UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2003
----------------------
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 001-31326
SENESCO TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 84-1368850
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
303 George Street, Suite 420, New Brunswick, New Jersey 08901
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(Address of Principal Executive Offices)
(732) 296-8400
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(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
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State the number of shares outstanding of each of the Issuer's classes of
common stock, as of October 31, 2003:
Class Number of Shares
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Common Stock, $0.01 par value 11,931,079
Transitional Small Business Disclosure Format (check one):
Yes: No: X
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements........................................ 1
CONDENSED CONSOLIDATED BALANCE SHEET
as of September 30, 2003 (unaudited) and June 30, 2003.......... 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2003 and September
30, 2002, and From Inception on July 1, 1998 through
September 30, 2003 (unaudited).................................. 3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY
From Inception on July 1, 1998 through September 30, 2003
(unaudited)..................................................... 4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 2003 and September
30, 2002, and From Inception on July 1, 1998 through September
30, 2003 (unaudited)............................................ 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)..................................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
Overview........................................................ 10
Factors That May Affect Our Business, Future Operating Results
and Financial Condition......................................... 12
Liquidity and Capital Resources................................. 21
Changes to Critical Accounting Policies and Estimates........... 22
Results of Operations........................................... 23
Item 3. Controls and Procedures..................................... 24
PART II. OTHER INFORMATION.
Item 2. Changes in Securities and Use of Proceeds................... 25
Item 6. Exhibits and Reports on Form 8-K............................ 25
SIGNATURES................................................................ 26
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PART I. FINANCIAL INFORMATION.
-----------------------------
ITEM 1. FINANCIAL STATEMENTS.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. However, Senesco Technologies, Inc., a
Delaware corporation, and its wholly owned subsidiary, Senesco, Inc., a New
Jersey corporation (collectively, "Senesco" or the "Company"), believe that the
disclosures are adequate to assure that the information presented is not
misleading in any material respect.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
September 30, June 30,
2003 2003
---------------- ------------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 278,531 $ 319,930
Short-term investments........................................................ 1,651,562 2,099,295
Prepaid expenses and other current assets..................................... 152,541 185,535
-------------- --------------
Total Current Assets..................................................... 2,082,634 2,604,760
Property and equipment, net................................................... 68,322 75,203
Intangibles................................................................... 635,886 578,810
Security deposit.............................................................. 7,187 7,187
-------------- --------------
TOTAL ASSETS............................................................. $ 2,794,029 $ 3,265,960
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 34,097 $ 56,136
Accrued expenses.............................................................. 370,270 263,160
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Total Current Liabilities.............................................. 404,367 319,296
Grant payable................................................................. 90,150 90,150
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TOTAL LIABILITIES........................................................ 494,517 409,446
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STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; authorized 5,000,000 shares,
no shares issued........................................................... -- --
Common stock, $0.01 par value; authorized 30,000,000 shares,
issued and outstanding 11,880,045 shares................................... 118,800 118,800
Capital in excess of par...................................................... 13,077,853 12,234,373
Deficit accumulated during the development stage.............................. (10,897,141) (9,496,659)
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Total Stockholders' Equity................................................. 2,299,512 2,856,514
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 2,794,029 $ 3,265,960
============== ==============
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(unaudited)
From Inception
on July 1, 1998
For the Three Months Ended through
September 30, September 30,
2003 2002 2003
---------------- ---------------- ------------------
$ -- $ 10,000 $ 210,000
Revenue............................... ------------- ------------- --------------
Operating expenses:
General and administrative.......... $ 1,139,392 $ 388,024 $ 8,544,027
Research and development............ 272,001 159,164 3,034,583
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Total operating expenses.............. 1,411,393 547,188 11,578,610
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Loss from operations.................. (1,411,393) (537,188) (11,368,610)
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Sale of state income tax loss......... -- -- 341,834
Interest income, net.................. 10,911 22,556 129,635
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Net Loss.............................. $ (1,400,482) $ (514,632) $ (10,897,141)
============= ============= ==============
Basic and diluted net loss per common
share................................. $ (0.12) $ (0.04)
============= =============
Basic and diluted weighted average number
of common
shares outstanding.................... 11,880,045 11,880,045
============= =============
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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FROM INCEPTION ON JULY 1, 1998 THROUGH SEPTEMBER 30, 2003
---------------------------------------------------------
(unaudited)
Deferred
Deficit Compensation
Accumulated Related to the
Capital in During the Issuance of
Excess of Development Options and
Common Stock Par Value Stage Warrants Total
------------------------ ------------ ----------------- -------------- ------------
Shares Amount
------ ------
Common stock outstanding........... 2,000,462 $ 20,005 $ (20,005) -- -- --
Contribution of capital............ -- -- 85,179 -- -- $ 85,179
Issuance of common stock in
reverse merger on January 22,
1999 at $0.01 per share............ 3,400,000 34,000 (34,000) -- -- --
Issuance of common stock for
cash on May 21, 1999 at
$2.63437 per share................. 759,194 7,592 1,988,390 -- -- 1,995,982
Issuance of common stock for
placement fees on May 21, 1999 at
$0.01 per share.................... 53,144 531 (531) -- -- --
Fair market value of options
and warrants granted on
September 7, 1999.................. -- -- 252,578 -- $ (72,132) 180,446
Fair market value of warrants
granted on October 1, 1999......... -- -- 171,400 -- (108,600) 62,800
Fair market value of warrants
granted on December 15, 1999....... -- -- 331,106 -- -- 331,106
Issuance of common stock for
cash on January 26, 2000 at
$2.867647 per share................ 17,436 174 49,826 -- -- 50,000
Issuance of common stock for
cash on January 31, 2000
at $2.87875 per share.............. 34,737 347 99,653 -- -- 100,000
Issuance of common stock for
cash on February 4, 2000 at
$2.934582 per share................ 85,191 852 249,148 -- -- 250,000
