SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
Commission File No. 001-31326
SENESCO TECHNOLOGIES, INC.
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(Exact Name of Registrant 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) (Zip Code)
(732) 296-8400
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(Registrant's Telephone Number,
Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, American Stock Exchange
$0.01 par value per share.
Securities registered under Section 12(g) of the Exchange Act:
None.
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State Registrant's revenues for fiscal year ended June 30, 2002: $200,000
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $13,903,629 at September 19, 2002 based on the closing sales
price on that date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of September 19, 2002:
Class Number of Shares
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Common Stock, $0.01 par value 11,880,045
Transitional Small Business Disclosure Format
Yes: No: X
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The following documents are incorporated by reference into the Annual
Report on Form 10-KSB: Portions of the Registrant's definitive Proxy Statement
for its 2002 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Report.
TABLE OF CONTENTS
Item Page
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PART I 1. Business........................................................1
2. Properties.....................................................20
3. Legal Proceedings..............................................20
4. Submission of Matters to a Vote of Security Holders............20
PART II 5. Market for the Company's Common Equity and Related
Stockholder Matters............................................21
6. Management's Discussion and Analysis or Plan of Operation......24
7. Financial Statements...........................................28
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 28
PART III 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act...................................................29
10. Executive Compensation.........................................29
11. Security Ownership of Certain Beneficial Owners
and Management.................................................29
12. Certain Relationships and Related Transactions.................29
13. Exhibits, List and Reports on Form 8-K.........................29
14. Control and Procedures.........................................29
SIGNATURES....................................................................30
CERTIFICATIONS................................................................32
EXHIBIT INDEX.................................................................33
FINANCIAL STATEMENTS.........................................................F-1
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PART I
ITEM 1. BUSINESS.
BUSINESS OF THE COMPANY
The primary business of Senesco Technologies, Inc., a Delaware corporation
incorporated in 1999 (the "Company"), and its wholly-owned subsidiary, Senesco,
Inc., a New Jersey corporation incorporated in 1998 ("Senesco"), is the
research, development and commercial exploitation of a potentially significant
platform technology involving the identification and characterization of genes
that the Company believes control the aging of plant cells (senescence) and may
also control the programmed cell death of mammalian cells (apoptosis).
Agricultural Applications
The Company's technology goals for agricultural applications are to: (i)
extend the shelf-life of perishable plant products; (ii) produce larger and more
leafy crops; (iii) increase crop production (yield) in horticultural and
agronomic crops; and (iv) reduce the harmful effects of environmental stress.
Senescence is the natural aging of plant tissues. Loss of cellular membrane
integrity is an early event during the senescence of all plant tissues that
prompts the deterioration of fresh flowers, fruits and vegetables. This loss of
integrity, which is attributable to the formation of lipid metabolites in
membrane bilayers that "phase-separate," causes the membranes to become "leaky."
A decline in cell function ensues, leading to deterioration and eventual death
(spoilage) of the tissue. A delay in senescence increases shelf-life and extends
the plant's growth timeframe, which allows the plant to devote more time to the
photosynthetic process. The Company has shown that the additional energy gained
in this period leads directly to increased seed production, and therefore
increases crop yield. Seed production is a vital agricultural function. For
example, oil-bearing crops store oil in their seeds. The Company has also shown
that delaying senescence allows the plant to allocate more energy toward growth,
leading to larger plants (increased biomass) and more leafy crops. Most
recently, the Company has demonstrated that delaying senescence results in crops
which exhibit increased resilience to water deprivation. Drought resistant crops
may ultimately be more cost effective due to reduced loss in the field and less
time spent on crop management.
The technology presently utilized by the industry for increasing the
shelf-life in certain flowers, fruits and vegetables relies on reducing ethylene
biosynthesis, and hence only has application to a limited number of plants that
are ethylene-sensitive.
The Company's research and development focuses on the discovery and
development of new gene technologies, which are designed to confer positive
traits on fruits, flowers, vegetables, forestry species and agronomic crops. To
date, the Company has isolated and characterized the senescence-induced lipase
gene, deoxyhypusine synthase ("DHS") gene and Factor 5A gene in certain species
of plants. The Company's goal is to inhibit the expression of (or silence) these
genes to delay senescence, which will in turn extend shelf-life, increase
biomass, increase yield
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and increase resistance to environmental stress, thereby demonstrating "proof of
concept" in each category of crop. The Company has licensed this technology to
strategic partners and has entered into a joint venture and the Company intends
to continue to license this technology to additional strategic partners and/or
enter into additional joint ventures.
The Company is currently working with lettuce, melon, tomato, canola,
Arabidopsis (a model plant which produces oil in a manner similar to canola),
banana plants and certain species of trees, and has obtained "proof of concept"
for the lipase and DHS genes in several of these plants. Near-term research and
development initiatives include: (i) silencing the Factor 5A gene in these
plants; and (ii) further propagation of transformed plants with the Company's
silenced genes. The Company has also completed its research and development
initiative in carnation flower, which yielded a one hundred percent (100%)
increase in shelf-life through the inhibition of the DHS reaction.
Human Health Applications
Inhibiting Apoptosis
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The Company has also isolated the DHS and Factor 5A genes in mammalian
tissue. The Company's preliminary research reveals that DHS and Factor 5A genes
may regulate apoptosis in animal and human cells. The mammalian apoptosis
isoforms of DHS and Factor 5A genes were first isolated from the ovarian tissue
of rats, which undergoes apoptosis naturally at the end of the female
reproductive cycle. The sequences of the mammalian apoptosis DHS and Factor 5A
genes are very similar to those of the corresponding plant genes in keeping with
their common functions. Moreover, inhibiting the function of the Factor 5A gene
in rats has been shown to inhibit the induction of corpus luteum apoptosis.
Apoptosis, as manifested by DNA fragmentation, was clearly detectable in
super-ovulated control female rats within 3 hours of treatment with
prostaglandin F2a. This hormone induces corpus luteum apoptosis naturally in
mammals, but in super-ovulated animals in which the activation of Factor 5A had
been inhibited, DNA fragmentation reflecting apoptosis was not apparent. Thus,
just as these genes can be used to delay senescence in plants, this experiment
shows that they may also be used to inhibit apoptosis in mammals. The Company
believes that its technology has potential application as a means of controlling
a broad range of diseases that are attributable to premature apoptosis,
including neurodegenerative diseases (e.g. Alzheimer's disease, Parkinson's
disease), retinal diseases (e.g. glaucoma, macular degeneration), heart and
stroke disease and arthritis.
Accelerating Apoptosis
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Conversely, Senesco has also established in pre-clinical studies that its
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. When Senesco's apoptosis Factor 5A
gene was introduced into RKO cells, a cell line derived from human carcinoma and
COS7 cells, an immortal (cancer-like) cell line from monkeys, increased levels
of apoptosis ranging from 50% to 250% were evident. Moreover, just as the
senescence Factor 5A gene appears to facilitate expression of the entire suite
of genes required for programmed cell death in plants, the apoptosis Factor 5A
gene appears to regulate expression of a suite of genes required for programmed
cell death in mammals. For example, over expression
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of apoptosis Factor 5A up regulates p53, an important tumor suppressor gene of
apoptosis in cells with damaged DNA and also down regulates bcl 2, a suppressor
of apoptosis. Because the Factor 5A gene appears to function at the "wellhead"
of the apoptotic pathways, the Company believes that its gene technology has
potential application as a means of combating a broad range of cancers.
RESEARCH PROGRAM
Subsequent research initiatives include: (i) further expanding the lipase,
DHS and Factor 5A gene technology in lettuce, melon and banana, and expanding
the technology into a variety of other commercially viable agricultural crops
such as trees and forestry products; (ii) developing transformed plants that
possess new beneficial traits such as increased tolerance to disease and
environmental stress; and (iii) assessing the function of the DHS and Factor 5A
genes in human health through the accumulation of additional data from
preclinical experiments with cell lines, mammalian tissue and animal models. The
Company's strategy focuses on various plants to allow flexibility that will
accommodate different plant reproduction strategies among the different sectors
of the broad agricultural and horticultural markets.
The Company's research and development is performed by third party
researchers at the direction of the Company 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
developed, and at the University of Colorado. Additional research and
development is performed in connection with the Harris Moran License, the
ArborGen Agreement and the Cal/West License (each as defined below), as well as
through the Joint Venture (as defined below) with Rahan Meristem Ltd. in Israel.
During the fiscal years ended June 30, 2002 and June 30, 2001, the Company
incurred aggregate research and development expenses of $370,191 and $479,468,
respectively.
JOINT VENTURE
On May 14, 1999, the Company entered into a joint venture agreement with
Rahan Meristem Ltd., an Israeli company ("Rahan"), engaged in the worldwide
export marketing of banana germ-plasma (the "Joint Venture"). Rahan accounts for
approximately ten percent (10%) of the worldwide export of banana seedlings. The
Company has contributed, by way of a limited, exclusive, world-wide license to
the Joint Venture, access to its technology, discoveries, inventions and
know-how (patentable or otherwise), pertaining to plant genes and their cognate
expressed proteins that are induced during senescence for the purpose of
developing, on a joint basis, genetically enhanced banana plants which will
result in a banana that has a longer shelf-life. Rahan has contributed its
technology, inventions and know-how with respect to banana plants. The Joint
Venture is equally owned by Rahan and the Company.
The Joint Venture applied for and received a conditional grant that totals
approximately $340,000, which constitutes fifty percent (50%) of the Joint
Venture's research and development budget over a four-year period, from the
Israel - U.S. Binational Research and Development (the "BIRD") Foundation (the
"BIRD Grant"). Such grant, along with certain royalty payments, shall only be
repaid to the BIRD Foundation upon the commercial success of the Joint Venture's
technology. The commercial success is measured based upon certain benchmarks
and/or milestones achieved by the Joint Venture. These benchmarks are reported
periodically to the
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BIRD Foundation by the Joint Venture. As of June 30, 2002, Senesco has directly
received a total of $67,972, of which $22,165 was received during the year ended
June 30, 2002, from the BIRD Foundation for research and development expenses
the Company has incurred which are associated with the research and development
efforts of the Joint Venture. The Company expects to receive additional
installments of the BIRD Grant as its expenditures associated with the Joint
Venture increase above certain levels. The Company's portion of the Joint
Venture's aggregate expenses totaled approximately $41,000 and $69,000 for the
years ended June 30, 2002 and 2001, respectively, and is included in research
and development expenses.
All aspects of the Joint Venture's research and development initiative are
proceeding on time, or are ahead of the original schedule laid out at the
inception of the Joint Venture. Both the DHS and lipase genes have been
identified and isolated in banana, and the Joint Venture is currently in the
process of silencing these genes. Once silenced, the goal is to transform banana
plants, thereby yielding fruit with extended shelf-life and plants which are
more tolerant to disease and environmental stress. Banana plants containing
Senesco's technology are expected to be tested in field plantings during the
2002 calendar year.
Consistent with the Company's commercialization strategy, it intends to
attract other companies interested in entering into strategic partnerships or
joint ventures, or licensing its technology. The Harris Moran License, the
ArborGen Agreement, the Cal/West License and the Joint Venture with Rahan are
steps toward the execution of its strategy. However, there can be no assurance
that the Company will be able to successfully implement its commercialization
strategy.
AGRICULTURAL TARGET MARKETS
The Company's technology embraces crops that are reproduced both through
seeds and propagation, which are the only two means of commercial crop
reproduction. Propagation is a process whereby the plant does not produce
fertile seeds and must reproduce through cuttings from the parent plant, which
are planted and become new plants. In order to address the complexities
associated with marketing and distribution in the worldwide produce market, the
Company has adopted a multi-faceted commercialization strategy, in which it
plans to enter into licensing agreements or other strategic relationships with a
variety of companies on a crop-by-crop basis.
In November 2001, the Company entered into a worldwide exclusive
development and license agreement (the "Harris Moran License"), with Harris
Moran Seed Company ("Harris Moran"), to commercialize the Company's technology
in lettuce and certain melons for an indefinite term, unless terminated by
either party pursuant to the terms of the agreement. In connection with the
Harris Moran License, the Company received an initial license fee of $125,000 in
November 2001. Upon the completion of certain marketing and development
benchmarks set forth in the Harris Moran License, the Company will receive an
additional $3,875,000 in development payments over a multi-year period along
with royalties upon commercial introduction.
The developmental steps being performed by the Company and Harris Moran
have all been completed on schedule with the protocol set forth in the Harris
Moran License. There has been extensive genetic identification and
characterization of the Company's lettuce genes in a
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laboratory setting. The initial lab work has produced genetically modified seed
under greenhouse containment, which has been followed by substantial field
trials for evaluation. These field trials represent a vital step in the process
of genetic identification necessary to ultimately develop a viable commercial
product. Harris Moran still foresees field trials of the selected seeds which
incorporate the Company's technology in 2003.
In June 2002, the Company entered into a three-year worldwide exclusive
development and option agreement (the "ArborGen Agreement") with ArborGen, LLC
("ArborGen") to develop the Company's technology in certain species of trees. In
connection with the ArborGen Agreement, the Company recorded an initial
development fee of $75,000 in June 2002. Upon the completion of certain
development benchmarks set forth in the ArborGen Agreement, the Company will
receive an additional $225,000 in periodic development payments over the term of
the ArborGen Agreement. The ArborGen Agreement also grants ArborGen an option to
acquire an exclusive worldwide license to commercialize the Company's technology
in other various forestry products, and upon the execution of a license
agreement, the Company will receive a royalty payment from ArborGen.
