SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File No. 0-22307
SENESCO TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 84-1368850
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
303 George Street, Suite 420, New Brunswick, NJ 08901
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(Address of Principal Executive Offices) (Zip Code)
(732) 296-8400
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(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
----- -----
State the number of shares outstanding of each of the Issuer's classes of
common stock, as of April 30, 2002:
Class Number of Shares
----- ----------------
Common Stock, $0.01 par value 11,880,045
Transitional Small Business Disclosure Format (check one):
Yes: No: X
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements............................................ 1
CONDENSED CONSOLIDATED BALANCE SHEET
as of March 31, 2002 (unaudited) and June 30, 2001................... 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002 and March 31, 2001,
For the Nine Months Ended March 31, 2002 and March 31, 2001, and
From Inception on July 1, 1998 through March 31, 2002 (unaudited).... 3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIENCY)
From Inception on July 1, 1998 through March 31, 2002 (unaudited).... 4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended March 31, 2002 and March 31, 2001, and
From Inception on July 1, 1998 through March 31, 2002 (unaudited).... 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)............................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Plan of Operation................................. 13
Liquidity and Capital Resources...................................... 21
Critical Accounting Policies......................................... 23
Results of Operations................................................ 23
PART II. OTHER INFORMATION.
Item 2. Changes in Securities and Use of Proceeds....................... 27
Item 5. Other Information............................................... 28
Item 6. Exhibits and Reports on Form 8-K................................ 29
SIGNATURES .............................................................. 30
- i -
PART I. FINANCIAL INFORMATION.
------------------------------
ITEM 1. FINANCIAL STATEMENTS.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. However, Senesco Technologies, Inc., a
Delaware corporation (the "Company"), and its wholly owned subsidiary, Senesco,
Inc., a New Jersey corporation ("Senesco"), believe that the disclosures are
adequate to assure that the information presented is not misleading in any
material respect.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.
-1-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
March 31, June 30,
2002 2001
----------- -----------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash............................................................ $ 3,487,024 $ 14,330
Prepaid expenses and other current assets....................... 10,230 15,554
----------- -----------
Total Current Assets........................................ 3,497,254 29,884
Property and equipment, net..................................... 75,296 78,757
Intangible assets, net.......................................... 277,275 157,920
Security deposit................................................ 7,187 7,187
----------- -----------
TOTAL ASSETS................................................ $ 3,857,012 $ 273,748
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
CURRENT LIABILITIES:
Accounts payable................................................ $ 81,317 $ 168,922
Accrued expenses................................................ 169,361 265,732
----------- -----------
Total Current Liabilities................................ 250,678 434,654
Grant payable................................................... 56,883 45,807
----------- -----------
TOTAL LIABILITIES........................................... 307,561 480,461
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, authorized 5,000,000 shares, $0.01 par value,
no shares issued.............................................. -- --
Common stock, authorized 20,000,000 shares, $0.01 par value,
10,822,902 and 7,873,292 shares issued and outstanding........ 108,229 78,726
Capital in excess of par........................................ 10,609,628 5,469,758
Deficit accumulated during the development stage................ (7,079,763) (5,490,902)
Deferred compensation related to issuance of options
and warrants................................................. (88,643) (264,295)
----------- -----------
Total Stockholders' Equity (Deficiency)....................... 3,549,451 (206,713)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY).................................................. $ 3,857,012 $ 273,748
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
-2-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(unaudited)
From Inception on
For the Three For the Three For the Nine For the Nine July 1, 1998
Months Ended Months Ended Months Ended Months Ended through
March 31, March 31, March 31, March 31, March 31,
2002 2001 2002 2001 2002
------------- ------------- ------------ ------------ -----------------
Revenue................................ $ -- $ -- $ 125,000 $ -- $ 125,000
----------- ----------- ----------- ----------- -----------
Operating Expenses:
General and administrative........... 300,400 293,202 976,528 1,035,529 4,695,449
Research and development............. 100,949 120,367 257,925 368,199 1,387,310
Non-cash charges for options and
warrants issued in exchange for
services............................. 94,146 40,350 635,186 151,720 1,361,258
----------- ----------- ----------- ----------- -----------
Total Operating Expenses............... 495,495 453,919 1,869,639 1,555,448 7,444,017
----------- ----------- ----------- ----------- -----------