(continued)
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH SEPTEMBER 30, 2003
---------------------------------------------------------
(unaudited)
Deferred
Compensation
Deficit Related to
Capital in Accumulated the Issuance
Development During the Issuance of
Excess of Development Options and
Common Stock Par Value Stage Warrants Total
------------------------ -------------- -------------- --------------- -----------
Shares Amount
------ ------
Issuance of common stock for
cash on March 15, 2000 at
$2.527875 per share................ 51,428 $ 514 $ 129,486 -- -- $ 130,000
Issuance of common stock for
cash on June 22, 2000 at $1.50
per share.......................... 1,471,700 14,718 2,192,833 -- -- 2,207,551
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2000........... -- -- (260,595) -- -- (260,595)
Fair market value of warrants
granted on October 2, 2000......... -- -- 80,700 -- -- 80,700
Fair market value of warrants
granted on September 4, 2001....... -- -- 41,800 -- -- 41,800
Fair market value of warrants
granted on October 15, 2001........ -- -- 40,498 -- -- 40,498
Fair market value of options and
warrants granted on November 1,
2001............................... -- -- 138,714 -- -- 138,714
Issuance of common stock and
warrants for cash from
November 30, 2001 through
April 17, 2002..................... 3,701,430 37,014 6,440,486 -- -- 6,477,500
Fair market value of options and
warrants granted on December 1,
2001............................... -- -- 262,550 -- -- 262,550
(continued)
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH SEPTEMBER 30, 2003
---------------------------------------------------------
(unaudited)
Deferred
Compensation
Deficit Related to
Capital in Accumulated the Issuance
Development During the Issuance of
Excess of Development Options and
Common Stock Par Value Stage Warrants Total
------------------------ -------------- -------------- --------------- -----------
Shares Amount
------ ------
Issuance of common stock and
warrants associated with bridge
loan conversion on December 3,
2001............................... 305,323 $ 3,053 $ 531,263 -- -- $ 534,316
Fair market value of options
vested and extended on January 1,
2002............................... -- -- 94,146 -- -- 94,146
Commissions, legal and
bank fees associated with
issuances for the year ended
June 30, 2002...................... -- -- (846,444) -- -- (846,444)
Fair market value of warrants
vested on October 15, 2002......... -- -- 27,832 -- -- 27,832
Fair market value of warrants
vested on November 1, 2002......... -- -- 69,665 -- -- 69,665
Fair market value of warrants
issued and vested on September
26, 2003........................... -- -- 843,480 -- -- 843,480
Fair value of options and warrants
vested and change in
fair value of options and warrants
granted............................ -- -- 118,695 -- 180,732 299,427
Net loss........................... -- -- -- $(10,897,141) -- (10,897,141)
---------- --------- ------------- ------------ --------- -----------
Balance at September 30, 2003...... 11,880,045 $ 118,800 $ 13,077,853 $(10,897,141) $ -- $ 2,299,512
========== ========= ============= ============ ========= ===========
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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(unaudited)
From Inception on
For the Three Months Ended July 1, 1998 through
September 30, September 30,
2003 2002 2003
---------------- ------------- ---------------------
Cash flows from operating activities:
Net loss........................................................ $ (1,400,482) $ (514,632) $ (10,897,141)
Adjustments to reconcile net loss
to net cash used in operating activities:
Noncash capital contribution.................................... -- -- 85,179
Noncash conversion of accrued expenses into equity.............. -- -- 131,250
Issuance of common stock and warrants for interest.............. -- -- 9,316
Issuance and vesting of stock options and warrants
for services.................................................. 843,480 39,680 2,341,915
Depreciation and amortization................................... 7,553 5,427 90,966
(Increase) decrease in operating assets:
Accounts receivable............................................. -- 75,000 --
Prepaid expense and other current assets........................ 32,994 (233,220) (152,541)
Security deposit................................................ -- -- (7,187)
Increase (decrease) in operating liabilities:
Accounts payable................................................ (22,039) 173,248 34,097
Accrued expenses................................................ 107,110 (54,980) 370,270
--------------- ------------ ---------------
Net cash used in operating activities........................... (431,384) (509,477) (7,993,876)
--------------- ------------ ---------------
Cash flows from investing activities:
Patent costs.................................................... (57,748) (34,552) (637,454)
Redemption (purchase) of investments, net....................... 447,733 87,410 (1,651,562)
Purchase of property and equipment.............................. -- (936) (157,720)
--------------- ------------ ---------------
Net cash provided by (used in) investing activities............. 389,985 51,922 (2,446,736)
--------------- ------------ ---------------
Cash flows from financing activities:
Proceeds from grant............................................. -- 11,089 90,150
Proceeds from issuance of bridge notes.......................... -- -- 525,000
Proceeds from issuance of common stock and warrants, net........ -- -- 10,103,993
--------------- ------------ ----------------
Cash provided by financing activities........................... -- 11,089 10,719,143
--------------- ------------ ----------------
Net increase (decrease) in cash and cash equivalents............ (41,399) (446,466) 278,531
Cash and cash equivalents at beginning of period................ 319,930 798,711 --
--------------- ------------ ----------------
Cash and cash equivalents at end of period...................... $ 278,531 $ 352,245 $ 278,531
=============== ============ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ -- $ -- $ 22,317
=============== ============ ================
Supplemental schedule of noncash financing activity:
Conversion of bridge notes into stock......................... $ -- $ -- $ 534,316
=============== ============ ================
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2003.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, consisting
solely of those which are of a normal recurring nature, necessary to present
fairly its financial position as of September 30, 2003, the results of its
operations for the three-month periods ended September 30, 2003 and 2002, and
for the period from inception on July 1, 1998 through September 30, 2003.
The Company had previously reported stock-based compensation as a separate
category in its consolidated statement of operations. Beginning with the
three-month period ended September 30, 2003, the Company no longer reports
stock-based compensation as a separate category and has included such
stock-based compensation in general and administrative and research and
development expenses, as applicable. Therefore, certain reclassifications have
been made to the prior year consolidated financial statements in order to
conform to the current year's classification.
Interim results are not necessarily indicative of results for the full
fiscal year.
NOTE 2 - LOSS PER SHARE:
Net loss per common share is computed by dividing the loss by the weighted
average number of common shares outstanding during the period. Since September
7, 1999, the Company has had outstanding options and warrants to purchase its
common stock, $0.01 par value per share (the "Common Stock"); however, for the
three months ended September 30, 2003 and 2002, shares to be issued upon the
exercise of options and warrants aggregating 6,235,753 and 5,818,153,
respectively, at an average exercise price of $2.64 and $2.62, respectively, are
not included in the computation of diluted loss per share as the effect is
anti-dilutive.
NOTE 3 - STOCK OPTIONS AND WARRANTS:
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan. Options to purchase Common Stock have been
granted at or above the fair market value of the stock as of the date of grant.
