Company acquired all of the molecular biology technology
developed by QBIT and its personnel. The QBIT Agreement also provides for
3,000,000 shares of the Company's common stock to be issued to QBIT in exchange
for 3,000,000 shares of QBIT common stock.

PHYSICAL THERAPY ASSOCIATES

CytoGenix's Board of Directors approved the purchase of Physical Therapy
Associates (PTA) in 1996 for 1.5 million shares of CytoGenix common stock, in
order to acquire technical expertise in traditional nerve damage therapy and to
provide a platform for future clinical trials contemplated after the necessary
molecular biology research was completed.

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This line of research was subsequently suspended when the more promising
Antisense molecule delivery (ssDNA expression vector) technology was identified,
because of insufficient resources to pursue both research objectives
simultaneously. CytoGenix was unable to execute a final purchase agreement with
PTA and therefore the sole shareholder of PTA repaid 1,000,000 of the CytoGenix
shares but retained the balance (500,000 shares) as compensation for certain
services provided by the sole shareholder of PTA to the Company.

CHANGE IN MANAGEMENT

In May 1999 Laurence Mealey, former Chief Executive Officer of the Company died.
Subsequently, Mike Skillern assumed the position of temporary Chief Executive
Officer and President.

On September 1, 1999, Malcolm Skolnick was appointed as Chief Executive Officer
and President of the Company. He was also appointed as a director of the Company
beginning September 1, 1999 for a term of three years.

Lawrence Wunderlich, Chief Financial Officer and Corporate Secretary was also
appointed to the Board of Directors on September 1, 1999 for a term of three
years.

Michael Skillern resigned as Vice President for Research and Development on
January 15, 2000. He was replaced by Jonathan Elliston, Ph.D., MBA, JD on April
15, 2000.

RESULTS OF OPERATIONS

The Company expects to incur net losses for the foreseeable future. There can be
no assurance that revenues will ever be generated from the Company's research
and development efforts.

COMPARISON OF 1999 VERSUS 1998. The Company had a net loss of $4,718,871 in
1999, a 396.5% increase from the 1998 net loss. Expenses in 1999 were
$1,653,239, a 73.9% increase from 1998 expenses. General and administrative
expenses in 1999 increased to $973,166, a 8,112.4% increase from 1998 general
and administrative expenses. This increase is primarily attributable to (i) the
hiring of additional personnel and (ii) the Company's change in its method of
accounting for start up costs to conform with SOP 98-5 "Reporting on the Costs
of Start-up Activities." Research and development expenses in 1999 decreased to
$671,429, a 27.9% decrease from 1998. This decrease is primarily attributable to
the significant stock issuances in 1998 as compensation for research and
development, which did not reoccur in 1999. Income in 1999, which consists
primarily form investment income related to cash on hand, was $1,375, a 2,154.1%
increase from 1998. The Company's funds were invested in short-term investment
grade securities, including money market funds, commercial paper, banker's
acceptances and certificates of deposit.

COMPARISON OF THE FIRST QUARTER OF 2000 VERSUS THE FIRST QUARTER OF 1999. The
Company had a net loss of $592,045 in 2000, a 82.1% decrease from the 1999 net
loss. Expenses in 2000 were $592,045, a 149.5% increase from 1999 expenses.
General and administrative expenses in 2000 increased to $504,811, a 243.9%
increase from 1999 general and administrative expenses. This increase is
primarily attributable to (i) the hiring of additional personnel and (ii) the
Company's change in its method of accounting for start up costs to conform with
SOP 98-5 "Reporting on the Costs of Start-up Activities." Research and
development expenses in 2000 increased slightly to $84,319, a 3.0% increase from
1999. No income was generated in the first quarter of 2000.

ITEM 3. DESCRIPTION OF PROPERTY.

The Company's corporate executive offices are located at 9881 So. Wilcrest,
Houston, TX 77099. The Company has occupied approximately 4200 square feet of
executive office and laboratory space since December 1999. The facility is in
good condition and is adequate for the Company's current operations. Rent on the
facility is $2,046.00 per month.

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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Principal Shareholders

The following table sets forth the name and address, as of June 13, 2000, and
the approximate number of shares of Common Stock of the Company owned of record
or beneficially by each person who owned of record, or was known by the Company
to own beneficially, more than 5% of the Company's Common Stock, and the name
and ownership rights of each executive officer and director, and all officers
and directors as a group.

NAME AND ADDRESS OF NUMBER PERCENT OF
BENEFICIAL OWNER OF SHARES SHARES
---------------- --------- ------
Michael Skillern** 1,214,424
2900 South Gessner, #504 common 4.1%
Houston, Texas 77063

Dell T. Gibson 1,742,300
9881 So. Wilcrest common 6.0%
Houston, Texas 77099

Lawrence Wunderlich 172,300
9881 So. Wilcrest common *
Houston, Texas 77099

Quantum Bit Induction 3,000,000
Technology, Inc. common 10.3%
6524 San Felipe, #445
Houston, Texas 77057

Mike Walters, L.P.T. 500,000
1220 Blalock, #220 common 1.7%
Houston, Texas 77055

Malcolm Skolnick, Ph.D., J.D. 1,158,000
9881 So. Wilcrest common 4.0%
Houston, Texas 77099

All Executive Officers 8,594,900
and Directors: common 29.6%
As a group

* Less than 1%
** Includes 1,190,363 shares owned of record by the Skillern Family
Partnership Ltd., which shares Mr. Skillern has the sole authority to vote
or dispose.

Item 5. Directors, Executive Officers, Promoters and Control Persons.

9
<PAGE>
The following table sets forth certain information with respect to each of the
Directors, executive Officers, key employees and control persons of the Company.

NAME AGE TITLE
---- --- -----
Malcolm Skolnick 64 Chief Executive Officer,
President, Director
Term of Office: 1999 to 2002

Dell Gibson 62 Executive Vice President,
Chairman of the Board
Term of Office: 1999 to 2002

Mike Skillern 33 Vice President Research &
Development, Director
Term of Office: 1998 to 2001

Lawrence Wunderlich 42 Chief Financial Officer, Director
Term of Office: 1999 to 2002

Michael Walters 66 Director
Term of Office: 1998 to 2001

None of the members of Management are related. The Company has executed an
employment agreement with each of the officers of the Company. Employment
compensation can be made in the form of cash or restricted common stock at the
prevailing ask price of the stock. The executive officers are given the option
of accruing cash payments until such time as the Company can afford to make such
payments, in the sole discretion of the Board of Directors. The payment of stock
is based on the closing asked price of the Company's common stock on the 1st and
15th of each month for the preceding pay period.

Dr. Skolnick has been the Chief Executive Officer and President of the Company
since September 1, 1999. Prior to that time and for the last 30 years Dr.
Skolnick was a Professor in the University of Texas Health Sciences Center at
Houston. Dr. Skolnick received a Ph.D. in physics from Cornell University and a
J.D. from the University of Houston. He is licensed to practice law in Texas and
is a registered patent attorney. He has practiced intellectual property law,
been active in technology transfer and licensing activities and serves on the
Boards of Biodyne, Inc., Public Health Services, Inc., QBIT, Inc. and several
non-profit foundations.

Mr. Skillern was an officer of the Company from February 1995 to January 2000.
Mr. Skillern is a founder and currently serves as a Director. Mr. Skillern
serves as one of three general partners for Skillern Family Partnership, Ltd.
which owns 1,190,363 shares of common stock of the Company.