In September 2002, the Company entered into an exclusive development and
license agreement (the "Cal/West License") with Cal/West Seeds ("Cal/West") to
commercialize the Company's technology in certain varieties of alfalfa. The
Cal/West License will continue until the expiration of the patents set forth in
the agreement, unless terminated earlier by either party pursuant to the terms
of the agreement. The Cal/West License also grants Cal/West an exclusive option
to develop the Company's technology in various other forage crops. In connection
with the execution of the Cal/West License, the Company will receive an initial
fee of $10,000 from Cal/West. Upon the completion of certain development
benchmarks, the Company will receive an additional $20,000 in periodic payments
and upon the commercialization of certain products, the Company will receive
royalty payments from Cal/West.
HUMAN HEALTH TARGET MARKETS
The Company believes that its gene technology could have broad
applicability in the human health field by either inhibiting or accelerating
apoptosis. Inhibiting apoptosis may be useful in preventing or treating a wide
range of diseases attributed to premature apoptosis, including stroke, heart
disease, arthritis, retinal diseases (e.g., glaucoma and macular degeneration)
and neurodegenerative diseases (e.g., Alzheimer's disease and Parkinson's
disease). Accelerating apoptosis may be useful in preventing or treating certain
forms of cancer, because the body's immune system is not always able to force
cancerous cells to undergo apoptosis.
AGRICULTURAL INDUSTRY MARKET TRENDS
The Company's competitors in the agricultural industry are primarily
focused on research and development rather than commercialization. Those
competitors which are presently attempting to distribute their technology have
generally utilized one of the following commercialization distribution channels:
(i) licensing technology to major marketing and distribution partners; (ii)
distributing seedlings directly to growers; or (iii) entering into strategic
alliances. In addition, some competitors are owned by established produce
distribution companies, which alleviates the need for strategic alliances, while
others are attempting to create their own distribution and marketing channels.
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INTELLECTUAL PROPERTY
Research and Development Agreements
The inventor of the Company's technology, John E. Thompson, Ph.D., is the
Associate Vice-President, Research and former Dean of Science at the University
of Waterloo in Waterloo, Ontario, Canada, and is the Executive Vice President of
Research and Development of the Company. Dr. Thompson is also a director and
stockholder of the Company and owns 4.8% of the outstanding shares of the
Company's common stock, $0.01 par value (the "Common Stock"), as of June 30,
2002. On September 1, 1998, Senesco entered into a three-year research and
development agreement with the University of Waterloo and Dr. Thompson as the
principal inventor (the "First Research and Development Agreement"). Effective
September 1, 2001 and 2002, the Company extended the First Research and
Development Agreement for an additional one-year period and two-year period,
respectively. Effective May 1, 2002, the Company entered into a new one-year
research and development agreement with the University of Waterloo and Dr.
Thompson (the "Second Research and Development Agreement") (the First Research
and Development Agreement and the Second Research and Development Agreement are
collectively referred to herein as the "Research and Development Agreements").
The Research and Development Agreements provide that the University of
Waterloo will perform research and development under the direction of the
Company, and the Company will pay for the cost of this work and make certain
payments to the University of Waterloo. In return for payments made under the
Research and Development Agreements, the Company has all rights to the
intellectual property derived from the research. As of September 1, 2002, the
Company has paid the University of Waterloo an aggregate of approximately US
$1,120,000 under the First Research and Development Agreement. Under the second
extension to the First Research and Development Agreement, the Company is
obligated to pay Can $1,092,800, which represented approximately US $720,000 as
of June 30, 2002. Under the Second Research and Development Agreement, the
Company is obligated to pay Can $50,000, which represented approximately US
$33,000 as of June 30, 2002. During the twelve-month periods ended June 30, 2001
and June 30, 2002, the Company spent approximately $254,347 and $348,985,
respectively, in connection with the Research and Development Agreements.
Effective May 1, 1999, the Company entered into a consulting agreement for
research and development with Dr. Thompson. On July 1, 2001, the Company and Dr.
Thompson renewed the consulting agreement for an additional three-year term as
provided for under the terms and conditions of the agreement. This agreement
provides for monthly payments of $3,000 through June 2004. The agreement shall
be automatically renewable for an additional three-year term, unless either of
the parties provides the other with written notice within six months of the end
of the term.
The Company's future research and development program focuses on the
discovery and development of new gene technologies which intend to extend shelf
life and to confer other positive traits on fruits, flowers, vegetables and
agronomic row crops and on expanding the Company's mammalian cell research
programs. Over the next twelve months, the Company plans the following research
and development initiatives: (i) the development of transformed plants that
possess new beneficial traits, such as protection against drought and disease,
with emphasis on lettuce, melon, corn, forestry products, alfalfa and the other
species described below; (ii) the development of enhanced lettuce and melon
plants through the Harris Moran License; (iii) the development of enhanced trees
through the ArborGen Agreement; (iv) the
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development of enhanced alfalfa through the Cal/West License; (v) the isolation
of new genes in the Arabidopsis, tomato, lettuce, soybean, rape seed (canola)
and melon plants, among others, at the University of Waterloo; (vi) the
isolation of new genes in the banana plant through the Joint Venture; and (vii)
assessing the function of the DHS and Factor 5A genes in mammalian tissue at the
University of Waterloo and the University of Colorado. The Company may further
expand its research and development program beyond the initiatives listed above.
Patent Applications
Dr. Thompson and his colleagues, Dr. Yuwen Hong and Dr. Katalin Hudak,
filed a patent application on June 26, 1998 (the "Original Patent Application")
to protect their invention, which is directed to methods for controlling
senescence in plants. By assignment dated June 25, 1998 and recorded with the
United States Patent and Trademark Office (the "PTO"), on June 26, 1998, Drs.
Thompson, Hong and Hudak assigned all of their rights in and to the Original
Patent Application and any other applications filed in the United States or
elsewhere with respect to the invention and/or improvements thereto to Senesco,
L.L.C. Senesco succeeded to the assignment and ownership of the Original Patent
Application. Drs. Thompson, Hong and Hudak filed an amendment to the Original
Patent Application on February 16, 1999 (the "Amended Patent Application" and
together with the Original Patent Application, the "First Patent Application")
titled "DNA Encoding A Plant Lipase, Transgenic Plants and a Method for
Controlling Senescence in Plants." The Amended Patent Application serves as a
continuation of the Original Patent Application. Concurrent with the filing of
the Amended Patent Application with the PTO and as in the case of the Original
Patent Application, Drs. Thompson, Hong and Hudak assigned all of their rights
in and to the Amended Patent Application and any other applications filed in the
United States or elsewhere with respect to such invention and/or improvements
thereto to Senesco. Drs. Thompson, Hong and Hudak have received shares of
restricted Common Stock of the Company in consideration for the assignment of
the First Patent Application. The inventions, which were the subject of the
First Patent Application, include a method for controlling senescence of plants,
a vector containing a cDNA whose expression regulates senescence, and a
transformed microorganism expressing the lipase of the cDNA. Management believes
that the inventions provide a means for delaying deterioration and spoilage,
which could greatly increase the shelf-life of fruits, vegetables, and flowers
by silencing or substantially repressing the expression of the lipase gene
induced coincident with the onset of senescence.
The Company filed a second patent application (the "Second Patent
Application," and together with the First Patent Application, collectively, the
"Patent Applications") on July 6, 1999, titled "DNA Encoding A Plant
Deoxyhypusine Synthase, Transgenic Plants and a Method for Controlling
Programmed Cell Death in Plants." The inventors named on the patent are Drs.
John E. Thompson, Tzann-Wei Wang and Dongen Lily Lu. Concurrent with the filing
of the Second Patent Application with the PTO and as in the case of the First
Patent Application, Drs. Thompson, Wang and Lu assigned all of their rights in
and to the Second Patent Application and any other applications filed in the
United States or elsewhere with respect to such invention and/or improvements
thereto to Senesco. Drs. Thompson, Wang and Lu have received options to purchase
Common Stock of the Company in consideration for the assignments of the Second
Patent Application. The inventions include a method for the genetic modification
of plants to control the onset of either age-related or stress-induced
senescence, an isolated DNA molecule encoding a senescence induced gene, and an
isolated protein encoded by the DNA molecule.
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The Company has broadened the scope of its intellectual property protection
by utilizing the Patent Cooperation Treaty ("PCT") to facilitate international
filing and prosecution of the Patent Applications. The First Patent Application
was published through the PCT in August 2000, and then between August 2001 and
October 2001 was filed in Australia, Canada, China, Japan, Korea, New Zealand
and Europe through the European Patent Office, which has twenty member states.
Israel and Mexico are the last remaining countries in which the Company opted to
file that have yet to issue a filing date. The Second Patent Application was
published by the PCT in January 2001.
The Company has filed several new Continuations in Part ("CIPs") on both
the First Patent Application and the Second Patent Application to ensure, on an
ongoing basis, that its intellectual property pertaining to new technological
developments is appropriately protected. The Company has also drafted and filed
one additional application followed by a substantial CIP, in addition to those
listed above, which pertain to the possible mammalian applicability of its
technology. The new application is focused on suppressing cell death as a
prospective therapy for a wide range of diseases and the CIP focuses on
enhancing cell death as a means of treating cancer. The Company intends to
continue its strategy of enhancing these new patent applications through the
addition of data as it is collected.
There can be no assurance that patent protection will be granted with
respect to all of the foregoing Patent Applications, or any other applications,
or that, if granted, the validity of such patents will not be challenged.
Furthermore, there can be no assurance that claims of infringement upon the
proprietary rights of others will not be made, or if made, could be successfully
defended against.
GOVERNMENT REGULATION
At present, the U.S. federal government regulation of biotechnology is
divided among three agencies: (i) the U.S. Department of Agriculture (the
"USDA") regulates the import, field-testing and interstate movement of specific
types of genetic engineering that may be used in the creation of transformed
plants; (ii) the Environmental Protection Agency (the "EPA") regulates activity
related to the invention of plant pesticides and herbicides, which may include
certain kinds of transformed plants; and (iii) the Food and Drug Administration
(the "FDA") regulates foods derived from new plant varieties. The FDA requires
that transformed 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
transformed plant developers to consult the FDA before introducing a new food
into the market place.
The Company believes that its current activities, which to date have been
confined to research and development efforts, do not require licensing or
approval by any governmental regulatory agency. The Company or its licensees may
be required, however, to obtain such licensing or approval from governmental
regulatory agencies prior to the commercialization of its transformed plants.
There can be no assurance that such licensing or approval by any governmental
regulatory agency will be obtained in a timely manner, if at all. In addition,
government regulations are subject to change and, in such event, the Company may
be subject to additional regulations or require such licensing or approval in
the future.
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COMPETITION
The Company's competitors in the field of delaying plant senescence are
companies that develop and produce transformed plants in which ethylene
biosynthesis has been silenced. Such companies include: Paradigm Genetics;
Aventis Crop Science; Mendel Biotechnology; Bionova Holding Corporation;
Renessen LLC; Exelixis Plant Sciences, Inc.; and Eden Bioscience, among others.
Other companies working in the field of apoptosis research include, among
others: Cell Pathways, Inc.; Trevigen, Inc.; Idun Pharmaceuticals; Novartis;
Introgen Therapeutics, Inc.; and Oncogene, Inc.
The Company believes that its proprietary technology is unique and,
therefore, places the Company at a competitive advantage in the industry.
However, there can be no assurance that the Company's competitors will not
develop a similar product with properties superior to its own or at greater
cost-effectiveness.
MARKETING
Based upon the Company's multi-faceted commercialization strategy described
above, the Company anticipates that there may be a significant period of time
before plants enhanced using the Company's technology reach consumers. Thus, the
Company has not begun to actively market its technology directly to consumers,
but rather, the Company has sought to establish itself within the industry
through its advertising program in trade journals and a national magazine, as
well as through its website and through direct communication with prospective
licensees.
EMPLOYEES
In addition to the scientists performing funded research for the Company at
the University of Waterloo and the University of Colorado, as of June 30, 2002
and currently, the Company has five employees and one consultant, four of whom
are executive officers and are involved in the management of the Company.
The officers are assisted by a Scientific Advisory Board that consists of
prominent experts in the fields of plant and mammalian cell biology. Alan
Bennett, Ph.D., who serves as the Chairman of the Scientific Advisory Board, is
the Executive Director of the Office of Technology Transfer at the University of
California. His research interests include: the molecular biology of tomato
fruit development and ripening; the molecular basis of membrane transport; and
cell wall disassembly. Charles A. Dinarello, M.D., who joined the Scientific
Advisory Board effective March 1, 2002, is a Professor of Medicine at the
University of Colorado School of Medicine, a member of the U.S. National Academy
of Sciences and the author of over 500 published research articles. In addition
to his active academic research career, Dr. Dinarello has held advisory
positions with two branches of the National Institutes of Health and positions
on the Board of Governors of both the Weizmann Institute and Ben Gurion
University. Russell L. Jones, Ph.D., who also joined the Scientific Advisory
Board effective March 1, 2002, is a professor at the University of California,
Berkeley and an expert in plant cell
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biology and cell death. Dr. Jones is also an editor of Planta, Annual Review of
Plant Physiology and Plant Molecular Biology as well as Research Notes in Plant
Science. Additionally, he has held positions on the editorial boards of Plant
Physiology and Trends in Plant Science.
In addition to his service on the Scientific Advisory Board, the Company
utilizes Dr. Bennett as a consultant experienced in plant transformation.
Effective November 1, 2001, the Company entered into a one-year consulting
agreement with Dr. Bennett, which provides for monthly payments of $2,400 to Dr.
Bennett through October 31, 2002.
Furthermore, pursuant to the Research and Development Agreements, the
majority of the Company's research and development activities are conducted at
the University of Waterloo under the supervision of Dr. Thompson. The Company
utilizes the University's substantial research staff including graduate and
post-graduate researchers.