Loss From Operations................... (495,495) (453,919) (1,744,639) (1,555,448) (7,319,017)
Sale of state income tax loss.......... -- -- 150,551 60,331 210,882
Interest income, net................... 12,675 5,031 5,227 32,551 28,372
----------- ----------- ----------- ----------- -----------
Net Loss............................... $ (482,820) $ (448,888) $(1,588,861) $(1,462,566) $(7,079,763)
=========== =========== =========== =========== ===========
Basic and Diluted Net Loss Per
Common Share........................... $ (0.05) $ (0.06) $ (0.18) $ (0.19)
=========== =========== =========== ===========
Basic and Diluted Weighted- Average
Number of Common
Shares Outstanding..................... 10,527,346 7,873,292 8,925,427 7,873,292
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED CONSOLIDATED STATEMENT OF
-----------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
---------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2002
-----------------------------------------------------
(unaudited)
Deferred
Deficit Compensation
Accumulated Related to the
Capital in During the Issuance of
Excess of Development Options and
Common Stock Par Value Stage Warrants Total
--------------------- ---------- ----------- -------------- -----------
Shares Amount
------ ------
Common stock outstanding........... 2,000,462 $ 20,005 $ (20,005) -- -- --
Contribution of capital............ -- -- 85,179 -- -- $ 85,179
Issuance of common stock in
reverse merger on January 22,
1999 at $0.01 per share............ 3,400,000 34,000 (34,000) -- -- --
Issuance of common stock for
cash on May 21, 1999 at
$2.63437 per share................. 759,194 7,592 1,988,390 -- -- 1,995,982
Issuance of common stock for
placement fees on May 21, 1999
at $0.01 per share................. 53,144 531 (531) -- -- --
Fair market value of options
and warrants granted on
September 7, 1999.................. -- -- 252,578 -- $ (72,132) 180,446
Fair market value of warrants
granted on October 1, 1999......... -- -- 171,400 -- (108,600) 62,800
Fair market value of warrants
granted on December 15, 1999....... -- -- 331,106 -- -- 331,106
Issuance of common stock for
cash on January 26, 2000 at
$2.867647 per share................ 17,436 174 49,826 -- -- 50,000
Issuance of common stock for
cash on January 31, 2000 at
$2.87875 per share................. 34,737 347 99,653 -- -- 100,000
Issuance of common stock for
cash on February 4, 2000 at
$2.934582 per share................ 85,191 852 249,148 -- -- 250,000
(continued)
See Notes to Condensed Consolidated Financial Statements.
-4-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENT OF
-----------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
---------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2002
-----------------------------------------------------
(unaudited)
Deferred
Deficit Compensation
Accumulated Related to the
Capital in During the Issuance of
Excess of Development Options and
Common Stock Par Value Stage Warrants Total
--------------------- ---------- ----------- -------------- -----------
Shares Amount
------ ------
Issuance of common stock for
cash on March 15, 2000 at
$2.527875 per share................ 51,428 $ 514 $ 129,486 -- -- $ 130,000
Issuance of common stock for
cash on June 22, 2000 for
$1.50 per share.................... 1,471,700 14,718 2,192,833 -- -- 2,207,551
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2000........... -- -- (260,595) -- -- (260,595)
Fair market value of warrants
granted on September 4, 2001....... -- -- 41,800 -- -- 41,800
Fair market value of warrants
granted on October 2, 2000......... -- -- 80,700 -- -- 80,700
Fair market value of warrants
granted on October 15, 2001........ -- -- 40,498 -- -- 40,498
Fair market value of options and
warrants granted on November 1,
2001............................... -- -- 138,714 -- -- 138,714
Issuance of common stock and
warrants for cash on November
30, 2001 at $1.75 per unit......... 1,142,858 11,429 1,988,571 -- -- 2,000,000
Fair market value of options
and warrants granted on
December 1, 2001................... -- -- 131,300 -- -- 131,300
Issuance of common stock and
warrants associated with
bridge loan conversion on
December 3, 2001................... 305,323 3,053 531,263 -- -- 534,316
(continued)
See Notes to Condensed Consolidated Financial Statements.
-5-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENT OF
-----------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
---------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2002
-----------------------------------------------------
(unaudited)
Deferred
Deficit Compensation
Accumulated Related to the
Capital in During the Issuance of
Excess of Development Options and
Common Stock Par Value Stage Warrants Total
--------------------- ---------- ----------- -------------- -----------
Shares Amount
------ ------
Fair market value of options
granted in lieu of payment of
accrued expenses on December 1,
2001............................... -- -- $ 131,250 -- -- $ 131,250
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
Issuance of common stock and
warrants for cash on January
23, 2002 at $1.75 per unit......... 571,429 5,715 994,285 -- -- 1,000,000
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
Fair market value of options
vested and extended on January
1, 2002............................ -- -- 94,146 -- -- 94,146
Commissions, legal and bank
fees associated with issuances
during the nine months ended
March 31, 2002..................... -- -- (583,227) -- -- (583,227)
Change in fair market value of
options and warrants granted....... -- -- 167,659 -- $ 92,089 259,748
Net loss........................... -- -- -- $(7,079,763) -- (7,079,763)
---------- -------- ----------- ----------- ---------- -----------
Balance at March 31, 2002... 10,822,902 $108,229 $10,609,628 $(7,079,763) $ (88,643) $ 3,549,451
========== ======== =========== =========== ========== ===========
See Notes to Condensed Consolidated Financial Statements.