Mr. Gibson has been an officer of the Company since February, 1995. He is a
graduate of the University of Texas in Austin. Mr. Gibson has previously worked
in a wide variety of Sales, Marketing and Management positions with companies
such as Searle Cardio Pulmonary Instruments and AMSCO Rehab. Mr. Gibson
currently serves as the Company's Executive Vice President and as a Director.

Mr. Wunderlich worked as a financial consultant at the investment banking firm
of Josephthal and Company from October 1996 until August 1998. At that time, Mr.
Wunderlich became the Company's Chief Financial Officer. Prior to his employment
with Josephthal, Mr. Wunderlich co-owned The Language Loop, a translation
service from 1991 to 1996 and held the position of President. Mr. Wunderlich
attended the University of Vienna and Manhattan College in Riverdale, New York.

Mr. Walters has been a Director since February, 1995, is a Licensed Physical
Therapist and has been in private practice for over 36 years.

ITEM 6. EXECUTIVE COMPENSATION

The Company has entered into an employment agreement with Dr. Skolnick. In
addition to salary, Dr. Skolnick has the option each quarter to purchase common
stock at a price per share equal to $0.001 in an amount equivalent to 25% of his
gross salary computed at the closing price on the last day of each pay period.

10
<PAGE>
The following table sets forth certain information concerning compensation of
each person that served as the Company's Chief Executive Officer during the last
fiscal year of the Company. No executive officers of the Company were paid
aggregate cash compensation exceeding $100,000 during the last fiscal year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARD(S)
NAME AND PRINCIPAL SALARY BONUS RESTRICTED STOCK
POSITION YEAR ($) ($) AWARD(S) ($)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Malcolm Skolnick (CEO) .................................. 1999 $ 40,000 $ 4,000 $ 7,500(1)
Mike Skillern
(former CEO) ............................................ 1999 $ 17,500 $ 1,750 $ 6,250(2)
1998 $ 30,000 --
1997 $ 60,000 --

Laurence Mealey
(former CEO) ............................................ 1998 $ 52,500 -- $ 718,500(3)
</TABLE>

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

(1) Dr. Skolnick was issued shares of Common Stock as compensation as follows:

NUMBER OF
DATE $ VALUE CLOSE PRICE SHARES
---------- ------- ----------- ---------
09/01/1999 $1,250 $0.80 1,563
09/15/1999 $1,250 $0.65 1,923
10/01/1999 $1,250 $0.48 2,604
10/15/1999 $1,250 $0.54 2,315
11/01/1999 $1,250 $0.53 2,358
11/15/1999 $1,250 $0.46 2,717
12/01/1999 $1,250 $0.65 1,923
12/15/1999 $1,250 $0.66 1,894

2) Mr. Skillern was issued shares of Common Stock as compensation as follows:

DATE $ VALUE CLOSE PRICE TOTAL SHARES
---------- ------- ----------- ---------
06/01/1999 $625 $0.68 919
06/15/1999 $625 $0.57 1,096
07/01/1999 $625 $0.66 947
07/15/1999 $625 $0.50 1,250
08/01/1999 $625 $0.48 1,302
08/15/1999 $625 $0.55 1,136
09/01/1999 $625 $0.80 781
09/15/1999 $625 $0.65 962
10/01/1999 $625 $0.48 1,302
10/15/1999 $625 $0.54 1,157
11/01/1999 $625 $0.53 1,179

(3) Mr. Mealey was issued shares of Common Stock as compensation as follows:

DATE $ VALUE CLOSE PRICE TOTAL SHARES
---------- -------- ----------- ---------
07/01/1998 $188,000 $0.94 200,000
10/01/1998 $112,500 $0.56 200,000
12/31/1998 $104,000 $0.52 200,000
04/01/1999 $182,000 $0.91 200,000
07/01/1999 $132,000 $0.66 200,000

11
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 18, 2000, the Company entered into the QBIT Agreement with QBIT, a
company in which each of Mike Skillern, Lawrence Wunderlich, Malcolm Skolnick
and Dell Gibson own 1,000,000 of the outstanding shares of capital stock. See
Item 2, "Quantum Bit Induction Technology, Inc. Commercialization Agreement" for
further information. In April 1999, the Company was unable to consummate a
transaction with PTA and agreed to allow Michael Walters, the sole shareholder
of PTA, to retain 500,000 of the 1,500,000 shares previously issued to him in
1996 in connection with the Company's proposed acquisition of PTA, as
compensation for consulting services he rendered to the Company. Management is
unaware of any other interests of its officers and directors that may create a
potential conflict of interest with the Company.

ITEM 8. DESCRIPTION OF SECURITIES

GENERAL

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of Directors, with the result that the
holders of more than 50% of the Shares voted for the election of Directors can
elect all of the Directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefore. In the event of liquidation, dissolution or wind up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of Shares of Common Stock as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock. The Company has no
outstanding debt at this time.

12
<PAGE>
PART II

Item 1. MARKET PRICE OF DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

PRINCIPAL MARKET

The Company's securities were traded on the NASD electronic bulletin board, from
February 5, 1996 to February 27, 2000. The Company was delisted from the NASD
electronic bulletin board on February 27, 2000 due to the Company having not
achieved compliance with NASD marketplace rule 6530. The Company's ticker symbol
is "CYGX." The market makers for the Company's common stock are:

Herzog, Heine, Geduld, Inc
USCC Trading/A Division of Fleet Securities
WM.V. Frankel & Co. Inc.
Hill Thompson Magid & Co., Inc.
Wein Securities Corp.
Sharpe Capital, Inc.
Knight Securities, Inc.
Waterhouse Securities, Inc.
Advanced Clearing, Inc.
Continental Broker-Dealer Corp.
Brown & Company Securities Corporation
GVR Company

BID INFORMATION

The high and low bid price 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.

HIGH LOW

Fiscal Year Ending December 31, 2000
Second Quarter (through 6/13/00) 2.625 .531
First Quarter Ending 03/31/00 2.25 1.87

Fiscal Year Ending December 31, 1999 .66 .62
Third Quarter Ending 09/30/99 .51 .48
Second Quarter Ending 06/30/99 .66 .62
First Quarter Ending 03/31/99 .94 .91

Fiscal Year Ending December 31, 1998
Fourth Quarter Ending 12/31/98 .54 .51
Third Quarter Ending 09/30/98 .59 .56
Second Quarter Ending 06/30/98 .75 .63
First Quarter Ending 03/31/98 .35 .34

Fiscal Year Ending December 31, 1997
Fourth Quarter Ending 12/31/97 .48 .43
Third Quarter Ending 09/30/97 .20 .20
Second Quarter Ending 06/30/97 .30 .30
First Quarter Ending 03/31/97 .18 .18

13
<PAGE>
STOCKHOLDERS

There are approximately 1,260 shareholders of record of the Company as March 31,
2000. The Company has not paid any dividends on its Common Stock. The Board does
not intend to declare any dividends in the foreseeable future.

ITEM 2. LEGAL PROCEEDINGS.

CARTER LAWSUIT

The Company is the holder and owner of a note signed and executed by James
Carter with principal amount of $198,000. The note was issued to the Company as
payment for 600,000 shares of the Company's stock. The Company demanded payment
of the note or return of the stock on February 25, 2000. Mr. Carter defaulted on
payment on March 15, 2000. The Company filed suit on March 22, 2000 in the 125th
Judicial District Court of Harris County, Texas to receive payment on the note
or to recover the stock.

ITEM 3. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS.

None.

ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.

As of October 1996 there were 6,194,500 common shares outstanding. On October
30, 1996 the Nevada Agency and Trust Company of Reno, Nevada became the transfer
agency of the Company.