The Company has also undertaken preclinical apoptosis research at the
University of Colorado under the supervision of Dr. Dinarello. This research is
performed pursuant to specific project proposals that have agreed-upon research
outlines, timelines and budgets. The Company may also contract research to
additional university laboratories or to other companies in order to advance
development of the Company's technology.
The Company may hire additional employees over the next twelve months to
meet needs created by possible expansion of its marketing activities and product
development.
SAFE HARBOR STATEMENT
The statements contained in this Annual Report on Form 10-KSB that are not
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended and the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. In particular, the
Company's statements regarding the anticipated growth in the markets for the
Company's technologies, the continued advancement of the Company's research, the
approval of the Company's Patent Applications, the possibility of governmental
approval in order to sell or offer for sale to the general public a genetically
engineered plant or plant product, the successful implementation of the
Company's commercialization strategy, including the success of the Harris Moran
License, the ArborGen Agreement, the Cal/West License, the successful
implementation of the Joint Venture with Rahan, the success of the Research and
Development Agreements, statements relating to the Company's Patent
Applications, the anticipated longer term growth of the Company's business, and
the timing of the projects and trends in future operating performance are
examples of such forward-looking statements. The forward-looking statements
include risks and uncertainties, including, but not limited to, the timing of
revenues due to the variability in size, scope and duration of research
projects, regulatory delays, research study results which lead to cancellations
of research projects, and other factors, including general economic conditions
and regulatory developments, not within the Company's control. The factors
discussed herein and expressed from time to time in the Company's filings with
the Securities and Exchange
-10-
Commission could cause actual results and developments to be materially
different from those expressed in or implied by such statements. The
forward-looking statements are made only as of the date of this filing and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS, FUTURE OPERATING RESULTS AND
FINANCIAL CONDITION
The more prominent risks and uncertainties inherent in the Company's
business are described below. However, additional risks and uncertainties may
also impair the Company's business operations. If any of the following risks
actually occur, the Company's business, financial condition or results of
operations may suffer.
THE COMPANY HAS A LIMITED OPERATING HISTORY AND HAS INCURRED SUBSTANTIAL LOSSES
AND EXPECTS FUTURE LOSSES.
The Company is a developmental stage biotechnology company with a limited
operating history and limited assets or capital. The Company has incurred losses
each year since inception and has an accumulated deficit of $7,430,321 at June
30, 2002. The Company has generated minimal revenues by licensing certain of its
technology to companies willing to share in the Company's development costs.
However, the Company's technology may not be ready for widespread
commercialization for several years. The Company expects to continue to incur
losses over the next two to three years because it anticipates that its
expenditures on research, product development, marketing and administrative
activities will significantly exceed its revenues during that period. The
Company cannot predict when, if ever, it will become profitable.
THE COMPANY DEPENDS ON A SINGLE PRINCIPAL INVENTION.
The Company's 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. The Company's
future revenue and profitability critically depend upon the Company's ability to
successfully develop senescence and apoptosis gene technology and later market
and license such technology at a profit. The Company has conducted experiments
on certain crops with favorable results and has conducted certain preliminary
cell-line experiments, which have provided it with data upon which the Company
has designed additional research programs. However, the Company cannot give any
assurance that its 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 the Company's technology such as the development of
negative effects on plants or mammals or reduced benefits in terms of crop yield
or protection. The Company's failure to develop a commercially viable product,
to obtain market acceptance of the Company's technology or to successfully
commercialize such technology would have a material adverse effect on the
Company's business.
-11-
THE COMPANY OUTSOURCES ALL OF ITS RESEARCH AND DEVELOPMENT ACTIVITIES.
The Company relies on third parties to perform all of its research and
development activities. The Company's primary research and development effort
takes place at the University of Waterloo in Ontario, Canada, where its
technology was developed, and at the University of Colorado. At this time, the
Company does not have the internal capabilities to perform its 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 the Company, or the Company's failure to renew important
research agreements with these third parties, would have a material adverse
effect on the Company's ability to develop and exploit the Company's technology.
THE COMPANY HAS SIGNIFICANT FUTURE CAPITAL NEEDS.
As of June 30, 2002, the Company had cash and highly-liquid investments
valued at $4,664,678 and working capital of $3,425,367. The Company believes
that it can operate according to its current business plan for at least 18
months using its available reserves. To date, the Company has generated minimal
revenues and anticipates that its operating costs will exceed any revenues
generated over the next several years. Therefore, the Company anticipates that
it will be required to raise additional capital in the future in order to
operate according to its current business plan. The Company may require
additional funding in less than 18 months, and additional funding may not be
available on favorable terms, if at all. In addition, in connection with such
funding, if the Company needs to issue more equity securities than its
certificate of incorporation currently authorizes, or more than 20% of the
shares of Common Stock outstanding, the Company may need stockholder approval.
If stockholder approval is not obtained or if adequate funds are not available,
the Company may be required to curtail operations significantly or to obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets. Investors may experience dilution in
their investment from future offerings of the Company's Common Stock. For
example, if the Company raises 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
June 30, 2002, the Company had 2,301,802 shares of Common Stock authorized but
unissued, which may be issued from time to time by the Company's board of
directors without stockholder approval required. Furthermore, the Company may
need to issue securities that have rights, preferences and privileges senior to
its Common Stock. Failure to obtain financing on acceptable terms would have a
material adverse effect on the Company's liquidity.
Since inception, the Company has financed all of its operations through
private equity financings. The Company's future capital requirements depend on
numerous factors, including:
o the scope of the Company's research and development;
o the Company's ability to attract business partners willing to share in
its development costs;
o the Company's ability to successfully commercialize its technology;
o competing technological and market developments;
o the Company's 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.
-12-
THE COMPANY'S BUSINESS DEPENDS ON ITS 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. The
success of the Company will depend in part on several factors, including,
without limitation:
o the Company's ability to obtain patent protection for technologies,
products and processes;
o the Company's ability to preserve trade secrets; and
o the Company's ability to operate without infringing the proprietary
rights of other parties both in the United States and in foreign
countries.
The Company has filed three patent applications in the United States for
its technology which is vital to its primary business, two of which have been
filed internationally. The Company has also filed six Continuations in Part on
these patent applications. The Company's success depends in part upon patents
being granted from its pending patent applications and, if granted, the
enforcement of its patent rights.
Furthermore, although the Company believes that its 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 the Company does not obtain and maintain
patent protection, it may face increased competition in the United States and
internationally, which would have a material adverse effect on its 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,
the Company cannot be certain that it was the first creator of the inventions
covered by its pending patent applications or that the Company was the first to
file patent applications for these inventions.
In addition, among other things, the Company cannot guarantee that:
o the Company's patent applications will result in the issuance of
patents;
o any patents issued or licensed to the Company will be free from
challenge and that if challenged, would be held to be valid;
o any patents issued or licensed to the Company will provide
commercially significant protection for its technology, products and
processes;
o other companies will not independently develop substantially
equivalent proprietary information which is not covered by the
Company's patent rights;
o other companies will not obtain access to the Company's know-how;
o other companies will not be granted patents that may prevent the sale
of one or more of the Company's products; or
o the Company 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 it to conduct its business.
-13-
If any relevant claims of third-party patents which are adverse to the
Company are upheld as valid and enforceable, the Company could be prevented from
commercializing its technology or could be required to obtain licenses from the
owners of such patents. The Company cannot guarantee that such licenses would be
available or, even if available, would be on acceptable terms.
The Company could become involved in infringement actions to enforce and/or
protect its patents, which could be very expensive. Regardless of the outcome,
patent litigation is expensive and time consuming and would distract the
Company's 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.
Patent law is still evolving relative to the scope and enforceability of
claims in the fields in which the Company operates. The Company is like most
biotechnology companies in that its 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, the Company's patents may
not contain claims sufficiently broad to protect it against third parties with
similar technologies or products, or provide it with any competitive advantage.
The U.S. Patent and Trademark Office 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 the
Company's proprietary rights.
The Company's success also depends upon know-how, unpatentable trade
secrets, and the skills, knowledge and experience of its scientific and
technical personnel. As a result, the Company requires all employees to agree to
a confidentiality provision that prohibits the disclosure of confidential
information to anyone outside of the Company, during the term of employment and
thereafter. The Company also requires all employees to disclose and assign to
the Company the rights to their ideas, developments, discoveries and inventions.
The Company also attempts to enter into similar agreements with its consultants,
advisors and research collaborators. The Company cannot guarantee adequate
protection for its trade secrets, know-how or other proprietary information
against unauthorized use or disclosure. The Company occasionally provides
information to research collaborators in academic institutions and requests the
collaborators to conduct certain tests. The Company 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 the Company on acceptable terms or 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 the
Company, these events could have a material adverse effect on the Company's
business and financial results.
-14-
THE COMPANY WILL HAVE TO PROPERLY MANAGE ITS GROWTH.
As the Company's business grows, it may need to add employees and enhance
its management, systems and procedures. The Company will need to successfully
integrate its internal operations with the operations of its marketing partners,
manufacturers, distributors and suppliers to produce and market commercially
viable products. Although the Company does not presently intend to conduct
research and development activities in-house, it may undertake those activities
in the future. Expanding the Company's business will place a significant burden
on the management and operations of the Company. The Company's failure to
effectively respond to changes brought about by its growth may have a material
adverse effect on its business and financial results.
THE COMPANY HAS NO MARKETING OR SALES HISTORY AND DEPENDS ON THIRD-PARTY
MARKETING PARTNERS.
The Company has no history of marketing, distributing or selling
biotechnology products and is relying on its 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. The
Company's business plan also envisions creating strategic alliances to access
needed commercialization and marketing expertise. The Company 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
products or human health applications developed with the Company's technology.
If the Company fails to successfully establish distribution channels, or if its
marketing partners fail to provide adequate levels of sales, the Company will
not be able to generate significant revenue.
THE COMPANY DEPENDS ON PARTNERS TO DEVELOP AND MARKET PRODUCTS.
At its current state of development, the Company's technology is not ready
to be marketed to consumers. The Company intends to follow a multi-faceted
commercialization strategy that involves the licensing of its technology to
business partners for the purpose of further technological development,
marketing and distribution. The Company is seeking business partners who will
share the burden of its development costs while its products are still being
developed, and who will pay the Company royalties when they market and
distribute the Company's products upon commercialization. The establishment of
joint ventures and strategic alliances may create future competitors, especially
in regions abroad where the Company does not pursue patent protection. If the
Company fails to establish beneficial business partners and strategic alliances,
the Company's growth will suffer and its product development 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. The Company may be unable to
compete successfully against its current and future competitors, which may
result in price reductions, reduced margins and the inability to achieve market
acceptance for the Company's products. The Company's competitors in the field
-15-
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, the Company's joint venture and strategic alliance partners. Such
companies include: Paradigm Genetics; Aventis Crop Science; Mendel
Biotechnology; Bionova Holding Corporation; Renessen LLC; Exelixis Plant
Sciences, 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.; and Oncogene, Inc.
Many of these competitors have substantially greater financial, marketing,
sales, distribution and technical resources than the Company and have more
experience in research and development, clinical trials, regulatory matters,
manufacturing and marketing. The Company anticipates increased competition in
the future as new companies enter the market and new technologies become
available. The Company's technology may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or more
of its competitors.
THE COMPANY'S BUSINESS IS SUBJECT TO VARIOUS GOVERNMENT REGULATION.
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 consult the FDA before introducing a new food into the
marketplace. Use of the Company's technology, if developed for human health
applications, will also be subject to FDA regulation.
The Company believes that its 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, the Company may become subject
to governmental regulations or approvals or become subject to licensing
requirements in connection with its research and development efforts. The
Company 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 its genetically transformed plants and mammalian
technology. In addition, the Company's marketing partners who utilize the
Company's technology or sell products grown with the Company's technology may be
subject to government regulations. The imposition of unfavorable governmental
regulations on the Company's technology or the failure to obtain licenses or
approvals in a timely manner would have a material adverse effect on the
Company's business.
-16-
THE HUMAN HEALTH APPLICATIONS OF THE COMPANY'S 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 the Company's 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, the
Company would have to perform extensive preclinical testing and clinical trials,
which could take several years and may require substantial expenditures. Any
failure to obtain regulatory approval could delay or prevent the Company from
commercializing its mammalian technology.
CLINICAL TRIALS ON THE COMPANY'S HUMAN HEALTH APPLICATIONS MAY BE UNSUCCESSFUL
IN DEMONSTRATING EFFICACY AND SAFETY, WHICH COULD DELAY OR PREVENT REGULATORY
APPROVAL.
Clinical trials may reveal that the Company's mammalian technology is
ineffective or harmful, which would significantly limit the possibility of
obtaining regulatory approval for any drug or biologic product manufactured with
its technology. The FDA requires submission of extensive preclinical, 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 THE COMPANY'S TECHNOLOGY.
The Company cannot guarantee that consumers will accept products containing
its 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 the Company's proposed products and could also result in increased
government regulation in response to that concern. If the public or potential
customers perceive the Company's technology to be genetic modification or
genetic engineering, agricultural products grown with the Company's technology
may not gain market acceptance.
THE COMPANY DEPENDS ON ITS KEY PERSONNEL.
The Company is highly dependent on its scientific advisors, consultants and
third-party research partners. Dr. Thompson is the inventor of the Company's
technology and the driving force behind its current research. The loss of Dr.
Thompson would severely hinder the Company's technological development. The
Company's success will also depend in part on the continued service of its key
employees and the Company's ability to identify, hire and retain additional
qualified personnel in an intensely competitive market. The Company does not
maintain key person life insurance on any member of management. The failure to
attract and retain key personnel could limit the Company's growth and hinder its
research and development efforts.
-17-
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER, BY-LAWS AND DELAWARE LAW COULD MAKE
A TAKEOVER DIFFICULT.