-6-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(unaudited)
From Inception
For the Nine For the Nine on July 1, 1998
Months Ended Months Ended through
March 31, March 31, March 31,
2002 2001 2002
------------ ------------ ----------------
Cash flows from operating activities:
Net loss............................................. $ (1,588,861) $ (1,462,566) $ (7,079,763)
Adjustments to reconcile net loss
to net cash used in operating activities:
Non-cash capital contribution........................ -- -- 85,179
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........................ 17,056 17,855 63,933
(Increase) decrease in operating assets:
Prepaid expense and other current assets............. 5,324 (6,207) (10,230)
Security deposit..................................... -- (7,187) (7,187)
Increase (decrease) in operating liabilities:
Accounts payable..................................... (87,605) 94,810 81,317
Accrued expenses..................................... 34,879 15,218 300,611
------------ ------------ ------------
Net cash used in operating activities................ (974,705) (1,196,357) (5,195,566)
------------ ------------ ------------
Cash flows from investing activities:
Patent costs......................................... (119,355) (51,148) (287,292)
Purchase of property and equipment................... (13,595) (19,724) (129,212)
------------ ------------ ------------
Net cash used in investing activities................ (132,950) (70,872) (416,504)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from grant.................................. 11,076 35,234 56,883
Proceeds from issuance of bridge notes............... 525,000 -- 525,000
Proceeds from issuance of common stock, net.......... 4,044,273 -- 8,517,211
------------ ------------ ------------
Cash provided by financing activities................ 4,580,349 35,234 9,099,094
------------ ------------ ------------
Net increase (decrease) in cash...................... 3,472,694 (1,231,995) 3,487,024
Cash at beginning of period.......................... 14,330 1,555,749 --
------------ ------------ ------------
Cash at end of period................................ $ 3,487,024 $ 323,754 $ 3,487,024
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest............. $ -- $ -- $ 22,317
============ ============ ============
Non-cash conversion of bridge notes into
common stock......................................... $ 534,316 $ -- $ 534,316
============ ============ ============
Non-cash conversion of accrued expenses into
common stock......................................... $ 131,250 $ -- $ 131,250
============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
-7-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended June 30, 2001.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, consisting
solely of those which are of a normal recurring nature, necessary to present
fairly its financial position as of March 31, 2002 and as of June 30, 2001, the
results of its operations for the three-month periods ended March 31, 2002 and
2001, the results of its operations and cash flows for the nine-month periods
ended March 31, 2002 and 2001 and for the period from inception on July 1, 1998
through March 31, 2002.
Interim results are not necessarily indicative of results for the full
fiscal year.
Senesco 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 senescence (aging) in plants.
Agricultural results to date include longer shelf life of perishable produce,
increased seed and biomass yield and greater tolerance to environmental stress.
The Company has also commenced research into the applicability of its technology
as it relates to cell death in mammals (apoptosis).
NOTE 2 - LOSS PER SHARE:
Net loss per common share is computed by dividing the loss by the
weighted-average number of common shares outstanding during the period. Since
September 7, 1999, the Company has had outstanding options and warrants to
purchase its common stock, $0.01 par value per share (the "Common Stock");
however, shares to be issued upon the exercise of options and warrants are not
included in the computation of diluted loss per share as the effect is
anti-dilutive.
-8-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 3 - SIGNIFICANT EVENTS:
Employment Agreement
On October 4, 2001, the Company hired Bruce C. Galton as its new President
and Chief Executive Officer. In conjunction with Mr. Galton's appointment, the
Company entered into a three-year employment agreement with Mr. Galton,
effective October 4, 2001. The agreement shall automatically renew for
successive one-year terms thereafter, unless written notice of termination is
provided at least 120 days prior to the end of the applicable term. The
agreement provides Mr. Galton with an annual base salary of $200,000 plus
certain benefits, including potential bonuses, equity awards and other
perquisites as determined by the Board of Directors. The agreement also provides
that Mr. Galton is entitled to a lump sum payment of 1.5 times his base annual
salary if his employment with the Company is terminated without cause or with
good reason (as defined within the agreement). If Mr. Galton's employment with
the Company is terminated pursuant to a change in control (as defined within the
agreement), he is entitled to receive the difference between the monies actually
received upon termination and 1.5 times his annual base salary.
Stock Incentive Plan, Option Grants and Additional Warrant Grants
On October 4, 2001, the Board of Directors of the Company approved an
amendment to the Company's 1998 Stock Incentive Plan, as amended (the "Plan"),
to increase the maximum number of shares of Common Stock available for issuance
under the Plan from 1,000,000 shares to 2,000,000 shares. Stockholder approval
for the increase was obtained at the Company's Annual Meeting of Stockholders
held on November 29, 2001.
On October 4, 2001, the Board of Directors unanimously approved and the
Company subsequently issued: (i) options under the Plan to purchase an aggregate
of 1,116,000 shares of Common Stock with a weighted-average exercise price of
$2.38 per share; and (ii) warrants to purchase an aggregate of an additional
180,000 shares of Common Stock with a weighted-average exercise price of $1.59
per share. The effective dates of the above grants were from October 2, 2001
through December 1, 2001.