Accordingly, no compensation costs have been recognized for the stock option
plan. Since there were no options issued during the three months ended September
30, 2003 and September 30, 2002, there were no pro-forma compensation costs that
would have affected the Company's net loss and net loss per share.
NOTE 4 - SIGNIFICANT EVENTS:
In September 2003, the Company entered into a one-year financial advisory
agreement with Sands Brothers International Ltd. ("Sands Brothers"). The
agreement provides for monthly payments of $10,000 through September 2004. Also,
Sands Brothers was issued a five-year
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warrant to purchase 237,600 shares of the Company's Common Stock at an exercise
price equal to $3.59 per share. During the three-month period ended September
30, 2003, the Company recorded stock-based compensation in the amount of
$843,480 related to the issuance of such warrant. The agreement may be
terminated by either party upon sixty days written notice.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
our condensed consolidated financial statements and the related notes thereto
included in the Quarterly Report on Form 10-QSB. The discussion and analysis may
contain forward-looking statements that are based upon current expectations and
entail various risks and uncertainties. Our actual results and the timing of
events could differ materially from those anticipated in the forward-looking
statements as a result of various factors, including those set forth under
"Factors That May Affect Our Business, Future Operating Results and Financial
Condition" and elsewhere in this report.
OVERVIEW
We are a development stage functional genomics company whose mission is to
utilize its patent-pending genes (primarily DHS and Factor 5A) to: (i) enhance
the quality and productivity of fruits, flowers, vegetables and agronomic crops
through the control of cell death in plants (senescence); and (ii) develop novel
approaches to treat (A) programmed cell death diseases in humans (apoptosis)
(e.g., rheumatoid arthritis, macular degeneration, glaucoma, and heart disease),
which are the result of premature cell death in humans, and (B) cancer, a group
of diseases in which apoptosis is blocked. Agricultural results to date include
longer shelf life of perishable produce, increased seed and biomass yield and
greater tolerance to environmental stress. Mammalian results to date include:
determining the expression of our patent-pending genes in both ischemic and
non-ischemic heart tissue; correlating such genes to certain key immune
regulators known as cytokines that have been found to be involved in apoptosis;
reducing cytokine induced apoptosis in human optic nerve cell lines and reducing
cytokine expression in human liver cell lines; and inducing apoptosis in human
cancer cell lines derived from tumors.
We do not expect to generate significant revenues for approximately the
next two to three years, during which time we will engage in significant
research and development efforts. However, we have entered into license and
development agreements with Harris Moran Seed Company, ArborGen, LLC and
Cal/West Seeds to develop and commercialize our technology in certain varieties
of lettuce and melons, trees, and alfalfa, respectively. All of the agreements
provide for milestone payments to us upon the completion of certain research and
commercialization benchmarks. The agreements with Harris Moran and Cal/West also
provide for royalty payments to us upon commercial introduction. The agreement
with ArborGen contains an option for ArborGen to execute a license to
commercialize developed products, and upon the execution of a license agreement,
we will receive a license fee and royalties from ArborGen. The license with
Cal/West contains an option for Cal/West to develop our technology in various
other forage crops. We also have entered into a joint venture with Rahan
Meristem Ltd. in Israel to develop and commercialize our technology in banana
plants. In connection with the joint venture, we will receive 50% of the profits
from the sale of enhanced banana plants.
Our research and development is performed by third party researchers at our
direction, pursuant to various research and license agreements. The primary
research and development effort takes place at the University of Waterloo in
Ontario, Canada, where the technology was
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developed, and at the University of Colorado. Additional research and
development is performed by our partners in connection with the Harris Moran
License, the ArborGen Agreement, the Cal/West License and the Anawah Agreement,
as well as through the joint venture with Rahan Meristem.
We are currently working with lettuce, melon, tomato, canola, Arabidopsis
(a model plant that is similar to canola), banana, alfalfa and certain species
of trees, and have obtained proof of concept for the lipase, DHS and Factor 5A
genes in several of these plants. Also, we have initiated field trials of
lettuce and bananas with our respective partners. These field trials have shown
that our technology effectively reduces browning in cut lettuce and extendS the
shelf life of banana fruit by 100%. Near-term research and development
initiatives include: (i) silencing or reducing the expression of DHS and Factor
5A genes in these plants; and (ii) propagation and testing of plants with our
silenced genes. We have also completed our research and development initiative
in carnation flower, which yielded a 100% increase in shelf life through the
inhibition of the DHS reaction.
Our preliminary research reveals that DHS and Factor 5A genes regulate
apoptosis in animal and human cells. We believe that our technology may have
potential application as a means of controlling a broad range of diseases that
are attributable to premature apoptosis. Apoptotic diseases include
neurodegenerative diseases, retinal diseases, such as glaucoma and macular
degeneration, heart disease, stroke, crohn's disease and rheumatoid arthritis,
among others. We have commenced pre-clinical research on diseased heart tissue
as well as cell-line studies to determine Factor 5A's ability to regulate key
inflammatory cytokines, including Interleukin-1 and Interleukin-18, which are
indicated in numerous apoptoTic diseases. In addition, we have initiated
cell-line studies for applications of our technology to glaucoma and surface
ocular diseases and on liver cell-lines. These preclinical tests have shown that
Factor 5A appears to control expression of the suite of proteins required for
apoptosis. Such proteins include p53, interleukins, caspases, and tumor necrosis
factor (TNF-alpha). Expression of these cell death proteins is required for the
execution of apoptosis.
Conversely, we have also established in pre-clinical studies that our
apoptosis Factor 5A gene is able to kill cancer cells. Tumors arise when cells
that have been targeted to undergo apoptosis are unable to do so because of an
inability to activate the apoptotic pathways. Because the Factor 5A gene appears
to function at the initiation point of the apoptotic pathways, we believe that
our gene technology has potential application as a means of combating a broad
range of cancers and have initiated studies with in vivo cancer models to
determine Factor 5A's ability to shrink human tumors grafted onto mice.
On March 25, 2003, we were granted Patent No. 6,538,182, entitled "DNA
Encoding a Plant Deoxyhypusine Synthase, A Plant Eukaryotic Initiation Factor
5A, Transgenic Plants and A Method For Controlling Senescence and Programmed
Cell Death in Plants", from the United States Patent and Trademark Office, or
PTO. In addition to this patent, we have a wide variety of patent applications
(including divisional applications and continuations-in-part) in process with
the PTO and internationally. We intend to continue our strategy of enhancing
these new patent applications through the addition of data as it is collected.