Certain provisions of the Company's certificate of incorporation and
by-laws could make it more difficult for a third party to acquire control of the
Company, even if the change in control would be beneficial to stockholders. The
Company's certificate of incorporation authorizes its 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 the Company's Common Stock.
Similarly, the Company's by-laws do not restrict its board of directors from
issuing preferred stock without stockholder approval.
In addition, the Company is 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 the Company without action by its stockholders and, therefore, could
adversely affect the value of its Common Stock.
Furthermore, in the event of the Company's merger or consolidation with or
into another corporation, or the sale of all or substantially all of the
Company's assets in which the successor corporation does not assume outstanding
options or issue equivalent options, the Company's board of directors is
required to provide accelerated vesting of outstanding options.
THE COMPANY'S MANAGEMENT AND OTHER AFFILIATES HAVE SIGNIFICANT CONTROL OF THE
COMPANY'S COMMON STOCK AND COULD CONTROL ITS ACTIONS IN A MANNER THAT CONFLICTS
WITH THE COMPANY'S INTERESTS AND THE INTERESTS OF OTHER STOCKHOLDERS.
As of June 30, 2002, the Company's executive officers, directors and
affiliated entities together beneficially own approximately 51.62% of the
outstanding shares of the Company's 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 the Company's
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 the Company,
including transactions in which its stockholders might otherwise receive a
premium for their shares over then current market prices.
THE COMPANY'S STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION AS A RESULT OF
OUTSTANDING OPTIONS AND WARRANTS TO PURCHASE ITS COMMON STOCK.
As of June 30, 2002, the Company has granted options outside of its stock
option plan to purchase 10,000 shares of its Common Stock and warrants to
purchase 4,192,153 shares of its Common Stock. In addition, the Company has
reserved 2,000,000 shares of its Common Stock for issuance upon the exercise of
options granted pursuant to its stock option plan, 1,616,000 of which have been
granted and 384,000 of which may be granted in the future. The exercise of these
options and warrants could have a material adverse effect on the Company's stock
price.
-18-
SHARES ELIGIBLE FOR PUBLIC SALE.
As of June 30, 2002, the Company had 11,880,045 shares of its 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,
the Company will be registering 2,000,000 shares of its Common Stock underlying
options granted or to be granted under its stock option plan. Consequently,
sales of substantial amounts of the Company's Common Stock in the public market,
or the perception that such sales could occur, may adversely affect the market
price of the Company's Common Stock.
THE COMPANY'S STOCK HAS A LIMITED TRADING MARKET.
The Company's Common Stock is quoted on the American Stock Exchange and
currently has a limited trading market. The Company cannot assure that an active
trading market will develop or, if developed, will be maintained. As a result,
the Company's stockholders may find it difficult to dispose of shares of the
Company's Common Stock and, as a result, may suffer a loss of all or a
substantial portion of their investment.
THE COMPANY'S STOCK PRICE MAY FLUCTUATE.
The market price of the Company's Common Stock may fluctuate significantly
in response to a number of factors, some of which are beyond the Company's
control. These factors include:
o quarterly variations in operating results;
o the progress or perceived progress of the Company's research and
development efforts;
o changes in accounting treatments or principles;
o announcements by the Company or its competitors of new product and
service offerings, significant contracts, acquisitions or strategic
relationships;
o additions or departures of key personnel;
o future offerings or resales of the Company's 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 THE COMPANY'S COMMON STOCK IS DELISTED FROM THE AMERICAN STOCK EXCHANGE, IT
MAY BE SUBJECT TO THE "PENNY STOCK" REGULATIONS WHICH MAY AFFECT THE ABILITY OF
THE COMPANY'S 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 the Company's Common Stock, it could be deemed a penny stock,
which imposes additional sales practice requirements on broker-dealers that sell
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.
-19-
If the Company's Common Stock were subject to the rules on penny stocks,
the market liquidity for its Common Stock could be severely and adversely
affected. Accordingly, the ability of holders of the Company's 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 THE COMPANY AND ITS STRATEGIC PARTNERS TO FORECAST
ACCURATELY AND PLAN FUTURE BUSINESS ACTIVITIES.
Recent political and social turmoil, including the terrorist attacks of
September 11, 2001 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 the
Company to plan future business activities. Specifically, if the current crisis
in Israel escalates, the Company's Joint Venture could be adversely affected.
ITEM 2. PROPERTIES.
The Company leases office space in New Brunswick, New Jersey for a monthly
rental fee of $2,838, subject to certain escalations for the Company's
proportionate share of increases, over the base year of 2001, in the building's
operating costs. The lease expires in May 2006. The space is in good condition
and the Company believes it will adequately serve as the Company's headquarters
over the term of the lease. The Company believes that this office space is
adequately insured by the lessor.
All office equipment and office furniture used by the Company is in good
working condition and is located at the office described above. The Company
believes such equipment will suit its business needs over the next twelve
months.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-20-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
From January 25, 1999 through May 16, 2002, the Company's Common Stock had
been trading on the NASD OTC Bulletin Board under the symbol SENO. On May 17,
2002, the Company's Common Stock began trading on the American Stock Exchange
under the symbol SNT.
The following table sets forth the range of the high and low sales price
for the Common Stock for each of the quarters since the quarter ended June 30,
2000, as reported on the NASD OTC Bulletin Board and the American Stock
Exchange.(1)
Quarter Common
Ended Stock
------------------------------ -----------------------------
High Low
-------- -------
June 30, 2000 $ 3.1875 $ 1.25
September 30, 2000 $ 4.5625 $ 1.875
December 31, 2000 $ 3.375 $ 1.75
March 31, 2001 $ 4.3125 $ 1.75
June 30, 2001 $ 5.00 $ 2.50
September 30, 2001 $ 3.08 $ 1.57
December 31, 2001 $ 2.99 $ 1.74
March 31, 2002 $ 3.13 $ 2.20
June 30, 2002 $ 3.55 $ 1.30
----------------
(1) In prior disclosures contained in the Company's Form 10-KSB for the year
ended June 30, 2000, the Company reported the range of high and low bid
quotations for its Common Stock for each of the appropriate quarters.
Thereafter, the Company restated the stock prices for the quarter ended June 30,
2000 to reflect the high and low sales prices, because in accordance with the
Securities and Exchange Commission's interpretation of its existing rules, the
Company is permitted to report high and low sales prices. Currently, in
accordance with the SEC's existing rules for exchange-traded registrants, the
Company is expressly permitted to report high and low sales prices.
As of September 19, 2002, the approximate number of holders of record of
the Common Stock was 298.
The Company has neither paid nor declared dividends on its Common Stock
since its inception and does not plan to pay dividends on its Common Stock in
the foreseeable future. The Company expects that any earnings, which the Company
may realize, will be retained to finance the growth of the Company.
-21-
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission (the "SEC"), requires all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements. Note 1 of the Notes to Consolidated
Financial Statements includes a summary of the significant accounting policies
and methods used in the preparation of the Company's financial statements. The
following is a brief discussion of the more significant accounting policies and
methods used by the Company. In addition, Financial Reporting Release No. 61 was
recently released by the SEC to require all companies to include a discussion to
address, among other things, liquidity, off-balance sheet arrangements,
contractual obligations and commercial commitments.
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of financial statements in
accordance with generally accepted accounting principles in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, including the recoverability of tangible and
intangible assets, disclosure of contingent assets and liabilities as of the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period.
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SAB
101A and 101B (collectively, "SAB 101"). SAB 101 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services rendered; (3)
the fee is fixed and determinable; and (4) collectibility is reasonably assured.
Under the provisions of SAB 101, the Company recognizes revenue from license and
development agreements as services are provided and milestones are achieved.
The Company measures stock-based compensation cost using APB Opinion No. 25
as is permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation. In accordance with APB Opinion No. 25,
the Company does not recognize a compensation cost related to the issuance of
stock options granted to the Company's employees and board members under the
Company's 1998 Stock Incentive Plan.
The Company records a valuation allowance to reduce its deferred tax assets
to an amount that is more likely than not to be realized. While the Company
considers historical levels of income, expectations and risks associated with
estimates of future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event that
the Company determines that it would be able to realize deferred tax assets in
the future in excess of the net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, should the Company determine that it would not be able to realize all
or part of the net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such determination
was made. The Company has recorded valuation allowances against its entire
deferred tax assets of $2,227,000 at June 30, 2002. The valuation allowances
relate primarily to the net operating loss carry forward deferred tax asset
where the tax benefit of such asset is not assured.
-22-
The Company assesses the impairment in value to its long-lived assets
whenever events or circumstances indicate that their carrying value may not be
recoverable. Factors considered important which could trigger an impairment
review include the following:
o significant negative industry trends;
o significant underutilization of the assets; and
o significant changes in how the Company uses the assets or plans for
their use.
If the Company determines that the future undiscounted cash flows related
to these assets will not be sufficient to recover their carrying value, then the
Company will reduce the carrying values of these assets down to the Company's
estimate of their fair market value and will continue depreciating or amortizing
them over their remaining useful lives.
The Company does not have any off-balance sheet arrangements.
-23-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, the Company's cash balance and investments totaled
$4,664,678, and the Company had a working capital of $3,425,367. As of June 30,
2002, the Company had a federal tax loss carry-forward of approximately
$5,690,000, and a state tax loss carry-forward of approximately $3,250,000
available to offset future taxable income. There can be no assurance, however,
that the Company will be able to take advantage of any or all of such tax loss
carry-forwards in future fiscal years.
During the year ended June 30, 2002 and from inception, the Company has
generated revenues of $200,000 in connection with the initial fees received
under the Harris Moran License and the ArborGen Agreement. Also, the Company
expects to generate revenues from the Cal/West License. The Company has not been
profitable since inception, will incur additional operating losses in the
future, and will require additional financing to continue the development and
subsequent commercialization of its technology. While the Company does not
expect to generate significant revenues from the sale of products in the near
future, the Company may enter into additional licensing or other agreements with
marketing and distribution partners that may result in additional license fees,
receive revenues from contract research, or other related revenue.
The Company has employment agreements with certain employees, some of whom
are also stockholders of the Company, which provide for a base compensation and
additional amounts, as set forth in each agreement. The agreements expire
between January 2003 and October 2004. As of June 30, 2002, future base
compensation to be paid under the agreements through October 2004 totals
$497,775.
The Company expects its capital requirements to increase significantly over
the next several years as it commences new research and development efforts,
undertakes new product development, increases its sales and administration
infrastructure and embarks on developing in-house business capabilities and
facilities. The Company's future liquidity and capital funding requirements will
depend on numerous factors, including, but not limited to, the levels and costs
of the Company's research and development initiatives and the cost and timing of
the expansion of the Company's sales and marketing efforts.
From November 2001 through April 2002, the Company consummated a series of
private placements for an aggregate investment amount of approximately
$7,000,000, less costs of approximately $850,000. The purchase price of one
unit, which consisted of one share of Common Stock and a warrant to purchase a
fraction of a share of Common Stock, was equal to $1.75 per unit.
During the years ending June 30, 2002 and 2001, pursuant to the New Jersey
Technology Tax Credit Transfer Program, the Company sold its New Jersey net
operating loss tax benefit of $174,325 and $71,296 for the years ending June 30,
2000 and 1999, respectively and received net proceeds of $150,551 and $60,331,
respectively, pursuant to the sale of the entire New Jersey net operating loss
tax benefit for each of those years. The Company has applied to sell its New
Jersey net operating loss tax benefit in the amount of approximately $151,000
for the year ended June 30, 2001. However, there can be no assurance that the
Company will be approved, or if approved, that the Company will be able to sell
all or part of the New Jersey net operating loss tax benefit.
-24-
During the year ended June 30, 2002, the Company received $22,165 from the
BIRD Foundation for research and development expenses that the Company has
incurred in connection with the Joint Venture. In addition, the Company
anticipates receiving additional funds from the BIRD Foundation in the future to
assist in funding its Joint Venture. See "Item 1. Business - Joint Venture."
In November 2001, the Company entered into a worldwide exclusive
development and license agreement with Harris Moran Seed Company to
commercialize the Company's technology in lettuce and certain melons for an
indefinite term, unless terminated by either party pursuant to the terms of the
agreement. In connection with the Harris Moran License, the Company received an
initial license fee of $125,000 in November 2001. Upon the completion of certain
marketing and development benchmarks set forth in the Harris Moran License, the
Company will receive an additional $3,875,000 in development payments over a
multi-year period along with certain royalties upon commercial introduction.
In June 2002, the Company entered into a three-year worldwide exclusive
development and option agreement with ArborGen to develop the Company's
technology in certain species of trees. In connection with the ArborGen
Agreement, the Company recorded an initial development fee of $75,000 in June
2002. Upon the completion of certain development benchmarks set forth in the
ArborGen Agreement, the Company will receive an additional $225,000 in periodic
development payments over the term of the ArborGen Agreement. The ArborGen
Agreement also grants ArborGen an option to acquire an exclusive worldwide
license to commercialize the Company's technology in various forestry products,
and upon the execution of a license agreement, the Company will receive a
royalty payment from ArborGen.
In September 2002, the Company entered into an exclusive development and
license agreement with Cal/West to develop the Company's technology in certain
varieties of alfalfa. The Cal/West License will continue until the expiration of
the patents set forth in the agreement, unless terminated earlier by either
party pursuant to the terms of the agreement. The Cal/West License also grants
Cal/West an exclusive option to develop the Company's technology in various
other forage crops. In connection with the execution of the Cal/West License,
the Company will receive an initial fee of $10,000 from Cal/West. Upon the
completion of certain development benchmarks, the Company will receive an
additional $20,000 in periodic payments and upon the commercialization of
certain products, the Company will receive royalty payments from Cal/West.