On December 1, 2001, the Company granted, pursuant to the Plan, to Ruedi
Stalder, the Company's former Chief Executive Officer, options to purchase
65,000 shares of Common Stock with an exercise price of $2.05 per share. Such
options were granted to Mr. Stalder in lieu of receiving cash compensation in
the amount of $131,250 for services provided as an officer of the Company during
the period from January 1, 2000 through September 30, 2001.
-9-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
License Agreement
In November 2001, the Company entered into a worldwide exclusive license
with Harris Moran Seed Company (the "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 a total of $4,000,000 in development payments
over a multi-year period along with royalties upon commercial introduction.
New Jersey Economic Development Authority
In November 2001, pursuant to the New Jersey Technology Tax Credit Transfer
Program (the "Program"), the Company received approval from the New Jersey
Economic Development Authority (the "EDA") to sell the Company's New Jersey net
operating loss tax benefit in the amount of $174,325 for the fiscal year ended
June 30, 2000. In December 2001, the Company sold its entire New Jersey net
operating loss tax benefit and received net proceeds of $150,551. The Company
may apply to participate in the Program to sell its New Jersey net operating
loss tax benefit in the amount of approximately $151,000 for the fiscal year
ended June 30, 2001. An application must be submitted to the EDA by June 30,
2002. However, there can be no assurance that the Company will be approved to
participate in the Program for the year ended June 30, 2001 or if approved, that
the Company will be able to sell all or part of its New Jersey net operating
loss tax benefit.
Financings
On November 30, 2001, the Company consummated a private placement (the
"Stanford Private Placement") with Stanford Venture Capital Holdings, Inc.
("Stanford"), of 1,142,858 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
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.
-10-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
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 on March 15, 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 equal to $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
approximately $385,438. The Company did not engage a placement agent for the
sale of such securities. In addition, the Company entered into Registration
Rights Agreements with these 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.
In connection with the above private placements, on December 26, 2001 and
March 15, 2002, as consideration for finders and consulting fees, 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 warrants for an additional 18,750 shares of Common Stock at an exercise
price equal to $2.00 per share.
-11-
NOTE 4 - SUBSEQUENT EVENT:
In April 2002, the Company issued 1,057,143 shares of Common Stock and
warrants to purchase 837,500 shares of Common Stock as part of the Accredited
Investor Private Placement. The Company received proceeds of $1,665,000, net of
expenses of $185,000. The following pro forma condensed consolidated balance
sheet, which is being presented at the request of a national stock exchange in
connection with the Company's application for listing on such exchange, reflects
the transaction as if it had taken place as of March 31, 2002.
Actual Pro Forma
March 31, March 31,
2002 Adjustments 2002
------------ ------------ ------------
(unaudited) (unaudited)
ASSETS
------
CURRENT ASSETS:
Cash................................................................... $ 3,487,024 $ 1,665,000 $ 5,152,024
Prepaid expenses and other current assets.............................. 10,230 10,230
------------ ------------ ------------
Total Current Assets.............................................. 3,497,254 1,665,000 5,162,254
Property and equipment, net............................................ 75,296 75,296
Intangible assets, net................................................. 277,275 277,275
Security deposit....................................................... 7,187 7,187
------------ ------------ ------------
TOTAL ASSETS...................................................... $ 3,857,012 $ 1,665,000 $ 5,522,012
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable....................................................... $ 81,317 $ 81,317
Accrued expenses....................................................... 169,361 169,361
------------ ------------
Total Current Liabilities....................................... 250,678 250,678
Grant payable.......................................................... 56,883 56,883
------------ ------------
TOTAL LIABILITIES................................................. 307,561 307,561
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock........................................................... 108,229 $ 10,651 118,880
Capital in excess of par............................................... 10,609,628 1,654,349 12,263,977
Deficit accumulated during the development stage....................... (7,079,763) (7,079,763)
Deferred compensation related to issuance of options and warrants...... (88,643) (88,643)
------------ ------------ ------------
Total Stockholders' Equity....................................... 3,549,451 1,665,000 5,214,451
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $ 3,857,012 $ 1,665,000 $ 5,522,012
============ ============ ============
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION.
OVERVIEW
Business of the Company
The primary business of Senesco Technologies, Inc., a Delaware corporation
(the "Company"), and its wholly-owned subsidiary, Senesco, Inc., a New Jersey
corporation ("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). The Company's technology goals for plant
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 in plant tissues is the natural aging of these 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 and increase resistance to environmental stress, thereby
demonstrating "proof of concept" in each category of crop. In addition to the
Harris Moran License Agreement (as defined below), the Company plans to license
this technology to additional strategic partners and/or enter into joint
ventures.
-13-
The Company is currently working with lettuce, melon, tomato, canola,
Arabidopsis (a model plant which produces oil in a manner similar to canola) and
banana plants, 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 six types of plants; and (ii)
further propagation of transformed plants with the Company's silenced genes.
Additionally, the Company has isolated the DHS and Factor 5A genes in mammalian
tissue. 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.