In March 1997, the Company issued 3,687,425 of its Common Stock. Of those
shares, 2,000,000 were sold to the Skillern Family Partnership Ltd. and
1,000,000 to Dell Gibson for an aggregate price of $565,500 (or $0.1885 per
share) in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended ("Section 4(2)") for transactions not
involving a public offering. Of the $565,500, $3,000 was paid in cash and the
remainder represents the value of cash compensation not received in lieu of the
shares issued. The remaining 687,425 shares (Susan Kerr-52,200, Alex
Bernal-135,225 and Malcolm Skolnick-500,000) were issued for services rendered
to the Company valued at an aggregate of $128,892.19 (or $0.1875 per share).

In October through December 1997, the Company sold 825,974 shares of Common
Stock for an aggregate cash price of $129,132 ($0.33 per share) in a private
placement to an accredited investor (M&M Group, Inc.) pursuant to the exemption
from registration provided by Section 3(b) and Rule 504.

In February 1998, the Company sold 800,000 shares of Common Stock for an
aggregate cash price of $264,000 ($0.33 per share) in a private placement to
accredited investors (Jefferson Fund I-50,000, Gustavo Odio-200,000, Twitchel
Corporation-250,000 and Eagle Holdings Ltd.-300,000) pursuant to the exemption
from registration provided by Section 3(b) and Rule 504.

In March 1998, the Company issued 1,283,960 of its Common Stock. Of those shares
759,762 were sold to executive officers/founders (Gibson Family
Partnership-569,399 and the Skillern Family Partnership-190,363) of the Company
for an aggregate price of $266,676.46 (or $0.351 per share) in reliance on the
Section 4(2) exemption. Of the $266,676.46, $759.76 was paid in cash and the
remainder represents the value of cash compensation not received in lieu of the
shares issued. The remaining 524,198 shares (Malcolm Skolnick-100,000, Craig
Tomlinson-15,625, Mark Wisner-23,573, Charles Conrad-125,000, Charles
Boyd-50,000, Harry Morganthal-60,000, William B. Waldorf-150,000) were issued
for services rendered to the Company estimated to be valued at an aggregate of
$183,469.30 (or $0.35 per share).

Also, in March 1998, the Company issued to Allan J. Richardson 30,000 of its
Common Stock for repayment of a loan for an aggregate price of $11,700 (or $0.39
per share)

In June 1998, the Company sold 745,000 shares of Common Stock for an aggregate
cash price of $74,500 (or $0.10 per share) in a private placement to accredited
investors (Cyril Brant-300,000, Joe Gutkowski-45,000, David

14
<PAGE>
Norton-200,000, Marilyn Lewis-10,000 and Delta Equities Belize-190,000) pursuant
to the exemption from registration provided by Section 3(b) and Rule 504.

In July 1998, the Company issued 1,150,000 shares of its Common Stock. Of those
shares 231,000 shares (Plan Pro, Inc.-5,000, Jisook Ford-60,000, Geoffrey
Gibson-15,000, Jose Pablo Jiminez-100,000 and William B. Waldorf-50,000) were
issued as payment for services rendered to the Company valued at an aggregate of
$76,230 (or $0.33 per share). In addition, 419,000 of those shares were sold for
an aggregate cash price of $138,270 (or $0.33 per share) in a private placement
to accredited investors (Nimbus Tres S.A.-115,000 and Gustavo Odio-304,000)
pursuant to the exemption from registration provided by Section 3(b) and Rule
504. The remaining 500,000 shares were issued to Ingene, Inc. pursuant to the
terms of a license agreement with InGene, Inc. under which the Company was
granted a license to utilize patents held by Ingene, Inc. and was paid $0.001
per share, aggregating $500.00, in reliance on the Section 4(2) exemption.

Also in July 1998, the Company issued 680,000 of its Common Stock. Of those
shares 300,000 were sold to executive officers/founders (Dell Gibson-100,000 and
Laurence Mealey-200,000) of the Company for an aggregate price of $516,330 (or
$1.721 per share) in reliance on the Section 4(2) exemption. Of the $516,330,
$300 was paid in cash and the remainder represents the value of cash
compensation not received in lieu of the shares issued. The remaining 380,000
shares (Ellis G. Gibson-30,000, Charles M. Bardwell-200,000, Craig
Tomlinson-50,000, Steven G. Sloat-100,000) were issued for services rendered to
the Company valued at an aggregate of $653,600 (or $1.72 per share).

Also in July 1998, the Company issued 25,000 shares of its Common Stock to
Charles M. Bardwell as payments for services rendered, aggregating to $41,405
(or $1.6562 per share), in reliance on the Section 4(2) exemption.

In September through December 1998, the Company sold 1,000,000 shares of its
Common Stock for an aggregate cash price of $500,000 (or $0.50 per share) in a
private placement to accredited investors (Charles Wunderlich-80,000, Bruce
Rich-120,000, Hi-Tel Group-185,000, Newton Rayzor-40,000, Tim Rice-400,000,
Peggy Buchanan-10,000, Kim Golden-40,000, Howard Bregman-50,000, Daniel
Wunderlich-50,000, John Caviness-10,000 and Mark Solomon-15,000) pursuant to the
exemption from registration provided by Section 3(b) and Rule 504.

Also in December 1998, the Company issued 182,000 shares of its Common Stock to
Delta Equities as payment for services rendered, aggregating $124,290.40 (or
$0.68 per share), in reliance on the Section 4(2) exemption.

Also in December 1998, the Company issued 881,061 of its Common Stock. Of those
shares, 800,000 were sold to Laurence Mealey for an aggregate price of
$456,800.00 (or $0.571 per share) in reliance on the Section 4(2) exemption. Of
the $456,800, $800 was paid in cash and the remainder represents the value of
cash compensation not received in lieu of the shares issued. In addition, 81,061
shares (Craig Tomlinson-75,000, Charles Bardwell-6,061) were issued for services
rendered to the Company valued at an aggregate of $46,204.77 (valued at $0.57
per share).

In February 1999, the Company sold 100,000 shares of its Common Stock for an
aggregate cash price of $50,000 (or $0.50 per share) in a private placement to
accredited investors (Christopher L. Mealey-30,000 and Stephen Newmark-70,000)
pursuant to the exemption from registration provided by Section 3(b) and Rule
504.

In March 1999, the Company sold 217,220 shares of its Common Stock for an
aggregate cash price of $108,610 (or $0.50 per share) in a private placement to
accredited investors (Peter T. Imbert-200,000 and Robert J. Kirk-17,220)
pursuant to the exemption from registration provided by Section 3(b) and Rule
504.

Also, in March 1999, the Company issued 210,000 of its Common Stock to Allan
Richardson for repayment of a $142,000 loan made to the Company ( $0.676 per
share).

In April 1999, the Company issued 150,000 of its Common Stock to the Skillern
Family Partnership for repayment of a loan for an aggregate price of $142,500
(or $0.95 per share).

15
<PAGE>
In November, the Company sold 578,704 shares of its Common Stock from treasury
to Nelson Bunker Hunt for an aggregate cash price of $250,000 (or $0.43 per
share) in a private placement to an accredited investor pursuant to the
exemption from registration provided by Section 3(b) and Rule 504.

In December 1999, the Company issued 76,871 shares of its Common Stock to Robert
B. Hydeman as payments for services rendered to the Company valued at an
aggregate of $65,340.35 (or $0.85 per share), in reliance on the Section 4(2)
exemption.

In January 2000, the Company sold 1,813,272 shares of its Common Stock from
treasury for an aggregate cash price of $750,000 (or $0.413 per share) in a
private placement to Nelson Bunker Hunt, an accredited investor pursuant to the
exemption from registration provided by Section 3(b) and Rule 504.