Consistent with the Company's commercialization strategy, the Company
intends to attract other companies interested in strategic partnerships or
licensing the Company's technology. There can be no assurance, however, that the
Company will be successful in attracting other companies willing to form
strategic partnerships or license its technology.
The Company anticipates that, based upon it current cash balance, it will
be able to fund operations for at least the next twelve months. Over the next
twelve months, the Company plans to fund its research and development and
commercialization activities by utilizing its current cash balance and
investments and through the consummation of additional licensing agreements for
the Company's technology. However, there can be no assurance that the Company
will be able to enter into additional licensing agreements or achieve the
milestones set forth in the Company's current licensing agreements.
-25-
FOREIGN CURRENCY RISK
Except for the Company's Research and Development Agreements with the
University of Waterloo, which is payable in Canadian dollars, the Company has no
other agreements or transactions denominated in foreign currency. Thus, the
Company does not believe that any fluctuations in foreign currency exchange
rates would have a material impact on the Company's financial condition or
results of operations.
RESEARCH AND DEVELOPMENT INITIATIVES
The Company's future research and development programs focus on the
discovery and development of new gene technologies whose goals are to: (i)
extend shelf life; (ii) increase biomass; (iii) increase yield; (iv) increase
resistance to environmental stress; and (v) confer other positive traits on
fruits, flowers, vegetables and row crops. Over the next twelve months, the
Company plans the following research and development initiatives: (i) the
development of transformed plants that possess new beneficial traits, such as
protection against drought and disease, with emphasis on lettuce, melon, corn,
forestry products, alfalfa and the other species described below; (ii) the
development of enhanced lettuce and melon plants through the Harris Moran
License; (iii) the development of enhanced trees through the ArborGen Agreement;
(iv) the development of enhanced alfalfa through the Cal/West License; (v) the
isolation of new genes in the Arabidopsis, tomato, lettuce, soybean, rape seed
(canola) and melon plants, among others, at the University of Waterloo; and (vi)
the isolation of new genes in the banana plant through the Joint Venture.
Transformed plants that possess new beneficial traits such as drought and
disease resistance will then be developed in each of these varieties. The
Company also plans to expand its research and development initiative beyond
these plants into a variety of other crops. Additionally, the Company will be
expanding its research initiative to assess the function of the DHS and Factor
5A genes in animals and humans through the accumulation of additional data from
preclinical experiments with cell lines, mammalian tissue and animal models
being conducted at the University of Colorado.
-26-
RESULTS OF OPERATIONS
Fiscal Years ended June 30, 2002 and June 30, 2001
--------------------------------------------------
The Company is a development stage company. Revenues for the twelve-month
period ending June 20, 2002 ("Fiscal 2002"), which consist of the initial
license and development payments in connection with the Harris Moran License and
the ArborGen Agreement, were $200,000. The Company did not have any revenues
since inception through the twelve-month period ending June 30, 2001 ("Fiscal
2001").
Operating expenses consist of general and administrative expenses, research
and development expenses and non-cash advertising, consulting and legal costs.
Operating expenses for Fiscal 2002 and Fiscal 2001 were $2,314,233 and
$1,971,071, respectively, an increase of $343,162 or 17.4%. This increase in
operating expenses was primarily the result of an increase in non-cash
advertising, consulting and legal costs, which were partially offset by a
decrease in general and administrative and research and development expenses.
General and administrative expenses consist primarily of payroll and
benefits, depreciation and amortization, professional and consulting services,
investor relations, office rent and corporate insurance. General and
administrative expenses for Fiscal 2002 and Fiscal 2001 were $1,308,856 and
$1,339,883, respectively, a decrease of $31,027 or 2.3%. This decrease was
primarily the result of a decrease in consulting services, rent and corporate
insurance, which were mostly offset by an increase in payroll, professional
services and investor relations.
Research and development expenses consist primarily of professional
salaries and benefits, fees associated with the Research and Development
Agreements, direct expenses charged to research and development projects and
allocated overhead charged to research and development projects. Research and
development expenses for Fiscal 2002 and Fiscal 2001 were $370,191 and $479,468,
respectively, a decrease of $109,277 or 22.8%. This decrease was primarily the
result of a decrease in the research and development costs charged by the
University of Waterloo because it had inadvertently overcharged the Company
approximately $40,000 during Fiscal 2001. Therefore, during Fiscal 2002, the
University of Waterloo billed the Company approximately $40,000 less than it
otherwise would have. Had the overcharge not occurred, research and development
expenses for Fiscal 2002 and Fiscal 2001 would have been approximately $410,191
and $439,468, respectively, a decrease of $29,277 or 6.7%. This decrease was
primarily the result of a decrease in the amount of fees paid to Dr. Sascha
Vainstein due to the conclusion of his portion of the carnation research
program, which was being conducted at Hebrew University and a reduction in fees
paid to Dr. Bennett in connection with his consulting agreement with the
Company.
For Fiscal 2002 and Fiscal 2001, non-cash advertising, consulting and legal
costs were $635,186 and $151,720, respectively, an increase of $483,466 or
318.7%. Such costs consist of non-employee stock options and warrants granted as
consideration for certain professional consulting, legal and advertising
services. This increase was primarily the result of an increase in the amount of
options and warrants issued in Fiscal 2002.
The Company has incurred losses since inception and had an accumulated
deficit of $7,430,321 at June 30, 2002. The Company expects to continue to incur
expenditures for research, product development and administrative activities.
-27-
The Company does not expect to generate significant revenues from product
sales for approximately the next two to three years, during which time the
Company will engage in significant research and development efforts. However,
the Company has entered into the Harris Moran License, the ArborGen Agreement,
and the Cal/West License to develop and commercialize the Company's technology
in certain varieties of lettuce, melons, trees and alfalfa. These agreements
provide that, upon the achievement of certain benchmarks, the Company will
receive an aggregate of $4,130,000 in development payments over a multi-year
period. The Harris Moran License and the Cal/West License also provide for
royalty payments to the Company upon commercial introduction. The ArborGen
Agreement contains an option for ArborGen to execute a license to commercialize
developed products, and upon the execution of a license agreement, the Company
will receive a royalty payment from ArborGen. The license terms would include
additional fees and royalties to be paid to the Company. The Cal/West License
contains an option for Cal/West to develop the Company's technology in various
other forage crops.
Consistent with the Company's commercialization strategy, the Company
intends to attract other companies interested in strategic partnerships or
licensing the Company's technology that may result in license fees, revenues
from contract research and other related revenues. There can be no assurance,
however, that the Company will be successful in attracting other companies
willing to form strategic partnerships or license its technology. Furthermore,
no assurance can be given that the Company's research and development efforts
will result in any commercially viable products, or that any licensing or other
agreements with marketing and distribution partners will result in revenues
sufficient to support the business. Successful future operations will depend on
the Company's ability to transform its research and development activities into
commercializable technology.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required to be filed pursuant to this Item 7 are
included in this Annual Report on Form 10-KSB. A list of the financial
statements filed herewith is found at "Item 13. Exhibits, List and Reports on
Form 8-K."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-28-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
2002 Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.
ITEM 10. EXECUTIVE COMPENSATION.
The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 2002 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 2002
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 2002 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements on Page F-1.
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
Reference is made to the Exhibit Index on Page 33.
(b) Reports on Form 8-K.
The Company's Current Report on Form 8-K was filed on May 20, 2002,
announcing the listing of the Company's Common Stock on the American
Stock Exchange, effective May 17, 2002.
The Company's Current Report on Form 8-K was filed on July 3, 2002,
announcing the posting of the letter to stockholders and the research
and development update on the Company's website.
ITEM 14. CONTROLS AND PROCEDURES.
Not applicable.
-29-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 30th day of
September 2002.
SENESCO TECHNOLOGIES, INC.
By: /s/ Bruce C. Galton
---------------------------------
Bruce C. Galton, President and
Chief Executive Officer
-30-
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Ruedi Stalder Chairman and Director September 30, 2002
----------------------
Ruedi Stalder
/s/ Bruce C. Galton President and Chief Executive September 30, 2002
---------------------- Officer (principal executive
Bruce C. Galton officer)and Director
/s/ Joel Brooks Chief Financial Officer September 30, 2002
---------------------- and Treasurer (principal
Joel Brooks financial and accounting officer)
/s/ John E. Thompson Executive Vice President of September 30, 2002
---------------------- Research and Development and
John E. Thompson Director
/s/ Christopher Forbes Director September 30, 2002
----------------------
Christopher Forbes
/s/ Thomas C. Quick Director September 30, 2002
----------------------
Thomas C. Quick
/s/ David Rector Director September 30, 2002
----------------------
David Rector
-31-
CERTIFICATIONS
I, Bruce C. Galton, certify that:
1. I have reviewed this annual report on Form 10-KSB of Senesco
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 30, 2002
/s/ Bruce C. Galton
-------------------------------------
Bruce C. Galton
President and Chief Executive Officer
(principal executive officer)
I, Joel Brooks, certify that:
1. I have reviewed this annual report on Form 10-KSB of Senesco
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 30, 2002
/s/ Joel Brooks
-------------------------------------
Joel Brooks
Chief Financial Officer and Treasurer
(principal financial and accounting
officer)
-32-
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
2.1 Merger Agreement and Plan of Merger by and among Nava Leisure USA,
Inc., an Idaho corporation, the Principal Stockholders (as defined
therein), Nava Leisure Acquisition Corp., and Senesco, Inc., dated
October 9, 1998. (Incorporated by reference to the Company's
definitive proxy statement on Schedule 14A dated January 11, 1999.)
2.2 Merger Agreement and Plan of Merger by and between Senesco
Technologies, Inc., an Idaho corporation, and Senesco Technologies,
Inc., a Delaware corporation, dated September 30, 1999. (Incorporated
by reference to the Company's quarterly report on Form 10-QSB for the
period ended September 30, 1999.)
3.1 Certificate of Incorporation of the Company filed with the State of
Delaware on September 30, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended
September 30, 1999.)
3.2 Amended and Restated By-laws of the Company as adopted on October 2,
2000. (Incorporated by reference to the Company's quarterly report on
Form 10-QSB for the period ended December 31, 2000.)
4.1 Form of Common Stock Purchase Agreement by and among the Company and
the Purchasers (as defined therein), dated May 11, 1999. (Incorporated
by reference to the Company's quarterly report on Form 10-QSB for the
period ended March 31, 1999.)
4.2 Form of Registration Rights Agreement by and among the Company and the
Purchasers (as defined therein), dated May 11, 1999. (Incorporated by
reference to the Company's quarterly report on Form 10-QSB for the
period ended March 31, 1999.)
4.3 Form of Warrant with Forbes, Inc. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended
September 30, 1999.)
4.4 Form of Option Agreement with Kenyon & Kenyon. (Incorporated by
reference to the Company's quarterly report on Form 10-QSB for the
period ended September 30, 1999.)
4.5 Form of Warrant with Parenteau Corporation. (Incorporated by reference
to the Company's quarterly report on Form 10-QSB for the period ended
December 31, 1999.)
4.6 Form of Warrant with Strategic Growth International, Inc.
(Incorporated by reference to the Company's quarterly report on Form
10-QSB for the period ended December 31, 1999.)
4.7 Form of Warrant with Fahnestock & Co. Inc., dated March 30, 2000.
(Incorporated by reference to the Company's annual report on Form
10-KSB for the period ended June 30, 2000.)
-33-
4.8 Form of Registration Rights Agreement by and between the Company and
Fahnestock & Co. Inc., dated as of March 30, 2000. (Incorporated by
reference to the Company's annual report on Form 10-KSB for the period
ended June 30, 2000.)
4.9 Form of Common Stock Purchase Agreement by and among the Company and
the Purchasers (as defined therein), dated as of May 31, 2000 and June
14, 2000, respectively. (Incorporated by reference to the Company's
annual report on Form 10-KSB for the period ended June 30, 2000.)
4.10 Form of Registration Rights Agreements by and among the Company and
the Purchasers (as defined therein), dated May 31, 2000 and June 14,
2000, respectively. (Incorporated by reference to the Company's annual
report on Form 10-KSB for the period ended June 30, 2000.)
4.11 Form of Warrant Agreement with Fahnestock & Co. Inc., dated October 2,
2000. (Incorporated by reference to the Company's quarterly report on
Form 10-QSB for the period ended December 31, 2000.)
4.12 Warrant Agreement by and between the Company and Christenson,
Hutchinson, McDowell, LLC. (Incorporated by reference to the Company's
quarterly report on Form 10-QSB for the period ended September 30,
2001.)
4.13 Form of Warrant issued to Stanford Venture Capital Holdings, Inc. and
certain officers of Stanford Venture Capital Holdings, Inc. (with
attached schedule of parties and terms thereto). (Incorporated by
reference to Exhibit 4.1 of the Company's quarterly report on Form
10-QSB for the period ended December 31, 2001.)
4.14 Form of Warrant issued to certain accredited investors (with attached
schedule of parties and terms thereto). (Incorporated by reference to
Exhibit 4.2 of the Company's quarterly report on Form 10-QSB for the
period ended March 31, 2002.)
4.15 Form of Warrant issued to Pond Equities, Inc. (with attached schedule
of terms thereto). (Incorporated by reference to Exhibit 4.3 of the
Company's quarterly report on Form 10-QSB for the period ended March
31, 2002.)
4.16 Form of Warrant issued to Perrin, Holden & Davenport Capital Corp. and
certain principals thereof (with attached schedule of parties and
terms thereto). (Incorporated by reference to Exhibit 4.4 of the
Company's quarterly report on Form 10-QSB for the period ended March
31, 2002.)
4.17 Form of Warrant issued to certain accredited investors (with attached
schedule of parties and terms thereto). (Incorporated by reference to
Exhibit 4.2 of the Company's quarterly report on Form 10-QSB for the
period ended December 31, 2002.)