Subsequent initiatives include: (i) expanding the lipase, DHS and Factor 5A
gene technology into a variety of other commercially viable agricultural crops
such as lettuce and melon; (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
mammalian tissue through the accumulation of additional experimental data. The
Company's strategy focuses on various plants to allow flexibility that will
accommodate different plant reproduction strategies among the various sectors of
the broad agricultural and horticultural markets. There can be no assurance,
however, that the Company's research and development efforts will be successful,
or if successful, that the Company will be able to commercially exploit its
technology.
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. Additional research and development is performed in connection with
the Harris Moran License Agreement as well as through the Company's Joint
Venture (as defined below) with Rahan Meristem Ltd. in Israel.
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 license
with Harris Moran Seed Company (the "Harris Moran License Agreement" or
"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 a
total of $4,000,000 in development payments over a multi-year period along with
royalties upon commercial introduction.
-14-
Agricultural Marketing
Based upon the Company's multi-faceted commercialization strategy, it
anticipates that there may be a significant period of time before plants
enhanced using its technology reach consumers. Thus, the Company has not begun
to actively market its technology directly to consumers, but rather, it has
sought to establish itself within the industry through its advertising program
in trade journals, newspapers, a national magazine, as well as through its
website and direct communication with prospective licensees.
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 (plant aging) for the
purpose of developing, on a joint basis, genetically enhanced banana plants
which will result in a "longer shelf-life" banana. Rahan has contributed its
technology, inventions and know-how with respect to banana plants. The Joint
Venture is equally owned by each of the parties. There can be no assurance,
however, that the Joint Venture will be successful, or if successful, that the
Company will be able to commercially exploit its technology.
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 BIRD Foundation by the Joint Venture. As of March 31, 2002,
Senesco has directly received a total of $56,883, none of which was received
during the current quarter, 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. As of March 31, 2002, the
Company's portion of the Joint Venture's aggregate expenses totaled
approximately $193,500, $11,500 of which was incurred during the current
quarter.
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.
-15-
Consistent with the Company's commercialization strategy, it intends to
attract other companies interested in strategic partnerships or licensing its
technology. The Harris Moran License Agreement and the Joint Venture with Rahan
are steps toward the execution of its strategy. The Company also plans to enter
into joint ventures with companies having well-established channels of
distribution and, in such cases, the Company will have more direct control over
commercialization activities. However, there can be no assurance that the
Company will be able to successfully implement its commercialization strategy.
INTELLECTUAL PROPERTY
Research and Development
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 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 April 30, 2002. Senesco
entered into a three-year research and development agreement, dated as of
September 1, 1998 (the "Research and Development Agreement"), with the
University of Waterloo and Dr. Thompson as the principal inventor. The Research
and Development Agreement provides that the University of Waterloo will perform
research and development under the direction of Senesco, and Senesco will pay
for the cost of this work and make certain payments totaling approximately CDN
$1,250,000 (as specified therein), which represented payments of approximately
US $835,000. In return for these payments, the Company has all rights to the
intellectual property derived from the research. Effective September 1, 2001,
the Company extended the Research and Development Agreement for an additional
one-year period in the amount of CDN $433,700. As of March 31, 2002, such amount
represented approximately US $272,000. During the three month periods ended
March 31, 2002 and March 31, 2001, the Company has spent approximately $68,038
and $91,768, respectively, in connection with the Research and Development
Agreement. During the nine month periods ended March 31, 2002 and March 31,
2001, the Company has spent approximately $158,225 and $229,510, respectively,
in connection with the Research and Development Agreement.
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 to Dr. Thompson through June 2004. The
agreement shall automatically renew 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 aim to extend
shelf-life and to confer other positive traits on fruits, flowers, vegetables
and agronomic row crops and on the commencement of additional mammalian cell
research. 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
-16-
lettuce, melon, corn, forestry products and the other species noted in (ii)
through (v); (ii) the development of enhanced banana plants through the Joint
Venture with Rahan; (iii) the development of enhanced lettuce and melon plants
through the Harris Moran License Agreement; (iv) 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 (v) assessing the function of
the DHS and Factor 5A genes in mammalian tissue. The Company may further expand
its research and development initiative 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
-17-
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.
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 has 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 is in the process of drafting various patent applications to
protect intellectual property stemming from the Company's senescence and
apoptosis technology. To date, the Company has drafted and filed two
applications, in addition to those listed above, which pertain to the possible
mammalian applicability of the technology. One is focused on suppressing cell
death as a prospective therapy for a wide range of diseases and the other
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 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.
Market Competition and Industry 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.
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, among others: Paradigm
Genetics; Aventis Crop Science; Mendel Biotechnology; Bionova Holding
Corporation; Renessen LLC; Exelixis Plant Sciences, Inc.; and Eden Bioscience.
-18-
Some of the Company's competitors in the field of apoptosis research
include, among others: Cell Pathways, Inc.; Trevigen, Inc.; Idun
Pharmaceuticals; Novartis and Oncogene.
The Company believes that its proprietary technology is unique and,
therefore, places it 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.
Government Regulation
At present, the U.S. federal government regulation of biotechnology is
divided among three agencies: (i) the U.S. Department of Agriculture 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 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 or
its licensees may be subject to additional regulations or require such licensing
or approval in the future.