Also in January 2000, the Company issued 195,989 shares of its Common Stock to
Robert B. Hydeman as payments for services rendered to the Company valued at an
aggregate of $225,387.35 (or $1.15 per share), in reliance on the Section 4(2)
exemption.

In February 2000, the Company issued 337,035 shares of its Common Stock. Of
those shares 230,079 were issued to executive officers/founders (Malcolm
Skolnick-39,899, Jonathan Elliston-110,088, Dell Gibson-22,325, Lawrence
Wunderlich-22,325 and Mike Skillern-22,325) and employees (Kim Totsky-2,401 and
Ellis Gibson-10,716) of the Company for an aggregate price of $207,539.33 (or
$0.902 per share) in reliance on the exemption from registration provided by
Section 4(2) for transactions not involving a public offering. Of the
$207,539.33, $230.08 was paid in cash and the remainder represents cash
compensation not received in lieu of the shares issued. The remaining 106,956
shares (Jonathan Skolnick-2,500, Mark Wisner-47,462, Charlie Boyd-22,667,
Stephen M. Hewitt-3,077, Robert Roxby-30,000 and Peter Glazer-1,250) were issued
for services rendered aggregating $117,513 (or $1.125 per share).

In March 2000, the Company issued 3,000,000 shares of its common stock to
Quantum Bit Technology, Inc. in exchange for 3,000,000 shares of Quantum Bit
Technology, Inc. common shares pursuant to a joint commercialization agreement
and in reliance on the Section 4(2) exemption.

In March 2000, the Company sold 250,000 shares of its Common Stock for an
aggregate cash price of $225,000 (or $0.50 per share) in a private placement to
an accredited investor, Tim Rice, pursuant to the exemption from registration
provided by Section 3(b) and Rule 504.

In April 2000, the Company issued 22,315 shares of its Common Stock to executive
officers/founders (Malcolm Skolnick-5,948, Jonathan Elliston-3,469, Dell
Gibson-3,221, Lawrence Wunderlich-3,221 and Mike Skillern-1,736) and employees
(Kim Totsky-1,606, Ellis G. Gibson-838, Maury M. Fogle-1,583, Yin Chen-693) of
the Company for an aggregate price of $33,387.81 (or $1.497 per share) in
reliance on the Section 4(2) exemption. Of the $33,387.81, $22.31 was paid in
cash and the remainder represents cash compensation not received in lieu of the
shares issued.

ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company and its affiliates may not be liable to its shareholders for errors
in judgment or other acts or omissions not amounting to intentional misconduct,
fraud or a knowing violation of the law, since provisions have been made in the
Articles of Incorporation and By-laws limiting such liability. The Articles of
Incorporation and By-laws also provide for indemnification of the Officers and
Directors of the Company in most cases for any liability suffered by them or
arising out of their activities as Officers and Directors of the Company if they
were not engaged in intentional misconduct, fraud or a knowing violation of the
law.

16
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

FINANCIAL STATEMENTS

To the Board of Directors and Stockholders
of CytoGenix, Inc.
9881 South Wilcrest
Houston, Texas 77099

I have audited the accompanying balance sheet of CytoGenix, Inc. (a Nevada
corporation in the development stage) as of December 31, 1999 and 1998, and the
related statement of operations, stockholders' equity, and cash flows for the
year then ended and for the period from February 10, 1995 (inception), to
December 31, 1999. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.

I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of CytoGenix, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the year
then ended and for the period from February 10, 1995 (inception), to December
31, 1999, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has pending contingencies regarding the Company's ability to raise capital
through the sale of common stock, that raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed in Note 11 to the financial statements' in 1999 the Company changed
its method of accounting for start up costs to conform with SOP 98-5 "Reporting
on the Costs of Start-up Activities."

/s/ Harrie Marie Pollok Operhall
Harrie Marie Pollok Operhall,
A Professional Corporation
Houston, Texas
July 10, 2000

F-1
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

BALANCE SHEET
As of December 31, 1999 and 1998
1999 1998
------------ ------------
ASSETS

Cash ........................................ $ 29,554 $ 173,832
Notes Receivable ............................ 25,100
Prepaid Expenses & Other Assets ............. 940 510
------------ ------------
Current assets subtotal ................ 55,594 174,342

Property & Equipment net .................... 41,643 32,614
Intangible Assets ........................... 0 3,067,007
Equity Investment ........................... 9,973 1,125,000
------------ ------------

TOTAL ASSETS ........................ $ 107,210 $ 4,398,963
============ ============

LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES

Accounts Payable ............................ $ 38,787 $ 3,748
Accrued Liabilities ......................... 44,031 5,868
------------ ------------

TOTAL LIABILITIES ................... 82,818 9,616

TREASURY SHARES SOLD SUBJECT TO MANDATORY
REPURCHASE ....................................... 480,568 0
COMMITMENTS AND CONTINGENCIES (Note 3)

SHAREHOLDERS' EQUITY
Common Shares of $0.001 par value
Authorized 50,000,000 shares: issued
29,010,503 and 17,485,700 shares at
December 31, 1999 and l998, respectively 29,010 17,486
Contributed Surplus ........................ 11,068,213 5,547,038
Stock Warrants ............................. 25,000
Treasury Stock 5,027,461 and 0 shares at
December 31, 1999 and l998, respectively

Reported at cost ...................... (5,684,352) 0

Deficit accumulated during the development stage . (5,894,047) (1,175,177)
------------ ------------

Total Shareholders' Equity ............. (456,176) 4,389,347
------------ ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....... $ 107,210 $ 4,398,963
============ ============

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-2
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

STATEMENTS STATEMENT OF OPERATIONS
Year Ended 12/31/99, 12/31/98 and the period from 02/01/95 (inception) to
12/31/99

Feb. 10, 1995
(Inception) to
12/31/99 12/31/98 12/31/99
------------ ------------ ------------

Dividend income ................ $ 1,375 $ 61 $ 1,633
------------ ------------ ------------

INCOME ......................... 1,375 61 1,633

Research and development expense 671,429 931,865 1,817,103
General and administration ..... 973,166 11,850 991,768
Depreciation ................... 8,644 6,722 19,802
------------ ------------ ------------

Expenses ....................... $ 1,653,239 $ 950,437 $ 2,828,673
------------ ------------ ------------

Income before income taxes
and cumulative effect of
change in accounting method .... (1,651,864) (950,376) (2,827,040)

Income Taxes ................... 0 0 0
------------ ------------ ------------

Income before cumulative
effect of change in
accounting method ............ (1,651,864) (950,376) (2,827,040)

Cumulative effect of change
in accounting method
reporting on costs of
start-up activities (net of
income taxes of 0) ........... (3,067,007) 0 (3,067,007)
------------ ------------ ------------

Net Income (Loss) .............. (4,718,871) (950,376) (5,894,047)
============ ============ ============

Basic and Diluted earnings
per share of common stock:
Before cumulative effect of
accounting change .............. (0.07) (0.07) (0.19)
Accounting change .............. (0.13) 0.00 (0.21)
------------ ------------ ------------
Net Income ..................... (0.20) (0.07) (0.41)
------------ ------------ ------------

Weighted average common
shares outstanding ........... 23,248,101 14,096,799 14,505,252
============ ============ ============

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-3
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended December 31, 1999, 1998 and period from 02/10/95 through 12/31/99