4.18 Form of Warrant issued to certain third parties for services rendered
(with attached schedule of parties and terms thereto). (Incorporated
by reference to Exhibit 4.3 of the Company's quarterly report on Form
10-QSB for the period ended December 31, 2002.)
10.1 Indemnification Agreement by and between the Company and Phillip O.
Escaravage, dated January 21, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended
December 31, 1998.)
-34-
10.2 Indemnification Agreement by and between the Company and Christopher
Forbes, dated January 21, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended
December 31, 1998.)
10.3 Indemnification Agreement by and between the Company and Steven Katz,
dated January 21, 1999. (Incorporated by reference to the Company's
quarterly report on Form 10-QSB for the period ended December 31,
1998.)
10.4 Indemnification Agreement by and between the Company and Thomas C.
Quick, dated February 23, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended March
31, 1999.)
10.5 Indemnification Agreement by and between the Company and Ruedi
Stalder, dated March 1, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended March
31, 1999.)
10.6* Employment Agreement by and between Senesco, Inc. and Phillip O.
Escaravage, dated January 21, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended
December 31, 1998.)
10.7* Employment Agreement by and between Senesco, Inc. and Sascha P.
Fedyszyn, dated January 21, 1999. (Incorporated by reference to the
Company's quarterly report on Form 10-QSB for the period ended
December 31, 1998.)
10.8 Research Agreement by and among the Company, Dr. John E. Thompson and
the University of Waterloo, dated September 1, 1998, as amended.
(Incorporated by reference to the Company's quarterly report on Form
10-QSB for the period ended December 31, 1998.)
10.9* Consulting Agreement by and between the Company and John E. Thompson,
Ph.D., dated July 12, 1999. (Incorporated by reference to the
Company's annual report on Form 10-KSB for the period ended June 30,
2000.)
10.10 Office lease by and between the Company and Matrix/AEW NB, LLC, dated
March 16, 2001. (Incorporated by reference to the Company's quarterly
report on Form 10-QSB for the period ended March 31, 2001.)
10.11 Form of Promissory Note issued to Directors. (Incorporated by
reference to the Company's annual report on Form 10-KSB for the period
ended June 30, 2001.)
10.12 Securities Purchase Agreement by and between the Company and Stanford
Venture Capital Holdings, Inc., dated November 30, 2001. (Incorporated
by reference to Exhibit 10.1 of the Company's quarterly report on Form
10-QSB for the period ended December 31, 2001.)
10.13 Securities Purchase Agreement by and between the Company and Stanford
Venture Capital Holdings, Inc., dated January 16, 2002. (Incorporated
by reference to Exhibit 10.2 of the Company's quarterly report on Form
10-QSB for the period ended December 31, 2001.)
10.14 Form of Securities Purchase Agreement by and between the Company and
certain directors of the Company (with attached schedule of parties
and terms thereto). (Incorporated by reference to Exhibit 10.3 of the
Company's quarterly report on Form 10-QSB for the period ended
December 31, 2001.)
-35-
10.15 Form of Securities Purchase Agreement by and between the Company and
certain accredited investors (with attached schedule of parties and
terms thereto). (Incorporated by reference to Exhibit 10.4 of the
Company's quarterly report on Form 10-QSB for the period ended
December 31, 2001.)
10.16 Form of Securities Purchase Agreement by and between the Company and
certain accredited investors (with attached schedule of parties and
terms thereto). (Incorporated by reference to Exhibit 10.2 of the
Company's quarterly report on Form 10-QSB for the period ended March
31, 2002.)
10.17 Form of Registration Rights Agreement by and between the Company and
each of certain accredited investors (with attached schedule of
parties and terms thereto). (Incorporated by reference to Exhibit 10.6
of the Company's quarterly report on Form 10-QSB for the period ended
December 31, 2001.)
10.18 Form of Registration Rights Agreement by and between the Company and
each of certain accredited investors (with attached schedule of
parties and terms thereto). (Incorporated by reference to Exhibit 10.4
of the Company's quarterly report on Form 10-QSB for the period ended
March 31, 2002.)
10.19* 1998 Stock Incentive Plan, as amended on November 29, 2001.
(Incorporated by reference to Exhibit 10.7 of the Company's quarterly
report on Form 10-QSB for the period ended December 31, 2001.)
10.20^ License Agreement by and between the Company and Harris Moran Seed
Company, dated November 19, 2001. (Incorporated by reference to
Exhibit 10.8 of the Company's quarterly report on Form 10-QSB for the
period ended December 31, 2001.)
10.21* Employment Agreement by and between the Company and Bruce C. Galton,
dated October 4, 2001. (Incorporated by reference to Exhibit 10.9 of
the Company's quarterly report on Form 10-QSB for the period ended
December 31, 2001.)
10.22 Indemnification Agreement by and between the Company and Bruce C.
Galton, dated October 4, 2001. (Incorporated by reference to Exhibit
10.10 of the Company's quarterly report on Form 10-QSB for the period
ended December 31, 2001.)
10.23 Consulting Agreement by and between the Company and Alan B. Bennett,
Ph.D., dated November 1, 2001 (Incorporated by reference to Exhibit
10.11 of the Company's quarterly report on Form 10-QSB for the period
ended December 31, 2001.)
10.24 Agreement for Service on the Company's Scientific Advisory Board by
and between the Company and Dr. Russell A. Jones, dated February 12,
2002. (Incorporated by reference to Exhibit 10.5 of the Company's
quarterly report on Form 10-QSB for the period ended March 31, 2002.)
10.25 Agreement for Service on the Company's Scientific Advisory Board by
and between the Company and Dr. Charles A. Dinarello, dated February
12, 2002. (Incorporated by reference to Exhibit 10.6 of the Company's
quarterly report on Form 10-QSB for the period ended March 31, 2002.)
-36-
10.26 Letter Agreement by and between the Company and Perrin, Holden &
Davenport Capital Corp., dated March 25, 2002. (Incorporated by
reference to Exhibit 10.7 of the Company's quarterly report on Form
10-QSB for the period ended March 31, 2002.)
10.27 Letter Agreement by and between the Company and Pond Equities, Inc.,
dated March 6, 2002. (Incorporated by reference to Exhibit 10.8 of the
Company's quarterly report on Form 10-QSB for the period ended March
31, 2002.)
10.28 Letter Agreement by and between the Company and Lippert/Heilshorn &
Associates, Inc., dated April 18, 2002. (Incorporated by reference to
Exhibit 10.9 of the Company's quarterly report on Form 10-QSB for the
period ended March 31, 2002.)
10.29+ Research Agreement by and among the Company, Dr. John E. Thompson and
the University of Waterloo, dated May 1, 2002.
10.30+ Financial Representation Agreement by and between the Company and
Perrin, Holden & Davenport Capital Corp., dated June 26, 2002.
10.31+# Development Agreement by and between the Company and ArborGen, LLC,
dated June 28, 2002.
21 Subsidiaries of the Registrant. (Incorporated by reference to the
Company's annual report on Form 10-KSB for the period ended June 30,
1999.)
23.1+ Consent of Goldstein Golub Kessler LLP
-----------------------
* A management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 13(a) of Form 10-KSB.
+ Filed herewith.
^ The SEC granted Confidential Treatment for portions of this Exhibit.
# Confidential Treatment has been requested for portions of this Exhibit.
-37-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5 - F-7
Statement of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 - F-20
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Senesco Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Senesco
Technologies, Inc. and Subsidiary (a development stage company) as of June 30,
2002, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period then ended and
cumulative amounts from inception to June 30, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Senesco
Technologies, Inc. and Subsidiary as of June 30, 2002, and the results of their
operations and their cash flows for each of the two years in the period then
ended and cumulative amounts from inception to June 30, 2002 in conformity with
accounting principles generally accepted in the United States of America.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
August 13, 2002
F-2
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEET
-----------------------------------------------------------------------------------------------------------------------
JUNE 30, 2002
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 798,711
Short-term investments 2,872,432
Accounts receivable 75,000
Prepaid expenses and other current assets 55,772
-----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,801,915
Long-term Investments 993,535
Property and Equipment, at cost, net of accumulated depreciation and
amortization of $61,216 79,581
Intangibles 347,978
Deferred Income Tax Asset, net of valuation allowance of $2,227,000 -
Security Deposit 7,187
-----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,230,196
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 80,201
Accrued expenses 296,347
-----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 376,548
Grant Payable 67,972
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 444,520
-----------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' Equity:
Preferred stock - $0.01 par value; authorized 5,000,000 shares, no shares issued -
Common stock - $0.01 par value; authorized 20,000,000 shares, issued and
outstanding 11,880,045 shares 118,800
Capital in excess of par 12,157,679
Deferred compensation related to issuance of options and warrants (60,482)
Deficit accumulated during the development stage (7,430,321)
-----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 4,785,676
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,230,196
=======================================================================================================================
See Notes to Consolidated Financial Statements
F-3
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------------------------
Cumulative
Year ended June 30, Amounts from
2002 2001 Inception
-----------------------------------------------------------------------------------------------------------
Revenue $ 200,000 - $ 200,000
-----------------------------------------------------------------------------------------------------------
Operating expenses:
General and administrative 1,308,856 $ 1,339,883 5,027,777
Research and development 370,191 479,468 1,499,576
Noncash advertising, consulting and legal costs 635,186 151,720 1,361,258
-----------------------------------------------------------------------------------------------------------
Total operating expenses 2,314,233 1,971,071 7,888,611
-----------------------------------------------------------------------------------------------------------
Loss from operations (2,114,233) (1,971,071) (7,688,611)
Sale of state income tax loss 150,551 60,331 210,882
Interest income - net 24,263 33,749 47,408
-----------------------------------------------------------------------------------------------------------
Net loss $(1,939,419) $(1,876,991) $(7,430,321)
===========================================================================================================
Basic and diluted loss per common share $ (.20) $ (.24)
===========================================================================================================
Basic and diluted weighted-average number
of common shares outstanding 9,624,563 7,872,626
===========================================================================================================
See Notes to Consolidated Financial Statements
F-4
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JUNE 30, 1999, 2000, 2001 AND 2002
------------------------------------------------------------------------------------------------------------------------------------
Deferred
Deficit Compensation
Accumulated Related to Total
Common Stock Capital During the Issuance of Stockholders'
Number in Excess Development Options and Equity
of Shares Amount of Par Stage Warrants (Deficiency)
------------------------------------------------------------------------------------------------------------------------------------
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 for $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) - - -
Net loss - - - $(1,168,995) - (1,168,995)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 6,212,800 62,128 2,019,033 (1,168,995) - 912,166
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 for $2.867647
per share 17,436 174 49,826 - - 50,000
Issuance of common stock for cash on
January 31, 2000 for $2.87875
per share 34,737 347 99,653 - - 100,000
Issuance of common stock for cash on
February 4, 2000 for $2.924582
per share 85,191 852 249,148 - - 250,000
Issuance of common stock for cash on
March 15, 2000 for $2.527875
per share 51,428 514 129,486 - - 130,000
Issuance of common stock for cash on
June 22, 2000 for $1.50 per share 1,471,700 14,718 2,192,833 - - 2,207,551
(continued)
See Notes to Consolidated Financial Statements
F-5
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JUNE 30, 1999, 2000, 2001 AND 2002
------------------------------------------------------------------------------------------------------------------------------------
Deferred
Deficit Compensation
Accumulated Related to Total
Common Stock Capital During the Issuance of Stockholders'
Number in Excess Development Options and Equity
of Shares Amount of Par Stage Warrants (Deficiency)
------------------------------------------------------------------------------------------------------------------------------------
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2000 - - $ (260,595) - - $ (260,595)
Net loss - - - $(2,444,916) - (2,444,916)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 7,873,292 $ 78,733 5,234,468 (3,613,911) $ (180,732) 1,518,558
Fair market value of warrants
granted on October 2, 2000 - - 80,700 - - 80,700
Change in fair market value of
options and warrants granted - - 154,583 - (83,563) 71,020
Net loss - - - (1,876,991) - (1,876,991)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 7,873,292 78,733 5,469,751 (5,490,902) (264,295) (206,713)
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 warrants
granted on November 1, 2001 - - 138,714 - - 138,714
Issuance of common stock and
warrants for cash on November 30,
2001 at $1.75 per unit 1,142,858 11,429 1,988,571 - - 2,000,000
Fair market value of warrants
granted on December 1, 2001 - - 131,300 - - 131,300
Fair market value of options granted
on December l, 2001 in lieu of
payment of expenses - - 131,250 - - 131,250
Issuance of common stock and
warrants associated with bridge
loan conversion on December 3, 2001 305,323 3,053 531,263 - - 534,316
Issuance of common stock and
warrants for cash on December 26,
2001 at $1.75 per unit 665,714 6,657 1,158,343 - - 1,165,000
Fair market value of options vested
and extended on January 1, 2002 - - 94,146 - - 94,146
(continued)
See Notes to Consolidated Financial Statements
F-6
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JUNE 30, 1999, 2000, 2001 AND 2002
------------------------------------------------------------------------------------------------------------------------------------
Deferred
Deficit Compensation
Accumulated Related to Total
Common Stock Capital During the Issuance of Stockholders'
Number in Excess Development Options and Equity
of Shares Amount of Par Stage Warrants (Deficiency)
------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock and
warrants for cash on January 16,
2002 at $1.75 per unit 285,715 $ 2,858 $ 497,142 - - $ 500,000
Issuance of common stock and
warrants for cash on January 23,
2002 at $1.75 per unit 285,714 2,857 497,143 - - 500,000
Issuance of common stock and
warrants for cash on February 21,
2002 at $1.75 per unit 100,000 1,000 174,000 - - 175,000
Issuance of common stock and
warrants for cash on February 27,
2002 at $1.75 per unit 57,143 571 99,429 - - 100,000
Issuance of common stock and
warrants for cash on March 12,
2002 at $1.75 per unit 50,000 500 87,000 - - 87,500
Issuance of common stock and
warrants for cash on March 15,
2002 at $1.75 per unit 57,143 571 99,429 - - 100,000
Issuance of common stock and
warrants for cash on April 12,
2002 at $1.75 per unit 857,143 8,571 1,491,429 - - 1,500,000
Issuance of common stock and
warrants for cash on April 17,
2002 at $1.75 per unit 200,000 2,000 348,000 - - 350,000
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2002 - - (846,444) - - (846,444)
Fair value of options and warrants
vested and change in fair market
value of options and warrants granted - - (15,085) - $ 203,813 188,728
Net loss - - - $ (1,939,419) - (1,939,419)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 11,880,045 $118,800 $12,157,679 $ (7,430,321) $ (60,482) $ 4,785,676
===================================================================================================================================
See Notes to Consolidated Financial Statements
F-7
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------------------------------------
Cumulative
Year ended June 30, Amounts from
2002 2001 Inception
----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (1,939,419) $ (1,876,991) $ (7,430,321)
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 - 131,250
Issuance of common stock and warrants for interest 9,316 - 9,316
Issuance of stock options and warrants for services 635,186 151,720 1,361,258
Depreciation and amortization 24,356 24,161 71,233
(Increase) decrease in operating assets:
Accounts receivable (75,000) - (75,000)
Prepaid expenses and other current assets (40,218) (6,331) (55,772)
Security deposit - 3,676 (7,187)
Increase (decrease) in operating liabilities:
Accounts payable (88,721) 92,779 80,201
Accrued expenses 30,615 127,144 296,347
----------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,312,635) (1,483,842) (5,533,496)
----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Patent costs (190,058) (66,403) (357,995)
Purchase of investments, net (3,865,967) - (3,865,967)
Purchase of property and equipment (25,180) (26,408) (140,797)
----------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (4,081,205) (92,811) (4,364,759)
----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from grant 22,165 35,234 67,972
Proceeds from issuance of bridge notes 525,000 - 525,000
Proceeds from issuance of common stock and warrants 5,631,056 - 10,103,994
----------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 6,178,221 35,234 10,696,966
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 784,381 (1,541,419) 798,711
Cash and cash equivalents at beginning of period 14,330 1,555,749 -
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 798,711 $ 14,330 $ 798,711
==========================================================================================================
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 $ - $ 534,316
==========================================================================================================
See Notes to Consolidated Financial Statements
F-8
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. PRINCIPAL The accompanying consolidated financial statements include
BUSINESS the accounts of Senesco Technologies, Inc. ("ST") and its
ACTIVITY AND wholly owned subsidiary, Senesco, Inc. ("SI") (collectively,
SUMMARY OF the "Company"). All significant intercompany accounts and
SIGNIFICANT transactions have been eliminated in consolidation.