Consistent with our commercialization strategy, we intend to attract other
companies interested in strategic partnerships or licensing our technology that
may result in additional
-11-
license fees, revenues from contract research and other related revenues.
Successful future operations will depend on our ability to transform our
research and development activities into commercializable technology.
FACTORS THAT MAY AFFECT OUR BUSINESS, FUTURE OPERATING RESULTS AND FINANCIAL
CONDITION
The more prominent risks and uncertainties inherent in our business are
described below. However, additional risks and uncertainties may also impair our
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations may suffer.
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED SUBSTANTIAL LOSSES AND
EXPECT FUTURE LOSSES.
We are a developmental stage biotechnology company with a limited operating
history and limited assets and capital. We have incurred losses each year since
inception and have an accumulated deficit of $10,897,141 at September 30, 2003.
We have generated minimal revenues by licensing certain of our technology to
companies willing to share in our development costs. However, our technology may
not be ready for widespread commercialization for several years. We expect to
continue to incur losses over the next two to three years because we anticipate
that our expenditures on research and development, commercialization and
administrative activities will significantly exceed our revenues during that
period. We cannot predict when, if ever, we will become profitable.
WE DEPEND ON A SINGLE PRINCIPAL TECHNOLOGY.
Our primary business is the development and commercial exploitation of
technology to identify, isolate, characterize, and silence genes which control
the aging and death of cells in plants and mammals. Our future revenue and
profitability critically depend upon our ability to successfully develop
senescence and apoptosis gene technology and later market and license such
technology at a profit. We have conducted experiments on certain crops with
favorable results and have conducted certain preliminary cell-line experiments,
which have provided us with data upon which we have designed additional research
programs. However, we cannot give any assurance that our technology will be
commercially successful or economically viable for all crops or mammalian
applications.
In addition, no assurance can be given that adverse consequences might not
result from the use of our technology such as the development of negative
effects on plants or mammals or reduced benefits in terms of crop yield or
protection. Our failure to obtain market acceptance of our technology or to
successfully commercialize such technology or develop a commercially viable
product would have a material adverse effect on our business.
WE OUTSOURCE ALL OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES.
We rely on third parties to perform all of our research and development
activities. Our primary research and development efforts take place at the
University of Waterloo in Ontario, Canada, where our technology was developed,
at the University of Colorado, at Anawah, Inc., and with our commercial
partners. At this time, we do not have the internal capabilities to perform our
research and development activities. Accordingly, the failure of third-party
research partners, such as the University of Waterloo, to perform under
agreements entered into with us,
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or our failure to renew important research agreements with these third parties,
would have a material adverse effect on our ability to develop and exploit our
technology.
WE HAVE SIGNIFICANT FUTURE CAPITAL NEEDS.
As of September 30, 2003, we had cash and highly-liquid investments valued
at $1,930,093 and working capital of $1,678,267. We believe that we can operate
according to our current business plan for approximately the next ten months
using our available reserves. To date, we have generated minimal revenues and
anticipate that our operating costs will exceed any revenues generated over the
next several years. Therefore, we anticipate that we will be required to raise
additional capital in the future in order to operate according to our current
business plan. We may require additional funding in less than twelve months, and
additional funding may not be available on favorable terms, if at all. In
addition, in connection with such funding, if we need to issue more equity
securities than our certificate of incorporation currently authorizes, or more
than 20% of the shares of our common stock outstanding, we may need stockholder
approval. If stockholder approval is not obtained or if adequate funds are not
available, we may be required to curtail operations significantly or to obtain
funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products or potential markets. Investors may experience dilution in
their investment from future offerings of our common stock. For example, if we
raise additional capital by issuing equity securities, such an issuance would
reduce the percentage ownership of existing stockholders. In addition, assuming
the exercise of all options and warrants granted, as of September 30, 2003, we
had 11,632,445 shares of common stock authorized but unissued, which may be
issued from time to time by our board of directors without stockholder approval.
Furthermore, we may need to issue securities that have rights, preferences and
privileges senior to our common stock. Failure to obtain financing on acceptable
terms would have a material adverse effect on our liquidity.
Since inception, we have financed all of our operations through private
equity financings. Our future capital requirements depend on numerous factors,
including:
o the scope of our research and development;
o our ability to attract business partners willing to share in our
development costs;
o our ability to successfully commercialize our technology;
o competing technological and market developments;
o our ability to enter into collaborative arrangements for the
development, regulatory approval and commercialization of other
products; and
o the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights.
OUR BUSINESS DEPENDS ON OUR PATENTS, LICENSES AND PROPRIETARY RIGHTS AND THE
ENFORCEMENT OF THESE RIGHTS.
As a result of the substantial length of time and expense associated with
developing products and bringing them to the marketplace in the agricultural and
biotechnology industries, obtaining and maintaining patent and trade secret
protection for technologies, products and processes is of vital importance. Our
success will depend in part on several factors, including, without limitation:
o our ability to obtain patent protection for technologies, products and
processes;
o our ability to preserve trade secrets; and
-13-
o our ability to operate without infringing the proprietary rights of
other parties both in the United States and in foreign countries.
We have been issued one patent by the PTO. We have also filed patent
applications in the United States for our technology, which technology is vital
to our primary business, as well as several Continuations in Part on these
patent applications. Our success depends in part upon the enforcement of our
patent rights and whether patents are granted for our pending patent
applications.
Furthermore, although we believe that our technology is unique and will not
violate or infringe upon the proprietary rights of any third party, there can be
no assurance that such claims will not be made or if made, could be successfully
defended against. If we do not obtain and maintain patent protection, we may
face increased competition in the United States and internationally, which would
have a material adverse effect on our business.
Since patent applications in the United States are maintained in secrecy
until patents are issued, and since publication of discoveries in the scientific
and patent literature tend to lag behind actual discoveries by several months,
we cannot be certain that we were the first creator of the inventions covered by
our pending patent applications or that we were the first to file patent
applications for these inventions.