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
CONTRIBUTE TREASURY DEVELOPMENT STOCKHOLDER
SHARES AMOUNT D SURPLUS SHARES STAGE EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 5, 1995 ................ -- -- --
Issuance of Common stock ................ 4,694,500 4,694 63,689 68,383
Deficit for year ended 12/31/95 ......... (1,067) (1,067)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 ............... 4,694,500 4,694 63,689 (1,067) 67,316
Issuance of shares
Issuance of shares to Sole
shareholder of Physical
Therapy Associates ................... 1,500,000 1,500 1,123,500 -- 1,125,000
Deficit for year ended 12/31/96 ....... (13,616) (13,616)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 ............... 6,194,500 6,194 1,187,189 (14,683) 1,178,700

Issuance of shares
For services rendered .................. 3,687,425 3,687 687,705 691,392
Purchase ............................... 825,974 826 128,306 129,132
Deficit for year Ended 12/31/97 ........ (210,117) (210,177)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ............... 10,707,899 10,707 2,003,200 (224,800) 1,789,107

Issuance of shares
Loans from shareholders (Note 7) ....... 212,780 213 135,777 135,990
For services rendered .................. 3,601,021 3,601 2,817,225 2,820,826
Purchases .............................. 2,964,000 2,964 590,836 593,800
Deficit for year Ended 12/31/98 ........ (950,376) (950,376)
----------- ----------- ----------- ----------- ----------- -----------

Balance, December 31, 1998 ............... 17,485,700 17,485 5,547,038 (1,175,176) 4,389,347

Return of shares issued to the sole
shareholder of Physical Therapy
Associates into treasury ............... (750,000) (750,000)
Retire treasury shares ................... (1,000,000) (1,000) (749,000) 750,000
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
Purchases .............................. 209,743 210 129,816 130,026
Stock warrants ......................... 25,000 25,000
In-Kind stock swap
Issuance of restricted
shares into treasury ................. 20,000,000 20,000 10,455,016 (10,475,016)
Retirement of treasury Shares .......... (8,229,288) (8,229) (4,301,867) 4,310,096
Sale of Treasury Stock (Note 3) ........ (480,568) 480,568
Deficit for year ended 12/31/99 .......... (4,718,871) (4,718,871)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ............... 29,010,503 29,010 11,093,213 (5,684,352) (5,894,047) (456,176)
=========== =========== =========== =========== =========== ===========
</TABLE>

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-4
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

STATEMENT OF CASH FLOWS
Year Ended 12/31/99, 12/31/98 and Period 02/10/95 (inception) to 12/31/99

<TABLE>
<CAPTION>
Feb 10, 1995
(Inception) to
12/31/99 12/31/98 12/31/99
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Deficit from Operations .............................................. (4,718,871) (950,376) (5,894,047)
Adjustments to deficit from operations to net cash:
Depreciation Expense ............................................ 8,644 6,723 19,802
Change in accounting ............................................ 3,067,007
Stock for Services .............................................. 468,322 2,820,826 4,355,640
Changes in non-cash operating working capital:
Administrative Expenses ......................................... (2,331,875)
Prepaid expenses and other assets ............................... (430) (250) (940)
Notes Receivables ............................................... (25,100) (25,100)
Investment in Physical Therapy Associates ....................... 1,125,000
Accounts payable ................................................ 35,039 2,823 38,787
Accrued liabilities ............................................. 38,163 5,868 44,031
Treasury Shares Sold Subject to Mandatory
Repurchase .................................................. 480,568 480,568
--------------- --------------- ---------------

Net cash used in operating activities ................................ 478,342 (446,261) (981,259)

FINANCING ACTIVITIES
Reduction in shareholder loans ....................................... (123,374)
Retirement of Treasury Shares ....................................... (750,000)
Issuance of Common Shares for
Shareholders' Loans .............................................. 135,990 135,990
Proceeds from issuance of common shares .............................. 155,026 593,800 946,241
--------------- --------------- ---------------

Net cash provided by financing activities ............................ (594,974) 606,416 1,082,231

INVESTING ACTIVITIES
Additions to property, & equipment ................................... (17,673) (19,538) (61,445)
Investments .......................................................... (9,973) 0 (9,973)
--------------- --------------- ---------------

Net cash used in investing activities ................................ (27,646) (19,538) (71,418)
--------------- --------------- ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT ........................... (144,278) 140,617 29,554

CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD ............................. 173,832 33,215 0
--------------- --------------- ---------------

CASH AND CASH EQUIVALENT, END OF PERIOD ................................... 29,554 173,832 29,554
=============== =============== ===============

NON CASH ITEMS:
Stock issued for capitalized administrative expenses.................. $ 0.00 $ 2,015,956 $ 0.00
--------------- --------------- ---------------
</TABLE>

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-5
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 1.-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

CytoGenix was incorporated in Nevada on February 10, 1995. It is a biotechnology
company focusing on controlled cellular dedifferentiation and
transdifferentiation processes. The Company has acquired the exclusive rights
for applications to a specialized expression vector capable of producing single
stranded DNA (ssDNA) in both eukaryotes and prokaryotes.

Historically, equity funding has been the only source of operational and
research support. Capital resources have been carefully husbanded with the bulk
of the cash funding allocated directly to research with administrative overhead
held to a minimum.

CASH AND CASH EQUIVALENT

All short-term highly liquid investments that have an original maturity date of
three months or less are considered cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment, are carried at cost, less accumulated depreciation and
amortization.

Depreciation commences at the time assets are placed in service and is computed
using the straight-line method over the estimated useful lives of the assets
(five to seven years).

STOCK-BASED COMPENSATION

In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Accordingly,
compensation cost for stock transactions are measured as the excess, if any, of
the market price of the Company's common stock at the date of grant over the
stock option exercise price.

Stock compensation expense for stock granted to non-employees has been
determined in accordance with SFAS 123 and the Emerging Issues Task Force
consensus in Issue No. 96-18, "Accounting for Equity Instruments that are Issued
to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18"), as the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measured.

NET LOSS PER SHARE

Basic loss per share is calculated based on the net loss applicable to common
shareholders divided by the weighted average number of common shares outstanding
for the period excluding any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share, if separately presented,
would assume the conversion of all dilutive securities, such as options,
warrants and convertible preferred stock. Due to the Company's history of
losses, all such securities have been anti-dilutive.

F-6
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

INCOME TAXES

The Company accounts for income taxes using the liability method under Statement
of Accounting Standards No. 109, "Accounting for Income Taxes."

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. As of December 31, 1999 the
Company's most significant estimates related to the calculation of depreciation
expense.

PATENTS

Patent and patent application costs are expensed as incurred.

REVENUE RECOGNITION

Currently the Company's only source of income has been as a result of dividends.
This income is recognized in the period in which dividends are declared.

FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalent, and
equity investment. As of December 31, 1999 and 1998, the cost of financial
instruments approximate fair value.

RECLASSIFICATION

Certain prior year items have been reclassified to conform to the current
presentation.

NOTE 2 - LIQUIDITY

Since 1995 the Company has been considered a development stage company and has
not generated any significant revenue. To fund its expenses and development
stage activities the Company has relied on the sale of common stock. As more
fully described in Note 3 below, the Company has been informed by the Securities
and Exchange Commission (the "SEC") of potential violations of securities
registration provisions of the federal and state securities laws which could
subject the Company to fines, penalties or other regulatory enforcement action.
In addition, management has also entered into a joint venture (see Note 8) which
is expected to generate revenues to support ongoing operations. However, due to
recurring losses and the uncertainty as to whether the Company will be able to
continue to use capital stock transactions to fund operations there is
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from this
uncertainty.