ACCOUNTING
POLICIES: The Company is a development stage functional genomics
company whose mission is to enhance the quality and
productivity of fruits, flowers, vegetables and agronomic
crops through the control of aging in plants (senescence).
The Company has also commenced research into the
applicability of its technology as it relates to cell death
in mammals (apoptosis).
SI, a New Jersey corporation, was incorporated on November
24, 1998 and is the successor entity to Senesco, L.L.C., a
New Jersey limited liability company, which was formed on
June 25, 1998 but commenced operations on July 1, 1998. This
transfer was accounted for at historical cost in a manner
similar to a pooling of interests with the recording of net
assets acquired at their historical book value.
On January 21, 1999, Nava Leisure USA, Inc. ("Nava"), an
Idaho corporation and the predecessor registrant to the
Company, effected a one-for-three reverse stock-split,
restating the number of shares of common stock outstanding
from 3,000,025 to 1,000,321. In addition, the number of
authorized common stock was decreased from 50,000,000
shares, $.0005 par value, to 16,666,667 shares, $.0015 par
value (the "Common Stock").
On January 22, 1999, Nava consummated a merger (the
"Merger") with SI. Nava issued 1,700,000 shares of Common
Stock, on a post-split basis, for all of the outstanding
capital stock of SI. Pursuant to the Merger, the
stockholders of SI acquired majority control of Nava, and
the name of Nava was changed to Senesco Technologies, Inc.
and SI remained a wholly owned subsidiary of ST. For
accounting purposes, the Merger has been treated as a
recapitalization of the Company with SI as the acquirer (a
reverse acquisition).
On September 30, 1999, the board of directors of the Company
approved the reincorporation of the Company solely for the
purpose of changing its state of incorporation from Idaho to
Delaware. In order to facilitate such reincorporation, the
Company, an Idaho corporation, on September 30, 1999, merged
with and into the newly formed Senesco Technologies, Inc., a
Delaware corporation.
Cash equivalents consist of investments which are readily
convertible into cash with original maturities of three
months or less. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally
insured limits. The Company believes that there is no
significant credit risk with respect to these accounts.
The Company's investments consist of United States treasury
notes and highgrade corporate and federal governmental
agency debt instruments. Based on the Company's intentions
regarding these instruments, the Company has classified all
marketable debt securities and long-term debt investments as
held-to-maturity and has accounted for these investments at
amortized cost.
F-9
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Marketable securities maturing in one year or less are
classified as current assets.
Depreciation of property and equipment is provided for by
the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the
lesser of the assets' useful lives or the remaining term of
the lease.
Intangible assets consist of costs related to acquiring
patents, which will be amortized when the patents are
issued.
The Company assesses the impairment in value of intangible
assets whenever events or circumstances indicate that their
carrying value may not be recoverable. Factors the Company
considers important which could trigger an impairment review
include the following:
o significant negative industry trends
o significant underutilization of the assets
o significant changes in how the Company uses the assets or
its plans for its use.
If the Company's review determines that the future
undiscounted cash flows related to these assets will not be
sufficient to recover their carrying value, the Company will
reduce the carrying values of these assets down to its
estimate of fair market value and continue amortizing them
over their remaining useful lives.
Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted rates expected to apply when the differences are
expected to be realized.
The Company recognizes revenue from development and progress
payments in connection with license and development
agreements when persuasive evidence of an arrangement
exists; the fee is fixed and determinable; delivery has
occurred or milestones have been achieved; and
collectability is reasonably assured.
Research and development expenses are charged to operations
when incurred.
The Company measures stock-based compensation cost using APB
Opinion No. 25 as is permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation.
Loss per common share is computed by dividing the loss by
the weighted-average number of common shares outstanding
during the period. Shares to be issued upon the exercise of
the outstanding options and warrants are not included in the
computation of loss per share as their effect is
antidilutive.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates and
judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the
F-10
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
reporting period. The critical accounting policies that
require management's most significant estimate and judgment
are the assessment of the recoverability of intangible
assets and the valuation allowance on deferred tax assets.
Actual results experienced by the Company may differ from
management's estimates.
Management does not believe that any recently issued, but
yet effective, accounting standards if currently adopted
would have a material effect on the accompanying
consolidated financial statements.
2. INVESTMENTS: At June 30, 2002, the amortized cost basis, aggregate fair
value, gross unrealized gains (losses) and maturity by
majority security type were as follows:
Gross
Unrealized Aggregate Amortized
Gain (Loss) Fair Value Cost Basis
-------------------------------------------------------------------------------
Held-to-maturity securities:
Debt securities issued by United
States (maturing within one year) $ (2,630) $2,869,802 $2,872,432
Corporate debt securities (maturing
between one and two years) 4,887 998,422 993,535
-------------------------------------------------------------------------------
$ 2,257 $3,868,224 $3,865,967
===============================================================================
Realized gains and losses are determined based on the
specific-identification method.
3. PROPERTY AND Property and equipment, at cost, consists of the following:
EQUIPMENT:
Estimated
Useful Life
------------------------------------------------------------------------
Equipment $ 52,079 4 years
Leasehold improvements 23,733 5 years
Furniture and fixtures 64,985 7 years
------------------------------------------------------------------------
140,797
Accumulated depreciation and amortization (61,216)
------------------------------------------------------------------------
$ 79,581
========================================================================
Depreciation and amortization aggregated $24,356 and $18,264
for the years ended June 30, 2002 and 2001, respectively.
F-11
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. ACCRUED The following are included in accrued expenses at June 30,
EXPENSES: 2002:
Accrued payroll $ 87,918
Accrued stock exchange listing fees 51,500
Accrued research 49,542
Accrued accounting 45,000
Accrued patent costs 22,207
Accrued fees associated with issuances of common stock 20,398
Accrued legal 18,665
Other accrued expenses 1,117
------------------------------------------------------------------------
$ 296,347
========================================================================
5. RELATED PARTY During the year ended June 30, 1999, a director and
TRANSACTIONS: stockholder of the Company contributed capital aggregating
$85,179. This capital was used to pay expenses of the
Company.
During the year ended June 30, 2002, the Company issued
bridge notes to certain directors of the Company in the
aggregate principal amount of $525,000 (see Note 6).
6. STOCKHOLDERS' On May 21, 1999, the Company consummated a private placement
EQUITY: of 759,194 shares of its Common Stock for cash consideration
of $2,000,000 less costs of $4,018. Pursuant to the
Placement Agency Agreement, the Placement Agent was to
receive $140,000 in either cash or common stock, as defined.
The Placement Agent received 53,144 shares of common stock
valued at $2.63437 per share for its services. In connection
with the Private Placement, the Company also executed a
Common Stock Purchase Agreement with each purchaser of
Common Stock, dated as of May 11, 1999. Pursuant to the
Stock Purchase Agreement, the purchase price per share of
Common Stock was determined by taking 80% of the average
closing bid and ask prices of the Company's Common Stock
during the 20 trading days ending three days prior to the
closing date, as defined. The Stock Purchase Agreement also
provides for price protection whereby upon issuance or sale
by the Company of any additional Common Stock or Common
Stock equivalents within a period of 60 days following the
closing date, other than options or warrants currently
outstanding as of the date of the Stock Purchase Agreement,
for a consideration per share less than the purchase price
provided for in the Stock Purchase Agreement (the "Reduced
Purchase Price"), then the Company shall immediately issue
such additional shares of Common Stock to the purchaser
which each such purchaser's investment would have purchased
at the Reduced Purchase Price. In addition, the Company
entered into a Registration Rights Agreement with each
purchaser dated May 11, 1999. The Registration Rights
Agreement provides for, among other things, a demand
registration right beginning after January 22, 2000, as well
as piggy-back registration rights for a three-year period
from the closing date. Certain directors of the Company
participated in the Private Placement. Specifically, such
directors of the Company purchased, in the aggregate,
341,636 shares of Restricted Common Stock on the same terms
and conditions as all purchasers thereunder.
F-12
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
On September 29, 1999, the board of directors of the Company
approved and declared a 2-for-1 stock split (the "Stock
Split"). Stockholders of record as of the close of business
on October 8, 1999 received one additional share of the
Company's Common Stock for every one share of Common Stock
held on that date. The Stock Split became effective on the
NASD OTC Bulletin Board on October 25, 1999. All share and
per share amounts provided in the foregoing financial
statements and notes have been restated to reflect the Stock
Split as of September 29, 1999.
In December 1999, the Company initiated a private placement
of shares of its restricted Common Stock (the "December
Private Placement"). The Company did not engage a placement
agent for the sale of such securities. The Company issued an
aggregate of 188,792 shares of the Company's restricted
Common Stock for a net purchase price of $508,689 (which is
net of $21,311 in legal fees) in connection with the
December Private Placement. The Company also executed Common
Stock Purchase Agreements with each purchaser of Common
Stock. Pursuant to the Stock Purchase Agreements, the
purchase price per share of Common Stock was equal to 80% of
the average closing bid and ask prices of the Company's
Common Stock during the 20 trading days ending three days
prior to the Closing Date (as defined therein). In addition,
the Company entered into Registration Rights Agreements with
each purchaser. The Registration Rights Agreements provide
for, among other things, a demand registration right
beginning one year from the final Closing Date of the
December Private Placement, as well as piggy-back
registration rights for a three-year period from the Closing
Date. Certain directors of the Company participated in the
December Private Placement. Specifically, such directors of
the Company purchased, in the aggregate, 52,173 shares of
restricted Common Stock on the same terms and conditions as
all purchasers thereunder.
In June 2000, the Company consummated a private placement of
1,471,700 shares of Common Stock for cash consideration of
$2,207,551 less costs of $239,284. Pursuant to the Stock
Purchase Agreements, the purchase price per share of Common
Stock was equal to $1.50 per share. In addition, the Company
entered into Registration Rights Agreements with each
purchaser. The Registration Rights Agreements provide for,
among other things, a demand registration right beginning
nine months from the final Closing Date of the Placement, as
well as piggy-back registration rights for a three-year
period from the Closing Date. In addition, the Company has
caused its directors, officers and holders of more than 5%
of the outstanding shares of Common Stock of the Company to
enter into Lock-up Agreements for a period of nine months
from the Closing Date with the Placement Agent for the
benefit of the Purchasers. A director and officer of the
Company participated in this Private Placement.
Specifically, such director and officer of the Company
purchased, in the aggregate, 66,667 shares of Restricted
Common Stock on the same terms and conditions as all
purchasers hereunder.