Employees
In addition to the scientists performing funded research for the Company at
the University of Waterloo, as of March 31, 2002, the Company had five employees
and one consultant, four of whom were executive officers and were 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
-19-
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 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 Agreement, 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 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 Quarterly Report on Form 10-QSB 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 successful implementation of the Joint Venture with Rahan, the
success of the Research and Development Agreement, 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 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.
-20-
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of March 31, 2002, the Company's cash balance was $3,487,024, and the
Company had working capital of $3,246,576. As of March 31, 2001, the Company had
a federal tax loss carry-forward of approximately $5,250,000 and a state tax
loss carry-forward of approximately $2,800,000 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, if at all, in future
fiscal years.
Financing Needs
To date, the Company has not generated any significant revenues. 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 in the near future, the
Company may enter into additional licensing or other agreements with marketing
and distribution partners that may result in license fees, revenues from
contract research, or other related revenue.
The Company expects its capital requirements to increase significantly over
the next several years as it commences new research and development efforts and
increases its marketing and in-house business capabilities. 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 marketing efforts.
BIRD Grant
In October 2001, the Company received $11,076 from the BIRD Foundation for
research and development expenses that the Company has incurred in connection
with the Joint Venture. The Company anticipates receiving additional funds from
the BIRD Grant in the future to assist in funding its Joint Venture, subject to
the Joint Venture achieving its stated research and development objectives.
License Agreement
In November 2001, the Company entered into a worldwide exclusive licensing
agreement with Harris Moran Seed Company 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 as set forth in the
License, the Company will receive a total of $4,000,000 in development payments
over a multi-year period along with royalties upon commercial introduction.
-21-
New Jersey Economic Development Authority
In November 2001, pursuant to the New Jersey Technology Tax Credit Transfer
Program (the "Program"), the Company received approval from the New Jersey
Economic Development Authority (the "EDA") to sell the Company's New Jersey net
operating loss tax benefit in the amount of $174,325 for the fiscal year ended
June 30, 2000. In December 2001, the Company sold its entire New Jersey net
operating loss tax benefit and received net proceeds of $150,551. The Company
may apply to participate in the Program to sell its New Jersey net operating
loss tax benefit in the amount of approximately $151,000 for the fiscal year
ended June 30, 2001. An application must be submitted to the EDA by June 30,
2002. However, there can be no assurance that the Company will be approved to
participate in the Program for the year ended June 30, 2001 or if approved, that
the Company will be able to sell all or part of its New Jersey net operating
loss tax benefit.
Financings
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.
On November 30, 2001, the Company consummated a private placement (the
"Stanford Private Placement") with Stanford Venture Capital Holdings, Inc.
("Stanford"), of 1,142,858 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. 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 January 2002, the Company consummated an additional issuance under the
Stanford Private Placement 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. 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.
Also, in November 2001, the Company initiated a private placement, as later
amended on March 15, 2002 (the "Accredited Investor Private Placement"), to
certain accredited investors 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
-22-
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. 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
approximately $385,438.
The Company anticipates that its cash and cash equivalents as of March 31,
2002 will be sufficient to fund current working capital needs and capital
requirements for at least the next twelve months. However, the Company may
require additional funds in the future to continue the development and
subsequent commercialization of its technology. There can be no assurance that
additional financing will be available, if at all, on terms acceptable to the
Company.
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.
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 reported period.
The Company believes that no significant estimates have been made in
connection with the preparation of these financial statements which, if changed,
would have a material adverse effect on the Company's financial condition and/or
results of operations.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and Three Months Ended March 31, 2001
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The Company is a development stage company. During the three month periods
ended March 31, 2002 and March 31, 2001, the Company had no revenue.
Operating expenses in each of the three month periods ended March 31, 2002
and March 31, 2001 were comprised of general and administrative expenses,
research and development expenses and non-cash advertising, consulting and
professional costs. Operating expenses for
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the three month periods ended March 31, 2002 and March 31, 2001 were $495,495
and $453,919, respectively, an increase of $41,576, or 9.2%.
General and administrative expenses in each of the three month periods
ended March 31, 2002 and March 31, 2001 consisted primarily of employee salaries
and benefits, professional and consulting services, office rent and investor
relations expenses. General and administrative expenses for the three month
periods ended March 31, 2002 and March 31, 2001 were $300,400 and $293,202,
respectively. The increase during the three month period ended March 31, 2002 of
$7,198, or 2.5%, from the corresponding three month period ended March 31, 2001,
resulted primarily from increases in payroll, investor relations expenses and
legal and accounting fees, which were mostly offset by decreases in consulting
fees and rent expense.