In addition, among other things, we cannot guarantee that:
o our patent applications will result in the issuance of patents;
o any patents issued or licensed to us will be free from challenge and
that if challenged, would be held to be valid;
o any patents issued or licensed to us will provide commercially
significant protection for our technology, products and processes;
o other companies will not independently develop substantially equivalent
proprietary information which is not covered by our patent rights;
o other companies will not obtain access to our know-how;
o other companies will not be granted patents that may prevent the
commercialization of our technology; or
o we will not require licensing and the payment of significant fees or
royalties to third parties for the use of their intellectual property in
order to enable us to conduct our business.
If any relevant claims of third-party patents which are adverse to us are
upheld as valid and enforceable, we could be prevented from commercializing our
technology or could be required to obtain licenses from the owners of such
patents. We cannot guarantee that such licenses would be available or, if
available, would be on acceptable terms.
We could become involved in infringement actions to enforce and/or protect
our patents. Regardless of the outcome, patent litigation is expensive and time
consuming and would distract our management from other activities.
The laws of some foreign countries do not protect proprietary rights to the
same extent as the laws of the United States, and many companies have
encountered significant problems and costs in protecting their proprietary
rights in these foreign countries.
-14-
Patent law is still evolving relative to the scope and enforceability of
claims in the fields in which we operate. We are like most biotechnology
companies in that our patent protection is highly uncertain and involves complex
legal and technical questions for which legal principles are not yet firmly
established. In addition, if issued, our patents may not contain claims
sufficiently broad to protect us against third parties with similar technologies
or products, or provide us with any competitive advantage.
The PTO and the courts have not established a consistent policy regarding
the breadth of claims allowed in biotechnology patents. The allowance of broader
claims may increase the incidence and cost of patent interference proceedings
and the risk of infringement litigation. On the other hand, the allowance of
narrower claims may limit the value of our proprietary rights.
Our success also depends upon know-how, unpatentable trade secrets, and the
skills, knowledge and experience of our scientific and technical personnel. As a
result, we require all employees to agree to a confidentiality provision that
prohibits the disclosure of confidential information to anyone outside of our
company, during the term of employment and thereafter. We also require all
employees to disclose and assign to us the rights to their ideas, developments,
discoveries and inventions. We also attempt to enter into similar agreements
with our consultants, advisors and research collaborators. We cannot guarantee
adequate protection for our trade secrets, know-how or other proprietary
information against unauthorized use or disclosure. We occasionally provide
information to research collaborators in academic institutions and request the
collaborators to conduct certain tests. We cannot guarantee that the academic
institutions will not assert intellectual property rights in the results of the
tests conducted by the research collaborators, or that the academic institutions
will grant licenses under such intellectual property rights to us on acceptable
terms, if at all. If the assertion of intellectual property rights by an
academic institution is substantiated, and the academic institution does not
grant intellectual property rights to us, these events could have a material
adverse effect on our business and financial results.
WE WILL HAVE TO PROPERLY MANAGE OUR GROWTH.
As our business grows, we may need to add employees and enhance our
management, systems and procedures. We will need to successfully integrate our
internal operations with the operations of our marketing partners,
manufacturers, distributors and suppliers to produce and market commercially
viable products. Although we do not presently intend to conduct research and
development activities in-house, we may undertake those activities in the
future. Expanding our business will place a significant burden on our management
and operations. Our failure to effectively respond to changes brought about by
our growth may have a material adverse effect on our business and financial
results.
WE HAVE NO MARKETING OR SALES HISTORY AND DEPEND ON THIRD-PARTY MARKETING
PARTNERS.
We have no history of marketing, distributing or selling biotechnology
products and we are relying on our ability to successfully establish marketing
partners or other arrangements with third parties to market, distribute and sell
a commercially viable product both here and abroad. Our business plan also
envisions creating strategic alliances to access needed commercialization and
marketing expertise. We may not be able to attract qualified sub-licensees,
distributors or marketing partners, and even if qualified, such marketing
partners may not be able to successfully market agricultural products or human
health applications developed with our
-15-
technology. If we fail to successfully establish distribution channels, or if
our marketing partners fail to provide adequate levels of sales, we will not be
able to generate significant revenue.
WE DEPEND ON PARTNERS TO DEVELOP AND MARKET PRODUCTS.
In its current state of development, our technology is not ready to be
marketed to consumers. We intend to follow a multi-faceted commercialization
strategy that involves the licensing of our technology to business partners for
the purpose of further technological development, marketing and distribution. We
are seeking business partners who will share the burden of our development costs
while our technology is still being developed, and who will pay us royalties
when they market and distribute products incorporating our technology upon
commercialization. The establishment of joint ventures and strategic alliances
may create future competitors, especially in certain regions abroad where we do
not pursue patent protection. If we fail to establish beneficial business
partners and strategic alliances, our growth will suffer and the continued
development of our technology may be harmed.
COMPETITION IN THE AGRICULTURAL AND BIOTECHNOLOGY INDUSTRIES IS INTENSE AND
TECHNOLOGY IS CHANGING RAPIDLY.
Many agricultural and biotechnology companies are engaged in research and
development activities relating to senescence and apoptosis. The market for
plant protection and yield enhancement products is intensely competitive,
rapidly changing and undergoing consolidation. We may be unable to compete
successfully against our current and future competitors, which may result in
price reductions, reduced margins and the inability to achieve market acceptance
for products containing our technology. Our competitors in the field of plant
senescence gene technology are companies that develop and produce transgenic
plants and include major international agricultural companies, specialized
biotechnology companies, research and academic institutions and, potentially,
our joint venture and strategic alliance partners. Such companies include:
Paradigm Genetics; Aventis Crop Science; Mendel Biotechnology; Renessen LLC;
Exelixis Plant Sciences, Inc.; PlantGenix, Inc.; and Eden Bioscience, among
others. Some of the companies involved in apoptosis research include: Cell
Pathways, Inc.; Trevigen, Inc.; Idun Pharmaceuticals; Novartis; Introgen
Therapeutics, Inc.; Genta, Inc.; and Oncogene, Inc. Many of these competitors
have substantially greater financial, marketing, sales, distribution and
technical resources than us and have more experience in research and
development, clinical trials, regulatory matters, manufacturing and marketing.
We anticipate increased competition in the future as new companies enter the
market and new technologies become available. Our technology may be rendered
obsolete or uneconomical by technological advances or entirely different
approaches developed by one or more of our competitors.
OUR BUSINESS IS SUBJECT TO VARIOUS GOVERNMENT REGULATIONS.