F-7
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 3 - IN KIND STOCK SWAP

The Company initially proposed to issue a total of 20,000,000 restricted shares
in exchange for 10,000,000 outstanding shares. The outstanding shares would then
be sold by the Company in the market and in private transactions. Between May
16, 1999 and August 21, 1999, a total of 424 existing shareholders agreed to
exchange a total of 5,825,761 outstanding shares for 11,651,526 restricted
shares. The Company then, in a series of brokerage and private transactions,
sold a total of 2,611,576 shares in the market and realized a total of
$1,367,813 as a result of such activity. The Company retained a total of
3,214,189 shares that it received from shareholders in the treasury of the
Company.

F-8
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

The results of the completion of the In Kind Stock Swap are;

Number of restricted shares issued: 11,651,522 shares
Number of shares transferred to treasury: 5,825,761 shares
Number of shares sold from treasury: 2,611,576 shares
Number of shares remaining in treasury: 3,214,189 shares

None of the remaining shares placed in the Company treasury from the in-kind
stock swap will be sold without being registered or without a valid exemption
from registration.

The total number of shares of common stock outstanding as of December 31, 1999
is 29,010,503. As of December 31, 1999, the treasury shares total 5,027,461 at a
reported cost of $5,684,352.

NOTE 4 - STOCK BASED COMPENSATION

Pursuant to employment agreements with the Company's employees, certain eligible
employees may purchase common shares at par value quarterly up to 25% of their
gross salary computed at the closing price on the last day of each pay period.
The plan is compensatory since only a maximum discount of 15% is allowed for the
plan to be non-compensatory. Under those agreements, the employees purchased
107,477 shares at a fair value of $69,382 to employees in 1999. The fair value
of these shares was recorded as compensation expense.

In 1997, the Company issued 3,687,425 shares of its Common Stock. Of those
shares, 3,000,000 were issued to executive officers/founders (employees) of the
Company for an aggregate fair value of $562,500. In addition, 687,425 shares
were issued for consulting services by non-employees for an aggregate fair value
of $128,892.

In 1998, the Company issued 3,601,021 shares of its Common Stock. Of those
shares, 2,039,762 were issued to employees and executive officers/founders of
the Company for an aggregate fair value of $1,547,517. In addition, 1,561,259
shares were issued for consulting services by non-employees for an aggregate
fair value of $1,273,309.

In 1999, the Company issued 544,348 shares of its Common Stock. Of those shares,
107,477 were issued to employees and executive officers/founders of the Company
for an aggregate fair value of $69,382 pursuant to the aforementioned employment
agreements. In addition, 436,871 shares were issued for consulting services by
non-employees for an aggregate fair value of $398,940.

F-9
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 1999 and
1998:

1999 1998
------------ ------------

Research and Development - lab equipment ...... 29,108 29,018
General and Administrative Assets ............. 32,337 14,754
------------ ------------

Total Equipment ........................... 61,445 43,772
------------ ------------

Accumulated depreciation ...................... (19,802) (11,157)
------------ ------------

Net Equipment ............................. 41,643 32,614
============ ============

NOTE 6 - RESEARCH AND DEVELOPMENT EXPENSES

The research and the development of the technology that became known as the
ssDNA IEV was invented by Charles Conrad, M.D., founder of InGene, Inc. and a
practicing neural oncologist. The technology was exclusively licensed and
developed under a sponsored research agreement by the Company.

The financial arrangement for the term of the contract included a monthly
payment of $13,875 to InGene, Inc. and a payment to Dr. Conrad of $3,750. Out of
the payments to InGene, Inc., purchases of the necessary research and
development equipment were made.

The Company has moved to facilities which includes laboratory space. Dr. Conrad
will remain on the Scientific Advisory Board, but CytoGenix has terminated his
and InGene, Inc.'s contracts for research and development on about February,
2000.

The research and development expense categories also reflect the expenses of the
patent attorneys hired to assist the Corporation in the patent filings of the
first ssDNA IEV patent, which is scheduled to be approved in late 1999 and is
scheduled to be issued in the first half of year 2000. Other patent filings
include co-inventions by a Corporation scientist and Dr. Conrad.

In 1996 the Company's board of directors approved the issuance of 1.5 million
shares of stock (with an estimated fair value of $1,125,000) to the sole
shareholder of PTA with the intent to acquire 100% of PTA's common stock. The
sole shareholder, Michael Walters, is a member of the Company's board of
directors. As of April 1999, the Company was unable to agree on final terms with
the shareholder of PTA and as a consequence rescinded the offer. In conjunction
with recession the sole shareholder of PTA returned 1 million shares (with an
estimated fair value of $750,000) of the Company with the remainder of the
shares being issued as compensation expense for consulting services.

NOTE 7 - LOANS FROM SHAREHOLDERS

The Company's initial expense and capital expenditures were paid by loans made
by the Company's original officers and shareholders. In addition, several of the
officers were not paid for services rendered, these expenses were accrued at
that time, at the fair value. During 1998, 212,780 shares of common shares, at a
fair value at $135,990 were issued to satisfy these obligations.

F-10
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 8 - EQUITY INVESTMENTS

The Company purchases common shares of companies, which could provide either a
strategic alliance or beneficial research or expertise. It is the Company's
policy to use the equity method of accounting for these investments if the
company's common stock ownership in these companies range from 20% to 50% and
the cost method for any investment less than 20%. The following is a description
of an investment.

On November 3, 1999, CytoGenix formed a joint venture with Professional
Compounding Centers of America, Inc (PCCA). Each own a 50% interest in
Pharmagenix, LLC (Pharmagenix). This joint venture will apply part of the
nucleic acid technology (synthesized DNA & RNA sequences) to the developing
non-prescription products for distribution through the 2,500 member compounding
pharmacies that are affiliated with PCCA. The company recorded the initial
contribution of $10,000 with an adjustment for the 1999 loss of $27.

The following table summarizes the company's equity investment as of December
31, 1999

PHARMAGENIX
------------

Common share ownership % ...................................... 50%
Revenue ................................................. 0
Net Income (loss) ....................................... (27)
Assets ........................................................ 9,973
Liabilities ................................................... 0
Equity ........................................................ 9,973

Investment as of 12/31/98 ..................................... 0
Investment during 1998 .................................. 10,000
Equity Earnings (loss) .................................. (27)
Transfer Shares to Treasury
Compensation of Services
------------
Investment as of 12/31/99 ..................................... 9,973
============

F-11
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 9 - FACILITIES LEASE

The Company has executed noncancelable operating leases for a vehicle, office
and laboratory space that expire in 2002. In 1998 the Company executed an
operating lease for office space that expires in November 1999. Rent expense
amounted to $14,873 and $6,740 for the years ended December 31, 1999 and 1998,
respectively. Future minimum annual rental payments under the current lease
approximate the following for the years ended December 31:

2000.........................................30,189
2001.........................................29,710
2002.........................................22,506
82,400
======

NOTE 10 - NET LOSS PER SHARE

Basic and diluted loss per share is calculated using the average number of
common shares outstanding.

1999 1998
----------- -----------
Income before Income Taxes and Cumulative
effect of change in Accounting Method .......... (1,651,864) (950,376)

Income Taxes ................................... 0 0
----------- -----------

Income before Cumulative effect of change
in Accounting Method ........................... (1,651,864) (950,376)

Cumulative effect of change in accounting
method reporting on costs of start-up
activities (net of income taxes of -0-) ........ (3,067,007) 0
----------- -----------

Net Income (Loss) .............................. (4,718,871) (950,376)
=========== ===========

Basic and Diluted earnings per share of
common stock:
Before cumulative effect of accounting
change ......................................... (0.07) (0.07)
Accounting change .............................. (0.13) 0.00
----------- -----------
Net Income ..................................... (0.20) (0.07)
----------- -----------

Average common shares outstanding .............. 23,248,101 14,096,799
=========== ===========

As of December 31, 1999 & 1998, warrants were not included in the calculation of
net loss per share as they are anti-dilutive.