Research and development expenses in each of the three month periods ended
March 31, 2002 and March 31, 2001 consisted primarily of professional salaries
and benefits, fees associated with the Research and Development Agreement,
direct expenses charged to research and development projects and allocated
overhead charged to research and development projects. Research and development
expenses for the three month periods ended March 31, 2002 and March 31, 2001
were $100,949 and $120,367, respectively. The decrease during the three month
period ended March 31, 2002 of $19,418, or 16.1%, from the corresponding three
month period ended March 31, 2001, resulted primarily from a more favorable
foreign exchange rate between the US dollar and the Canadian dollar during the
three month period ended March 31, 2002 and a reconciling adjustment for the
period from June 1, 2000 through August 31, 2001 in connection with the Research
and Development Agreement with the University of Waterloo. During the three
month period ended March 31, 2001, the University of Waterloo overcharged the
Company approximately $11,000. Had this overpayment not occurred, research and
development expenses for the three month periods ended March 31, 2002 and March
31, 2001 would have been $100,949 and $109,367, respectively. Additionally, due
to a change in personnel of the Scientific Advisory Board, the Company also
incurred lower fees for the Scientific Advisory Board during the transition
period through February 28, 2002, which were partially offset by an increase in
research related travel costs.
Non-cash charges for options and warrants issued in exchange for services
for the three month periods ended March 31, 2002 and March 31, 2001 were $94,146
and $40,350, respectively. Such costs consisted primarily of non-employee stock
options and warrants granted as consideration for certain consulting and
professional services. The increase during the three month period ended March
31, 2002 of $53,796, or 133.3%, from the corresponding three month period ended
March 31, 2001, resulted primarily from the vesting of options that related to
consulting services previously rendered.
Nine Months Ended March 31, 2002 and Nine Months Ended March 31, 2001
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The Company is a development stage company. From its inception of
operations on July 1, 1998 through September 30, 2001, the Company had no
revenue. For the nine months ended March 31, 2002, the Company had total revenue
of $125,000. Revenue for the nine month period ended March 31, 2002 consisted of
the initial license fee in connection with the Harris Moran License Agreement.
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Operating expenses in each of the nine month periods ended March 31, 2002
and March 31, 2001 were comprised of general and administrative expenses,
research and development expenses and non-cash advertising, consulting and
professional costs. Operating expenses for the nine month periods ended March
31, 2002 and March 31, 2002 were $1,869,639 and $1,555,448, respectively, an
increase of $314,191, or 20.2%.
General and administrative expenses in each of the nine month periods ended
March 31, 2002 and March 31, 2001 consisted primarily of employee salaries and
benefits, professional and consulting services, recruiting fees, office rent and
investor relations expenses. General and administrative expenses for the nine
month periods ended March 31, 2002 and March 31, 2001 were $976,528 and
$1,035,529, respectively. The decrease during the nine month period ended March
31, 2002 of $59,001, or 5.7%, from the corresponding nine month period ended
March 31, 2001, resulted primarily from decreases in consulting fees, accounting
fees and office rent, which were partially offset by an increase in payroll,
legal fees, investor relations expenses and recruiting fees.
Research and development expenses in each of the nine month periods ended
March 31, 2002 and March 31, 2001 consisted primarily of professional salaries
and benefits, fees associated with the Research and Development Agreement,
direct expenses charged to research and development projects and allocated
overhead charged to research and development projects. Research and development
expenses for the nine month periods ended March 31, 2002 and March 31, 2001 were
$257,925 and $368,199, respectively. The decrease during the nine month period
ended March 31, 2002 of $110,274, or 29.9%, from the corresponding nine month
period ended March 31, 2001, resulted primarily from a reconciling adjustment
for the period from June 1, 2000 through August 31, 2001 in connection with the
Research and Development Agreement with the University of Waterloo. During the
nine month period ended March 31, 2001, the University of Waterloo overcharged
the Company approximately $33,000. During the nine month period ended March 31,
2002, the University of Waterloo credited the Company for $41,000, which
represented the overpayment for the entire year ended June 30, 2001. Had this
overpayment not occurred, research and development expenses for the nine month
periods ended March 31, 2002 and March 31, 2001 would have been $298,925 and
$335,199 respectively. Additionally, due to a change in personnel of the
Scientific Advisory Board, the Company also incurred lower fees for the
Scientific Advisory Board during the transition period through February 28, 2002
and a reduction in the amount of research fees paid in connection with the
Company's carnation project, which was completed during the year ended June 30,
2001.
Non-cash charges for options and warrants issued in exchange for services
for the nine month periods ended March 31, 2002 and March 31, 2001 were $635,186
and $151,720, respectively. Such costs consisted primarily of non-employee stock
options and warrants granted as consideration for certain advertising,
consulting and professional services. The increase during the nine month period
ended March 31, 2002 of $483,466, or 318.7%, from the corresponding nine month
period ended March 31, 2001, resulted primarily from the issuance of options and
warrants and the vesting of previously issued options and warrants for
advertising, consulting and professional services from July 1, 2001 through
December 31, 2001.
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Period From Inception on July 1, 1998 through March 31, 2002
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The Company is a development stage company. From its inception of
operations on July 1, 1998 through September 30, 2001, the Company had no
revenues. For the nine months ended March 31, 2002, the Company had revenue of
$125,000, which consisted of the initial license fee in connection with the
Harris Moran License Agreement.