At present, the U.S. federal government regulation of biotechnology is
divided among three agencies: (i) the USDA regulates the import, field testing
and interstate movement of specific types of genetic engineering that may be
used in the creation of transgenic plants; (ii) the EPA regulates activity
related to the invention of plant pesticides and herbicides, which may include
certain kinds of transgenic plants; and (iii) the FDA regulates foods derived
from new plant varieties. The FDA requires that transgenic plants meet the same
standards for safety that are required for all other plants and foods in
general. Except in the case of additives that significantly alter a food's
structure, the FDA does not require any additional standards or specific
approval for genetically engineered foods, but expects transgenic plant
developers to
-16-
consult the FDA before introducing a new food into the marketplace. Use of our
technology, if developed for human health applications, will also be subject to
FDA regulation.
We believe that our current activities, which to date have been confined to
research and development efforts, do not require licensing or approval by any
governmental regulatory agency. However, federal, state and foreign regulations
relating to crop protection products and human health applications developed
through biotechnology are subject to public concerns and political
circumstances, and, as a result, regulations have changed and may change
substantially in the future. Accordingly, we may become subject to governmental
regulations or approvals or become subject to licensing requirements in
connection with our research and development efforts. We may also be required to
obtain such licensing or approval from the governmental regulatory agencies
described above, or from state agencies, prior to the commercialization of our
genetically transformed plants and mammalian technology. In addition, our
marketing partners who utilize our technology or sell products grown with our
technology may be subject to government regulations. The imposition of
unfavorable governmental regulations on our technology or the failure to obtain
licenses or approvals in a timely manner would have a material adverse effect on
our business.
THE HUMAN HEALTH APPLICATIONS OF OUR TECHNOLOGY ARE SUBJECT TO A LENGTHY AND
UNCERTAIN REGULATORY PROCESS.
The FDA must approve any drug or biologic product before it can be marketed
in the United States. In addition, prior to being sold outside of the U.S., any
products resulting from the application of our mammalian technology must be
approved by the regulatory agencies of foreign governments. Prior to filing a
new drug application or biologics license application with the FDA, we would
have to perform extensive pre-clinical testing and clinical trials, which could
take several years and may require substantial expenditures. Any failure to
obtain regulatory approval could delay or prevent us from commercializing our
mammalian technology.
CLINICAL TRIALS ON OUR HUMAN HEALTH APPLICATIONS MAY BE UNSUCCESSFUL IN
DEMONSTRATING EFFICACY AND SAFETY, WHICH COULD DELAY OR PREVENT REGULATORY
APPROVAL.
Clinical trials may reveal that our mammalian technology is ineffective or
harmful, which would significantly limit the possibility of obtaining regulatory
approval for any drug or biologic product manufactured with our technology. The
FDA requires submission of extensive pre-clinical, clinical and manufacturing
data to assess the efficacy and safety of potential products. Furthermore, the
success of preliminary studies does not ensure commercial success, and
later-stage clinical trials may fail to confirm the results of the preliminary
studies.
CONSUMERS MAY NOT ACCEPT OUR TECHNOLOGY.
We cannot guarantee that consumers will accept products containing our
technology. Recently, there has been consumer concern and consumer advocate
activism with respect to genetically engineered consumer products. The adverse
consequences from heightened consumer concern in this regard could affect the
markets for products developed with our technology and could also result in
increased government regulation in response to that concern. If the public or
potential customers perceive our technology to be genetic modification or
genetic engineering, agricultural products grown with our technology may not
gain market acceptance.
-17-
WE DEPEND ON OUR KEY PERSONNEL.
We are highly dependent on our scientific advisors, consultants and
third-party research partners. Dr. Thompson is the inventor of our technology
and the driving force behind our current research. The loss of Dr. Thompson
would severely hinder our technological development. Our success will also
depend in part on the continued service of our key employees and our ability to
identify, hire and retain additional qualified personnel in an intensely
competitive market. We do not maintain key person life insurance on any member
of management. The failure to attract and retain key personnel could limit our
growth and hinder our research and development efforts.
CERTAIN PROVISIONS OF OUR CHARTER, BY-LAWS AND DELAWARE LAW COULD MAKE A
TAKEOVER DIFFICULT.
Certain provisions of our certificate of incorporation and by-laws could
make it more difficult for a third party to acquire control of us, even if the
change in control would be beneficial to stockholders. Our certificate of
incorporation authorizes our board of directors to issue, without stockholder
approval, except as may be required by the rules of the American Stock Exchange,
5,000,000 shares of preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of our common stock. Similarly, our by-laws do not restrict our board of
directors from issuing preferred stock without stockholder approval.
In addition, we are subject to the Business Combination Act of the Delaware
General Corporation Law which, subject to certain exceptions, restricts certain
transactions and business combinations between a corporation and a stockholder
owning 15% or more of the corporation's outstanding voting stock for a period of
three years from the date such stockholder becomes a 15% owner. These provisions
may have the effect of delaying or preventing a change of control of us without
action by our stockholders and, therefore, could adversely affect the value of
our common stock.
Furthermore, in the event of our merger or consolidation with or into
another corporation, or the sale of all or substantially all of our assets in
which the successor corporation does not assume outstanding options or issue
equivalent options, our board of directors is required to provide accelerated
vesting of outstanding options.
OUR MANAGEMENT AND OTHER AFFILIATES HAVE SIGNIFICANT CONTROL OF OUR COMMON STOCK
AND COULD CONTROL OUR ACTIONS IN A MANNER THAT CONFLICTS WITH OUR INTERESTS AND
THE INTERESTS OF OTHER STOCKHOLDERS.
As of September 30, 2003, our executive officers, directors and affiliated
entities together beneficially own approximately 43.1% of the outstanding shares
of our common stock, assuming the exercise of options and warrants which are
currently exercisable, held by these stockholders. As a result, these
stockholders, acting together, will be able to exercise considerable influence
over matters requiring approval by our stockholders, including the election of
directors, and may not always act in the best interests of other stockholders.
Such a concentration of ownership may have the effect of delaying or preventing
a change in control of us, including transactions in which our stockholders
might otherwise receive a premium for their shares over then current market
prices.
-18-
OUR STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION AS A RESULT OF OUTSTANDING
OPTIONS AND WARRANTS TO PURCHASE OUR COMMON STOCK.