F-12
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 11 - INCOME TAXES

The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

As of December 31, 1999, the Company had net operating tax loss carryforwards of
approximately $575,242. The carryforwards begin to expire in the year 2010.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes, a valuation allowance has been recognized to offset the deferred tax
assets related to these carryforwards, as it is more likely than not that these
assets will not be realized.

The following table sets forth a reconciliation of the statutory federal income
tax with the income tax provision.

INCEPTION
YEAR ENDED YEAR ENDED THRU
12/31/99 12/31/98 12/31/99
---------- ---------- ----------
Loss before income tax ............ (1,651,864) (950,376) (2,319,764)

Income tax benefit computed
at statutory rates .............. (561,634) (323,128) (961,194)

Change in valuation allowance ..... 340,824 0 0

Other ............................. 1,872,674 1,273,504 3,280,958
---------- ---------- ----------

Tax expense ....................... 0 0 0
========== ========== ==========

F-13
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

Other reconciling items represents permanent differences relating to the
issuance of common stock for services. Significant components of the Company's
deferred tax liabilities and assets as of December 31 are as follows:

1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryforwards ............ 575,242 240,222
Depreciation in financial
statements in excess of tax ............... 15,775 9,971
-------- --------

Gross deferred tax assets ...................... 591,017 250,193
Less valuation allowance ....................... (591,017) (250,193)
-------- --------

Net deferred tax ............................... 0 0
======== ========

NOTE 12 - CHANGE IN ACCOUNTING PRINCIPLE

In 1998 SOP 98-5, "Reporting on the Costs of Start-up Activities," requires
entities to expense the costs of start-up activities, including organizational
costs, as incurred. The SOP is effective for fiscal years beginning after
December 15, 1998. Accordingly as of January 1, 1999 $3,067,007 of start up
costs previously capitalized were expensed as a one time cumulative effect
change in accounting principle. There was no impact on income tax expense as a
result of this transaction.

NOTE 13 - WARRANTS SOLD

During 1999 the Company sold 250,000 warrants for $ 25,000 to purchase common
shares at $.10 per share in the event that the market price for common shares
exceeded $0.90 per share. Subsequent to December 31, 1999, these warrants were
exercised.

NOTE 14 - NOTE RECEIVABLE

In 1999, CytoGenix loaned without interest $25,100 to QBIT, an entity in which
certain directors of the Company own 8.4% of the outstanding shares of capital
stock. Repayment of loan occurred in early 2000.

NOTE 15 - LITIGATION

The Company has been subject to routine litigation matters which have not been
material during the years. Resolution of these matters has been immaterial.

F-14
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Notes to Financial Statements

NOTE 16 - NEW PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities"("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is currently not a party to any derivative instruments and therefore will not be
impacted by this pronouncement.
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

BALANCE SHEET

<TABLE>
<CAPTION>
03/31/00 12/31/99
--------------- ---------------
(UNAUDITED)
---------------
<S> <C> <C>
ASSETS
Cash ................................................................................ $ 213,252 $ 29,554
Notes Receivable .................................................................... 25,100 25,100
Prepaid Expenses & Other Assets ..................................................... 12,132 940
--------------- ---------------
Current assets subtotal ........................................................ 250,484 55,594

Property & Equipment net ............................................................ 48,096 41,643
Equity Investment ................................................................... 6,557,278 9,973
--------------- ---------------

TOTAL ASSETS ................................................................ 6,855,858 $ 107,210
=============== ===============

LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable ............................................................... $ 6,091 $ 38,787
Accrued Liabilities ............................................................ 1,375 44,031
--------------- ---------------
TOTAL LIABILITIES .............................................................. 7,466 82,818

TREASURY SHARES SOLD SUBJECT TO MANDATORY
REPURCHASES .............................................................................. 1,367,813 480,568

COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY
Common shares of $0.001 par value
Authorized 50,000,000 shares and issued 31,813,527 and
29,010,503 shares at March 31, 2000 and December 31, 1999,
respectively ...................................................................... 31,813 29,010
Contributed surplus ................................................................. 16,376,449 11,068,213
Stock Warrants ...................................................................... 25,000
Treasury stock, 2,214,189 and 5,027,461 shares at
March 31, 2000 and December 31, 1999, respectively
reported at cost .................................................................... (4,441,597) (5,684,352)
Deficit accumulated during the development stage .................................... (6,486,086) (5,894,047)
--------------- ---------------

Total Shareholders' Equity ..................................................... 5,480,579 (456,176)
--------------- ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................... 6,855,858 $ 107,210
=============== ===============
</TABLE>

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-16
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS FEB. 10, 1995
ENDED ENDED (INCEPTION) TO
03/31/00 03/31/99 03/31/00
--------------- --------------- ---------------
<S> <C> <C> <C>
Dividend income ..................................................... 0 $ 1,010 $ 1,633
--------------- --------------- ---------------
INCOME .............................................................. 1,010 1,633
Research and development expense .................................... 84,319 81,855 1,901,423
General and administration .......................................... 504,811 146,810 1,496,572
Depreciation ........................................................ 2,915 8,644 22,717
--------------- --------------- ---------------

Expenses ............................................................ $ 592,045 $ 237,309 $ 3,420,712
--------------- --------------- ---------------

Income before income taxes and cumulative
effect of change in accounting method ............................... (592,045) (236,299) (3,419,079)
Income Taxes ........................................................ 0 0 0
--------------- --------------- ---------------

Income before cumulative effect of change
in accounting method ................................................ (592,045) (236,299) (3,419,079)

Cumulative effect of change in accounting
method reporting on costs of start-up
activities (net of income taxes of 0) ............................... (3,067,007) (3,067,007)
--------------- --------------- ---------------

Net Income (Loss) ................................................... (592,045) (3,303,306) (6,486,086)
=============== =============== ===============

Basic and Diluted earnings per share of
common stock:
Before cumulative effect of accounting
change .............................................................. (0.01) (0.01) (0.21)
Accounting change ................................................... (0.00) (0.13) (0.19)
--------------- --------------- ---------------
Net Income (Loss) ................................................... (0.01) (0.14) (0.40)
--------------- --------------- ---------------

Weighted average common shares outstanding .......................... 30,412,015 23,248,101 15,906,763
=============== =============== ===============
</TABLE>

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-18
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
THREE
THREE MONTHS FEB 10, 1995
MONTHS ENDED ENDED (INCEPTION) TO
03/31/00 03/31/99 03/31/00
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:

Deficit from Operations .............................................. (592,045) (3,303,306) (6,486,086)
Adjustments to deficit from operations to net cash:
Depreciation Expense ............................................ 2,915 8,644 22,717
Change in accounting ............................................ 3,067,007
Stock for services .............................................. 288,805 4,644,345
Changes in non-cash operating working capital:
Administrative expenses
Prepaid expenses and other assets ............................... (11,193) (430) (12,132)
Notes Receivables ............................................... (5,400) (25,100)
Accounts payable ................................................ (32,695) 21,278 6,091
Accrued liabilities ............................................. (42,656) 1,375

Treasury Shares sold subject to Mandatory
Purchase .................................................... 887,245 1,367,813
--------------- --------------- ---------------

Net cash used in operating activities ................................ 500,376 (212,207) (480,977)

FINANCING ACTIVITIES
Issuance of Shares for Investment in Quantum Bit
Induction Technology, Inc. ........................................... 6,390,000 6,390,000
Purchase of Shares Transferred to Treasury ........................... (60,000)
Proceeds from issuance of common shares .............................. (150,005) 278,967 932,226
--------------- --------------- ---------------

Net cash provided by financing activities ............................ 6,239,195 218,967 7,322,226

INVESTING ACTIVITIES
Additions to property, & equipment ................................... (9,368) (70,719)
Investments .......................................................... (6,547,305) (6,557,278)
--------------- --------------- ---------------

Net cash used in investing activities ................................ (6,556,673) (6,627,997)
--------------- --------------- ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT ........................... 183,698 6,760 213,252
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD ............................. 29,554 173,832 0
--------------- --------------- ---------------

CASH AND CASH EQUIVALENT, END OF PERIOD ................................... 213,252 180,592 213,252
=============== =============== ===============
</TABLE>

THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

F-18
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The financial statements of CytoGenix included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accordingly, they reflect all adjustments
(consisting only of normal, recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the financial results for the
interim periods. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1999.