In November 2001, the Company consummated a private
placement (the "Stanford Private Placement"), with Stanford
Venture Capital Holdings, Inc. ("Stanford") of 1,142,958
shares of Common Stock and warrants to purchase 1,000,000
shares of Common Stock for the aggregate cash consideration
of $2,000,000. Costs associated with the Stanford Private
Placement totaled $256,347. The Company did not engage a
placement agent for the sale of such
F-13
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
securities. Fifty percent (50%) of the warrants were issued
with an exercise price equal to $2.00 per share and fifty
percent (50%) of the warrants were issued with an exercise
price equal to $3.25 per share, with all such warrants
vesting on the date of grant. Pursuant to the Securities
Purchase Agreement, the purchase price of one unit, which
consisted of one share of Common Stock and a warrant to
purchase 0.875 shares of Common Stock, was equal to $1.75
per unit. In addition, the Company entered into a
Registration Rights Agreement with Stanford. The
Registration Rights Agreement provides, among other things,
that a shelf registration statement be filed on or before
June 30, 2002, as well as piggy-back registration rights for
a three-year period from the date of the agreement.
During the period from July 10, 2001 through November 5,
2001, the Company issued six unsecured bridge notes (the
"Notes") payable to certain directors of the Company in the
aggregate principal amount of $525,000. The Notes had an
annual interest rate equal to the prime rate on the date
that the Notes were issued (5.50% to 6.75%) and such
interest was payable upon maturity of the Notes. The Notes
and accrued interest were due on January 15, 2002. On
December 3, 2001, the directors converted the Notes and
accrued interest in the aggregate amount of $534,316 into
305,323 shares of Common Stock and warrants to purchase
267,158 shares of Common Stock on the same terms and
conditions as the Stanford Private Placement.
Also, in November 2001, the Company initiated a private
placement, as later amended in March 2002, to certain
accredited investors (the "Accredited Investor Private
Placement") for a minimum aggregate investment of $1,000,000
and a maximum aggregate investment of $4,000,000. For
investments of less than $1,500,000, the Accredited Investor
Private Placement offered units of one share of Common Stock
and a warrant to purchase 0.4375 shares of Common Stock at a
price equal to $1.75 per unit. For investments of $1,500,000
or greater, the Accredited Investor Private Placement
offered units of one share of Common Stock and a warrant to
purchase 0.875 shares of Common Stock at a price equal to
$1.75 per unit. Fifty percent (50%) of the warrants were
offered with an exercise price equal to $2.00 per share and
fifty percent (50%) of the warrants were offered with an
exercise price of $3.25 per share, with all such warrants
vesting on the date of grant. From December 26, 2001
through April 17, 2002, when the Company terminated the
offering, the Company entered into Securities Purchase
Agreements for the aggregate amount of 1,987,143 shares of
Common Stock and warrants to purchase 1,244,375 shares of
Common Stock for the aggregate cash consideration of
$3,477,500. Costs associated with these transactions totaled
$447,236. The Company did not engage a placement agent for
the sale of such securities. In addition, the Company
entered into Registration Rights Agreements with the
purchasers. The Registration Rights Agreements provide for,
among other things, piggy-back registration rights for a
three-year period from the date of each agreement.
In January 2002, the Company consummated another private
placement with Stanford for 571,429 shares of Common Stock
and warrants to purchase 500,000 shares of Common Stock for
the aggregate cash consideration of $1,000,000, on the same
terms and conditions as the initial Stanford Private
Placement. Costs associated with this transaction totaled
$142,861.
F-14
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In connection with the above private placements, on December
26, 2001 and March 15, 2002, the board of directors
unanimously approved the issuance of warrants to certain
entities to purchase an aggregate of 571,869 shares of
Common Stock on the same terms and conditions as the
warrants issued in the Accredited Investor Private Placement
and warrant for an additional 18,750 shares of Common Stock
at an exercise price equal to $2.00 per share.
Also in connection with the above private placements, in May
2002, the Company filed a registration statement with the
Securities and Exchange Commission (the "SEC") to register
all of its 8,102,642 shares of previously issued restricted
common stock and all of its 4,202,153 previously issued
warrants and options issued outside of the Company's 1998
Stock Incentive Plan. The registration statement was
declared effective by the SEC on June 28, 2002 and will
remain in effect, subject to the Company being in compliance
with all the applicable rules and regulations, until June
28, 2004.
In December 2001, a director and former executive officer of
the Company converted accrued consulting fees in the amount
of $131,250 into options to purchase shares of the Company's
Common Stock at an exercise price of $2.05 per share.
In 1999, the Company adopted the 1998 Stock Incentive Plan,
as amended (the "Plan"), which provides for the grant of
stock options and stock purchase rights to certain
designated employees and certain other persons performing
services for the Company, as designated by the board of
directors. Pursuant to the Plan, an aggregate of 2,000,000
shares of common stock have been reserved for issuance.
Stock option activity under the Plan is summarized as
follows:
Year ended June 30, 2002 2001
---------------------------------------------------------------------------------------
Weighted- Weighted-
average average
Exercise Exercise
Shares Price Shares Price
----------------------------------------------------------------------------------------
Options outstanding at beginning of year 450,000 $ 3.40 432,000 $ 3.56
Granted 1,181,000 2.46 60,000 2.25
Expired (15,000) 3.50 (42,000) 3.43
----------------------------------------------------------------------------------------
Options outstanding at end of year 1,616,000 $ 2.63 450,000 $ 3.40
========================================================================================
Options exercisable at end of year 1,095,666 $ 2.80 374,666 $ 3.47
========================================================================================
Weighted-average fair value of options
granted during the year 2,369,714 $ 2.46 60,000 $ 2.25
========================================================================================
F-15
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following table summarizes information about stock
options outstanding at June 30, 2002:
Options Outstanding Options Exercisable
------------------------ -------------------------
Weighted-
average Weighted- Weighted-
Number Remaining average Number average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices June 30, 2002 Life (Years) Price June 30, 2002 Price
---------------------------------------------------------------------------------------
$1.50 - $4.00 1,616,000 8.46 $2.63 1,095,666 $2.80
=======================================================================================
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Options to
purchase common stock have been granted at or above the fair
market value of the stock on the date of grant. Accordingly,
no compensation cost has been recognized for the stock
option plans. Had compensation cost been determined based on
the fair value at the grant dates for those awards
consistent with the method of FASB No. 123, the Company's
net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
Year ended June 30, 2002 2001
------------------------------------------------------------
Net loss:
As reported $(1,939,419) $(1,876,991)
============================================================
Pro forma $(2,972,019) $(2,009,235)
============================================================
Loss per share:
As reported $ (.20) $ (.24)
============================================================
Pro forma $ (.31) $ (.26)
============================================================
The estimated grant date present value reflected in the
above table is determined using the Black-Scholes model. The
material factors incorporated in the Black-Scholes model in
estimating the value of the options reflected in the above
table for the years ended June 30, 2002 and 2001 include the
following: (i) an exercise price equal to the fair market
value of the underlying stock on the dates of grant; (ii) an
option term of 5 and 10 years; (iii) a risk-free rate range
of 4.24% to 5.18% and 5.46% to 5.73%, respectively, that
represents the interest rate on a U.S. Treasury security
with a maturity date corresponding to that of the option
term; (iv) volatility of 147.83%; and (v) no annualized
dividends paid with respect to a share of Common Stock at
tine date of grant. The ultimate values of the options will
depend on the future price of the Company's Common Stock,
which cannot be forecast with reasonable accuracy.
On September 7, 1999, the Company granted to its patent
counsel, as partial consideration for services rendered,
options to purchase 10,000 shares of the Company's Common
Stock at an exercise price equal to $3.50 per share, with
F-16
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3,332 options vesting on the date of grant, 3,334 options
vesting on the first anniversary of the date of grant, and
3,334 options vesting on the second anniversary of the date
of grant. Such options were granted outside of the Company's
Plan.
As of June 30, 2002, the Company had warrants outstanding
for the purchase of 4,192,153 shares of Common Stock.
Information on outstanding warrants is as follows:
Exercise Price Warrants
------------------------------------------------------------
$ 3.50 280,000
3.25 1,791,703
3.19 30,000
2.15 110,000
2.00 1,810,450
1.50 100,000
1.00 50,000
0.01 20,000
------------------------------------------------------------
4,192,153
============================================================
For the years ended June 30, 2002 and 2001, the Company
incurred a compensation charge of $635,186 and $151,720,
respectively, relating to the above warrants. As of June 30,
2002, 4,075,486 of the above warrants are exercisable.
The Company uses the Black-Scholes model to determine the
compensation charge relating to the above warrants. The
material factors used in the Black-Scholes model include the
following: (i) an exercise price equal to or below the fair
market value of the underlying stock on the dates of grant;
(ii) an option term of 5 and 10 years; (iii) a risk-free
rate range of 4.24% to 5.15% and 5.12% to 5.9%,
respectively, that represents the interest rate on a U.S.
Treasury security with a maturity date corresponding to that
of the option term; (iv) volatility of 147.83%; and (v) no
annualized dividends paid with respect to a share of Common
Stock at the date of grant.
7. INCOME TAXES: The Company files a consolidated federal income tax return.
The subsidiary files separate state and local income tax
returns.
The reconciliation of the effective income tax rate to the
federal statutory rate is as follows:
Year ended June 30, 2002 2001
------------------------------------------------------------
Federal statutory rate (34)% (34)%
Increase in valuation allowance 34 34
------------------------------------------------------------
-0-% -0-%
============================================================
F-17
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
At June 30, 2002, the deferred income tax asset consists of
the following:
Deferred tax asset:
Net operating loss carryforward $ 2,227,000
Valuation allowance (2,227,000)
------------------------------------------------------------
Net deferred tax asset $ -0-
============================================================
In December 2001 and 2000, the Company sold its entire state
net operating losses for the years ended June 30, 2000 and
1999, and received net proceeds of $150,551 and $60,331,
respectively.
At June 30, 2002, the Company has federal and state net
operating loss carryforwards of approximately $5,690,000 and
$3,250,000, respectively, available to offset future taxable
income expiring on various dates through 2022.
8. COMMITMENTS: Effective September l, 1998, the Company entered into a
three-year research and development agreement with a
university that a stockholder of the Company is affiliated
with. Pursuant to the agreement, the university provides
research and development under the direction of the
stockholder and the Company. The agreement is renewable
annually by the Company which has the right of termination
upon 30 days' advance written notice. Effective September 1,
2001 and 2002, the Company extended the research and
development agreement for an additional one-year and
two-year period, respectively, in the amount of Can $433,700
and Can $1,092,800, respectively, or approximately U.S.
$285,000 and U.S. $720,000, respectively. Research and
development expense for the years ended June 30, 2002 and
2001 aggregated U.S. $254,347 and U.S. $348,987
respectively, and U.S. $1,072,964 for the cumulative period
through June 30, 2002.
Effective May 1, 1999, the Company entered into a consulting
agreement for research and development with such
stockholder. This agreement provides for monthly payments of
$3,000 through June 2004. The agreement shall be
automatically renewable for an additional three-year term,
unless either of the parties provides the other with written
notice within six months of the end of the term.
The Company has employment agreements with certain
employees, some of whom are also stockholders of the
Company. These agreements provide for a base compensation
and additional amounts, as defined. The agreements expire
between January 2003 and October 2004. Future base
compensation to be paid through October 2004 under the
agreements as of June 30, 2002 is $497,775.
F-18
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Effective May 18, 2001, the Company entered into a five-year
lease for office space. Rent is payable in monthly
installments of $2,838, subject to certain escalations.
Future minimum rent payments as of June 30, 2002 are as
follows:
Year ending June 30,
2003 $ 34,056
2004 34,056
2005 34,056
2006 28,380
------------------------------------------------------------
$130,548
============================================================
Rent expense charged to operations for the years ended June
30, 2002 and 2001 is $37,037 and $65,726, respectively.
9. JOINT VENTURE: On May 14, 1999, the Company entered into a joint venture
agreement ("Joint Venture") with an Israeli partnership that
is engaged in the worldwide marketing of genetically
engineered banana plants. The purpose of the Joint Venture
is to develop genetically altered banana plants which will
result in a longer shelf life banana. The Joint Venture is
owned 50% by the Company and 50% by the Israeli partnership.
For the period from inception on May 14, 1999 to June 30,
2002, the Joint Venture had no revenue. The Company's
portion of the Joint Venture's expenses approximated $41,000
and $69,000 for the years ended June 30, 2002 and 2001,
respectively, and is included in research and development
expenses.
In July 1999, the Joint Venture applied for and received a
conditional grant from the Israel - United States Binational
Research and Development Foundation (the "BIRD Foundation").
This agreement will allow the Joint Venture to receive
$340,000 over a four-year period. Grants received from the
BIRD Foundation will be paid back only upon the commercial
success of the Joint Venture's technology, as defined. The
Company has received a total of $67,972, of which $22,165
and $35,234 was received during the years ended June 30,
2002 and 2001, respectively, from the BIRD Foundation for
research and development expenses the Company has incurred
which are associated with research and development efforts
of the Joint Venture.
10. LICENSE AND In November 2001, the Company entered into a worldwide
DEVELOPMENT exclusive license with Harris Moran Seed Company (the
AGREEMENTS: "License") to commercialize the Company's technology in
lettuce and certain melons. In connection with the License,
the Company received an initial license fee of $125,000 in
November 2001. Upon the completion of certain marketing and
development benchmarks set forth in the License, the Company
will receive additional development payments in the
aggregate amount of $3,875,000 over a multiyear period along
with royalties upon commercial introduction.
F-19
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In June 2002, the Company entered into a three-year
exclusive worldwide development and option agreement with
ArborGen, LLC (the "Agreement") to develop the Company's
technology in certain species of trees. In July 2002, the
Company received an initial fee of $75,000. Upon the
completion of certain development benchmarks set forth in
the Agreement, the Company will receive an additional
$225,000 in periodic development payments over the term of
the Agreement. The Agreement also grants ArborGen, LLC an
option to acquire an exclusive worldwide license to
commercialize the Company's technology in various forestry
products.
F-20