As of September 30, 2003, we have granted options outside of our stock
option plan to purchase 10,000 shares of our common stock and warrants to
purchase 4,444,753 shares of our common stock. In addition, as of September 30,
2003, we have reserved 3,000,000 shares of our common stock for issuance upon
the exercise of options granted pursuant to our stock option plan, 1,791,000 of
which have been granted and 1,209,000 of which may be granted in the future. The
exercise of these options and warrants will result in dilution to our existing
stockholders and could have a material adverse effect on our stock price.
SHARES ELIGIBLE FOR PUBLIC SALE.
As of September 30, 2003, we had 11,880,045 shares of our common stock
issued and outstanding, of which approximately 8,000,000 shares are registered
pursuant to a registration statement on Form S-3, which was deemed effective on
June 28, 2002, and the remainder of which are in the public float. In addition,
we have registered 3,000,000 shares of our common stock underlying options
granted or to be granted under our stock option plan. Consequently, sales of
substantial amounts of our common stock in the public market, or the perception
that such sales could occur, may adversely affect the market price of our common
stock.
OUR STOCK HAS A LIMITED TRADING MARKET.
Our common stock is quoted on the American Stock Exchange and currently has
a limited trading market. We cannot assure that an active trading market will
develop or, if developed, will be maintained. As a result, our stockholders may
find it difficult to dispose of shares of our common stock and, as a result, may
suffer a loss of all or a substantial portion of their investment.
OUR STOCK PRICE MAY FLUCTUATE.
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
o quarterly variations in operating results;
o the progress or perceived progress of our research and development
efforts;
o changes in accounting treatments or principles;
o announcements by us or our competitors of new technology, product and
service offerings, significant contracts, acquisitions or strategic
relationships;
o additions or departures of key personnel;
o future offerings or resales of our common stock or other securities;
o stock market price and volume fluctuations of publicly-traded companies
in general and development companies in particular; and
o general political, economic and market conditions.
IF OUR COMMON STOCK IS DELISTED FROM THE AMERICAN STOCK EXCHANGE, IT MAY BE
SUBJECT TO THE "PENNY STOCK" REGULATIONS WHICH MAY AFFECT THE ABILITY OF OUR
STOCKHOLDERS TO SELL THEIR SHARES.
In general, regulations of the SEC define a "penny stock" to be an equity
security that is not listed on a national securities exchange or Nasdaq and that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. If the American Stock
Exchange delists our common stock, it could be deemed a penny stock, which
imposes additional sales practice requirements on broker-dealers that sell
-19-
such securities to persons other than certain qualified investors. For
transactions involving a penny stock, unless exempt, a broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written consent to the transaction prior to the sale. In addition, the rules on
penny stocks require delivery, prior to and after any penny stock transaction,
of disclosures required by the SEC.
If our common stock were subject to the rules on penny stocks, the market
liquidity for our common stock could be severely and adversely affected.
Accordingly, the ability of holders of our common stock to sell their shares in
the secondary market may also be adversely affected.
INCREASING POLITICAL AND SOCIAL TURMOIL, SUCH AS TERRORIST AND MILITARY ACTIONS,
INCREASE THE DIFFICULTY FOR US AND OUR STRATEGIC PARTNERS TO FORECAST ACCURATELY
AND PLAN FUTURE BUSINESS ACTIVITIES.
Recent political and social turmoil, including the terrorist attacks of
September 11, 2001, the conflict in Iraq and the current crisis in the Middle
East, can be expected to put further pressure on economic conditions in the
United States and worldwide. These political, social and economic conditions may
make it difficult for us to plan future business activities. Specifically, if
the current crisis in Israel continues to escalate, the Rahan Joint Venture
could be adversely affected.
-20-
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
As of September 30, 2003, our cash balance and investments totaled
$1,930,093, and we had working capital of $1,678,267. As of September 30, 2003,
we had a federal tax loss carry-forward of approximately $7,470,000 and a state
tax loss carry-forward of approximately $3,510,000 to offset future taxable
income. There can be no assurance, however, that we will be able to take
advantage of any or all of such tax loss carry-forwards, if at all, in future
fiscal years.
FINANCING NEEDS
The following table lists our cash contractual obligations as of September
30, 2003:
-------------------------------------------------------------------------------------------------------------------
Payments Due by Period
-------------------------------------------------------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
-------------------------------------------------------------------------------------------------------------------
Research and Development
Agreements (1) $ 385,000 $ 385,000 $ -- $ -- $ --
-------------------------------------------------------------------------------------------------------------------
Facility, Rent and
Operating Leases (2) $ 87,978 $ 34,056 $ 53,922 $ -- $ --
-------------------------------------------------------------------------------------------------------------------
Employment, Consulting
and Scientific Advisory
Board Agreements (3) $ 675,566 $ 453,733 $ 221,833 $ -- $ --
===================================================================================================================
Total Contractual
Cash Obligations $ 1,148,544 $ 872,789 $ 275,755 $ -- $ --
===================================================================================================================
(1) Certain of our research and development agreements disclosed herein provide
that payment is to be made in Canadian dollars and, therefore, the
contractual obligations are subject to fluctuations in the exchange rate.
(2) The lease for our office space in New Brunswick, New Jersey is subject to
certain escalations for our proportionate share of increases in the
building's operating costs.
(3) Certain of our employment and consulting agreements provide for automatic
renewal (which is not reflected in the table), unless terminated earlier by
the parties to the respective agreements.
We expect our capital requirements to increase significantly over the next
several years as we commence new research and development efforts, increase our
business and administrative infrastructure and embark on developing in-house
business capabilities and facilities. Our future liquidity and capital funding
requirements will depend on numerous factors, including, but not limited to, the
levels and costs of our research and development initiatives and the cost and
timing of the expansion of our business development and administrative staff.
-21-
CAPITAL RESOURCES
Since inception, we have generated revenues of $210,000 in connection with
the initial fees received under our license and development agreements. We have
not been profitable since inception, we will continue to incur additional
operating losses in the future, and we will require additional financing to
continue the development and subsequent commercialization of our technology.
While we do not expect to generate significant revenues from the licensing of
our technology in the near future, we may enter into additional licensing or
other agreements with marketing and distribution partners that may result in
additional license fees. We may also receive revenues from contract research, or
other related revenue.