The Company has incurred losses each year since inception and has an
accumulated deficit of $7,079,763 at March 31, 2002. The Company expects to
continue to incur losses over, approximately, the next two to three years from
expenditures on research, product development, marketing and administrative
activities.
The Company does not expect to generate significant revenues in the near
future, during which time the Company will engage in significant research and
development efforts. In November 2001, the Company entered into the Harris Moran
License Agreement to commercialize the Company's technology in lettuce and
various melons. The License provides that, upon completion of certain marketing
and development benchmarks, the Company will receive a total of $4,000,000 in
development payments over a multi-year period along with royalty payments to the
Company upon commercial introduction. 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.
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PART II. OTHER INFORMATION.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Financings
On January 16, 2002, the Company consummated an additional issuance under
the Stanford Private Placement of 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.
Pursuant to the Accredited Investor Private Placement, from February 21,
2002 through April 17, 2002 the Company issued an aggregate of 1,321,429 shares
of Common Stock and warrants to purchase and aggregate of 953,125 shares of
Common Stock to six accredited investors for cash consideration in the aggregate
amount of $2,213,500 as follows:
Warrants to
Shares of purchase shares
Common of Common Cash
Date Stock Stock Consideration
----------------- ----------- --------------- -------------
February 21, 2002 100,000 43,750 $ 175,000
February 27, 2002 57,143 25,000 100,000
March 12, 2002 50,000 21,875 87,500
March 15, 2002 57,143 25,000 100,000
April 12, 2002 857,143 750,000 1,500,000
April 17, 2002 200,000 87,500 350,000
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Total: 1,321,429 953,125 $2,312,500
In addition, the Company entered into Registration Rights Agreements with
these 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.
On April 17, 2002, the Company closed the Accredited Investor Private
Placement.
Warrant Grants to Non-Affiliates
As consideration for finders and consulting fees in connection with the
private placements, on March 15, 2002, the Company issued warrants to certain
entities to purchase an aggregate of 18,750 shares of Common Stock with an
exercise price equal to $2.00 per share, and on April 17, 2002, the Company
issued warrants for an additional 71,869 shares of Common Stock on the same
terms and conditions as the warrants issued in the Accredited Investor Private
Placement.
No underwriter was employed by the Company in connection with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing securities was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving a public
offering. Each of the recipients acquired the securities for investment purposes
only and not with a view to distribution and had adequate information about the
Company.
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ITEM 5. OTHER INFORMATION.
Board of Directors
On February 22, 2002, the Company's Board of Directors increased the size
of the Board from five members to six members. In conjunction with this
increase, the Board appointed David Rector to fill the newly created vacancy and
to serve as a Director of the Company and a member of the Company's audit
committee until Mr. Rector or his successor is duly elected and qualified at the
Company's next annual meeting of stockholders.
Investor Relations
Effective April 22, 2002 (the "Effective Date"), the Company entered into
an agreement with Lippert/Heilshorn & Associates, Inc. to provide financial
communications services from the Effective Date through April 30, 2003. The
agreement provides for a monthly fee of $10,000 plus reimbursement of certain
expenses.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4.1 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).
4.2 Form of Warrant issued to certain accredited investors (with attached
schedule of parties and terms thereto).
4.3 Form of Warrant issued to Pond Equities, Inc. (with attached schedule
of parties and terms thereto).
4.4 Form of Warrant issued to Perrin, Holden & Davenport Capital Corp. and
certain principals thereof (with attached schedule of parties and
terms thereto).
10.1 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).
10.2 Form of Securities Purchase Agreement by and between the Company and
certain accredited investors (with attached schedule of parties and
terms thereto).
10.3 Form of Registration Rights Agreement by and between the Company and
Stanford Venture Capital Holdings, Inc. (Incorporated by reference to
Exhibit 10.5 of the Company's quarterly report on Form 10-QSB for the
period ended December 31, 2001).
10.4 Form of Registration Rights Agreement by and between the Company and
each of certain accredited investors (with attached schedule of
parties and terms thereto).
10.5 Agreement for Service on the Company's Scientific Advisory Board by
and between the Company and Dr. Russell A. Jones, dated February 12,
2002.
10.6 Agreement for Service on the Company's Scientific Advisory Board by
and between the Company and Dr. Charles A. Dinarello, dated February
12, 2002.
10.7 Letter Agreement, dated March 25, 2002, made by and between the
Company and Perrin, Holden & Davenport Capital Corp.
10.8 Letter Agreement, dated March 6, 2002, made by and between the
Company and Pond Equities, Inc.
10.9 Letter Agreement, dated April 18, 2002, made by and between the
Company and Lippert/Heilshorn & Associates, Inc.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SENESCO TECHNOLOGIES, INC.
DATE: May 9, 2002 By: /s/ Bruce C. Galton
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Bruce C. Galton, President
and Chief Executive Officer
(Principal Executive Officer)
DATE: May 9, 2002 By: /s/ Joel Brooks
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Joel Brooks, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)