2. LIQUIDITY

Since 1995 the Company has been considered a development stage company and has
not generated any significant revenue. To fund its expenses and development
stage activities the Company has relied on the sale of common stock. As more
fully described in Note 3 below, the Company has been informed by the Securities
and Exchange Commission (the "SEC") of potential violations of securities
registration provisions of the federal and state securities laws which could
subject the Company to fines, penalties or other regulatory enforcement action.
Management expects to continue to sell shares to fund its operations for 2000.
In addition, management has also entered into a joint venture (see Note 4) which
is expected to generate revenues to support ongoing operations. However, due to
recurring losses and the uncertainty as to whether the Company will be able to
continue to use capital stock transactions to fund operations there is
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from this
uncertainty.

3. SALE OF STOCK

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

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

The Company initially proposed to issue a total of 20,000,000 restricted shares
in exchange for 10,000,000 free trading shares. The free trading shares would
then be sold by the company in the market and in private transactions. Between,
May 16, 1999 and August 21, 1999, a total of 424 existing shareholders agreed to
exchange a total of 5,825,761 free trading shares for 11,651,522 restricted
shares. The Company then in a series of brokerage and private transactions sold
a total of 2,611,576 shares in the market and realized a total of $ 1,367,813 as
a result of such activity. The Company retained a total of 3,214,189 shares that
it received from shareholders in the treasury of the Company.

Accordingly, it is possible that the sale of the 2,611,576 shares described
above may have violated securities registration provisions of the federal and
state securities laws which could subject the Company to fines, penalties or
other regulatory enforcement action. There can be no assurance that the SEC or
applicable state authorities will not pursue any enforcement action.
Additionally, it is possible that shareholders who purchased the shares
described above in market transactions may have the right under state and
federal securities laws to require the Company to repurchase their shares, for
the amount originally paid, plus interest.

F-19
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

Based upon the best information available to the Company at this time, the
Company has calculated the amount of possible exposure that exists for the
Company in light of the possible civil liabilities described above. Accordingly,
in the event that these possible civil liabilities were asserted, the Company
could be liable to certain shareholders who originally purchased the securities
in market transactions in an amount of approximately $ 1,367,813 plus interest.
The exposure was calculated by multiplying the average closing price for a share
of the Company's common stock, weighted for reported daily volume, during the
period May 16, 1999 to January 31, 2000 by 2,611,576 shares sold during the same
period of time.

The results of the completion of the In Kind Stock Swap are;

None of the remaining shares placed in the Company treasury from the in-kind
stock swap will be sold without being registered or without a valid exemption
from registration.

The total number of shares of common stock outstanding as of December 31, 1999
is 29,010,503. As of December 31, 1999, the treasury shares total 5,027,461 at a
reported cost of $5,684,352.

4. INVESTMENTS

The Company purchases common shares of companies, which could provide either a
strategic alliance or beneficial research or expertise. It is the Company's
policy to use the equity method of accounting for these investments if the
company's common stock ownership in these companies range from 20% to 50 % and
the cost method for any investment less than 20%. The following is a description
of each investment.

On November 3, 1999, CytoGenix formed a joint venture with Professional
Compounding Centers of America, Inc (PCCA). Each own a 50% interest in
Pharmagenix, LLC (Pharmagenix). This joint venture will apply part of the
nucleic acid technology (synthesized DNA & RNA sequences) to the developing
non-prescription products for distribution through the 2,500 member compounding
pharmacies that are affiliated with PCCA. The Company recorded the initial
contribution of $10,000 with an adjustment for the 1999 loss of $27. In year
2000, the Company has capital contributions of $157,305 to this joint venture.

On January 18, 2000 the Company entered into the QBIT Agreement with QBIT, an
entity in which certain directors of the Company own 4,000,000 (or 8.4%) of the
47,470,500 outstanding shares of the capital stock. Pursuant to the QBIT
Agreement, the Company acquired all of the molecular biology technology
developed by QBIT personnel. The QBIT Agreement also provides for 3,000,000
shares of the Company's common stock to be issued to QBIT in exchange for
3,000,000 shares of QBIT common stock.

5. LITIGATION

The Company, in the ordinary course of business, is a claimant and/or a
defendant in various legal proceedings, including proceedings as to which the
Company has insurance coverage. The Company does not consider its exposure in
these proceedings, individually and in the aggregate, to be material.

6. NEW PRONOUNCEMENT

F-20
<PAGE>
CYTOGENIX, INC.
(A Development Stage Company)

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON REVIEW OF INTERIM FINANCIAL
INFORMATION

Board of Directors and Stockholders
Of CytoGenix, Inc.
Houston, Texas

I have reviewed the accompanying balance sheet of CytoGenix, Inc. (A Development
Stage Company) as of March 31, 2000 and the related statements of operations and
cash flows for the three-month period ended March 31, 2000, March 31, 1999 and
for the period from February 10, 1995 (Inception) to March 31, 2000. These
financial statements are the responsibility of the Company's management.

I conducted my review in accordance with standards established by the American
Institute of Certified Public Accounting. A review of interim financial
information consists primarily of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepting auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, I do not express such an opinion.

Based on my review, I am not aware of any material modifications that should be
made to the accompanying financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.

I have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet as of December 31,
1999, and the related statements of operations, stockholder's equity, and cash
flows for the year ended December 31, 1999 (not present herein), and in my
report dated July 10, 2000, I expressed a going concern opinion on those
financial statements. In my opinion, the information set forth in the
accompanying balance sheet as of December 31, 1999 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.

/s/ Harrie Marie Pollok Operhall
Harrie Marie Pollok Operhall,
A Professional Corporation
Houston, Texas
July 12, 2000

F-21
<PAGE>
PART III

ITEM 1. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(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 ----- Certificate of Amendment dated January 13, 2000
of Articles of Incorporation of CytoGenix, Inc.

3.4 ----- Bylaws of Cryogenic Solutions, Inc.

10.1 ----- QBIT Commercialization Agreement dated January
18, 2000, between CytoGenix, Inc. and Quantum
Bit Induction Technology, Inc.

10.2 ----- Employment Agreement dated September 1, 1999
between Cryogenic Solutions, Inc. and Malcolm H.
Skolnick

10.3 ----- License Agreement dated February 3, 2000,
between CytoGenix, Inc. and PharmaGenix, LLC

10.4 ----- Technology Transfer Agreement dated June 26, 1998
between Cryogenic Solutions, Inc. and InGene, Inc.

11.1 ----- Statement re: computation of per share earnings

27.1 ----- Financial data schedule

(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.

17
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.

CYTOGENIX, INC.

By:_________________________________
Malcolm Skolnick, Ph.D.
President and Chief Executive Officer