Pursuant to the New Jersey Technology Tax Credit Transfer Program, we have
applied to the New Jersey Economic Development Authority to sell our New Jersey
net operating loss tax benefit in the amount of approximately $132,000 for the
fiscal year ended June 30, 2002. We had previously received approval and
subsequently sold our New Jersey net operating loss tax benefit for the fiscal
years ended June 30, 2001, 2000 and 1999. However, there can be no assurance
that we will be approved to participate in the Program for the fiscal year ended
June 30, 2002, or if approved, that we will be able to sell all or part of our
New Jersey net operating loss tax benefit.
We anticipate that, based upon our current cash and investments, we will be
able to fund operations for approximately the next ten months. Over the next
twelve months, we plan to fund our research and development and
commercialization activities by (i) utilizing our current cash balance and
investments, (ii) achieving some of the milestones set forth in our current
licensing agreements through the execution of additional licensing agreements
for our technology, and (iii) consummating a private placement of equity
securities.
CHANGES TO CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates are set forth in our Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2003. There have been
no changes to such critical accounting policies and estimates.
-22-
RESULTS OF OPERATIONS
Three Months Ended September 30, 2003 and Three Months Ended September 30, 2002
-------------------------------------------------------------------------------
We had no revenue during the three-month period ended September 30, 2003.
Revenue for the three-month period ended September 30, 2002 was $10,000, which
represented the initial license fee in connection with the Cal/West License.
Operating expenses consist of general and administrative expenses, research
and development expenses and stock-based compensation. Operating expenses for
the three-month periods ended September 30, 2003 and September 30, 2002 were
$1,411,393 and $547,188, respectively, an increase of $864,205, or 157.9%. This
increase in operating expenses was primarily the result of an increase in
stock-based compensation and research and development expenses, partially offset
by a decrease in general and administrative expenses.
General and administrative expenses consist primarily of stock-based
compensation and other general and administrative costs, which include payroll
and benefits, professional services, investor relations, office rent and
corporate insurance. General and administrative expenses for the three-month
periods ended September 30, 2003 and September 30, 2002 were $1,139,392 and
$388,024, respectively, an increase of $751,368, or 193.6%. This increase was
primarily the result of an increase in stock-based compensation related to the
issuance and vesting of stock options and warrants as well as an increase in
corporate insurance which was partially offset by a decrease in payroll and
benefits, and professional fees.
Three months ended September 30,
2003 2002
---- ----
Stock-based compensation $ 843,480 $ 24,800
Other general and administrative expenses 295,912 363,224
----------- ----------
Total general and administrative expenses $ 1,139,392 $ 388,024
=========== ==========
The increase in stock-based compensation was primarily the result of a warrant
being granted, in connection with a financial advisory agreement, to a financial
advisor during the three-month period ended September 30, 2003. Insurance costs
increased during the three-month period ended September 30, 2003 primarily
because we increased the policy limit on our directors' and officers' liability
insurance policy. Professional fees decreased during the three-month period
ended September 30, 2003, primarily as a result of a decrease in legal fees.
During the three-month period ended September 30, 2002, we had incurred
additional professional fees related to our filing of registration statements
with the Securities and Exchange Commission on Forms S-3 and S-8 as well as the
timing of fees associated with our Form 10-KSB and proxy statement. Payroll and
benefits decreased during the three-month period ended September 30, 2003,
primarily as a result of the termination of an employee in June 2003.
Research and development expenses consist primarily of fees associated with
a research and development agreement with the University of Waterloo, costs
associated with the research being performed at the University of Colorado,
amortization of the initial fee in connection with a research agreement with
Anawah, Inc. and consulting fees to the Scientific Advisory Board and other
consultants. Research and development expenses for the three-month periods ended
September 30, 2003 and September 30, 2002 were $272,001 and $159,164,
respectively, an increase of $112,837, or 70.9%. This increase was primarily the
result of an increase in the
-23-
research and development costs incurred in connection with the expanded research
undertaken by the University of Waterloo, the implementation of our mammalian
cell research programs and the implementation of new plant research being
conducted in connection with the agreement with Anawah, Inc.
Period From Inception on July 1, 1998 through September 30, 2003
----------------------------------------------------------------
From inception of operations on July 1, 1998 through September 30, 2003, we
had revenues of $210,000, which consisted of the initial license fees in
connection with our various development and license agreements.
We have incurred losses each year since inception and have an accumulated
deficit of $10,897,141 at September 30, 2003. We expect to continue to incur
losses as a result of expenditures on research, product development and
administrative activities.
ITEM 3. CONTROLS AND PROCEDURES.
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of September 30, 2003. Based on this evaluation, our chief executive
officer and chief financial officer concluded that as of September 30, 2003, our
disclosure controls and procedures were (1) designed to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to our chief executive officer and chief financial officer by others
within those entities, particularly during the period in which this report was
being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.
No change in our internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three
months ended September 30, 2003 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.
-24-
PART II. OTHER INFORMATION.
--------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On September 12, 2003, we entered into a one-year financial advisory
agreement with Sands Brothers International Ltd. The agreement provides for
monthly payments of $10,000 through September 2004, and may be terminated by
either party upon sixty days written notice. Pursuant to the agreement, on
September 25, 2003, we issued to Sands Brothers a five-year warrant to purchase
237,600 shares of our common stock at an exercise price equal to $3.59 per
share. The warrant provides for, among other things, piggyback registration
rights.
No underwriter was employed in connection with the issuance of the warrant
described above. We believe that the issuance of the warrant was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, as a
transaction not involving a public offering. Sands Brothers is an accredited
investor as defined in the Securities Act, acquired the warrant for investment
purposes only and not with a view to distribution, and received adequate
information about our company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4.1 Warrant issued to Sands Brothers International Ltd. dated
September 25, 2003.
10.1 Financial Advisory Agreement dated September 12, 2003, by and
between Senesco Technologies, Inc. and Sands Brothers
International Ltd.
31.1 Certification of principal executive officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of principal financial and accounting officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of principal executive officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
32.2 Certification of principal financial and accounting officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. 1350.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SENESCO TECHNOLOGIES, INC.
DATE: November 14, 2003 By: /s/ Bruce C. Galton
--------------------------------------------
Bruce C. Galton, President
and Chief Executive Officer
(Principal Executive Officer)
DATE: November 14, 2003 By: /s/ Joel Brooks
--------------------------------------------
Joel Brooks, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
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