UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended June 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File No. 001-31326
SENESCO TECHNOLOGIES, INC.
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(Name of Small Business Issuer as Specified in Its Charter)
Delaware 84-1368850
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
303 George Street, Suite 420, New Brunswick, New Jersey 08901
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(Address of Principal Executive Offices) (Zip Code)
(732) 296-8400
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(Issuer'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, $0.01 par value American Stock Exchange
per share.
Securities registered under Section 12(g) of the Exchange Act:
None.
Check whether the issuer: (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 issuer's revenues for fiscal year ended June 30, 2003: $10,000
State the aggregate market value of the voting common stock held by
non-affiliates of the Registrant: $24,974,321 at September 19, 2003 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, 2003:
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 2003 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Report.
TABLE OF CONTENTS
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Item Page
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PART I 1. Business........................................................1
2. Properties.....................................................19
3. Legal Proceedings..............................................19
4. Submission of Matters to a Vote of Security Holders............19
PART II 5. Market for Our Common Equity and Related Stockholder
Matters........................................................20
6. Management's Discussion and Analysis or Plan of Operation......21
7. Financial Statements...........................................27
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................27
8A. Controls and Procedures........................................27
PART III 9. Directors and Executive Officers...............................28
10. Executive Compensation.........................................28
11. Security Ownership of Certain Beneficial Owners and
Management.....................................................28
12. Certain Relationships and Related Transactions.................28
13. Exhibits, List and Reports on Form 8-K.........................28
14. Principal Accountant Fees and Services.........................28
SIGNATURES...................................................................29
EXHIBIT INDEX................................................................31
FINANCIAL STATEMENTS........................................................F-1
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PART I
ITEM 1. BUSINESS.
BUSINESS OF THE COMPANY
OUR BUSINESS
The primary business of Senesco Technologies, Inc., a Delaware corporation
incorporated in 1999, and its wholly-owned subsidiary, Senesco, Inc., a New
Jersey corporation incorporated in 1998, collectively referred to as "Senesco,"
"we," "us" or "our," is the research, development and commercial exploitation of
a potentially significant platform technology involving the identification and
characterization of genes that we believe control the programmed cell death of
plant cells, also known as senescence, and mammalian cells, also known as
apoptosis.
AGRICULTURAL APPLICATIONS
Our technology goals for agricultural applications are to: (i) extend the
shelf life of perishable plant products; (ii) produce larger and leafier crops;
(iii) increase 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, or
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. We have shown that the additional energy gained during
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. We have also shown that this
reduction in premature senescence leads to larger plants, with increased
biomass, and more leafy crops. Most recently, we have demonstrated that reducing
premature senescence results in crops which exhibit increased resilience to
water deprivation and salt stress. Drought and salt 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 primarily on reducing
ethylene biosynthesis, and hence only has application to the limited number of
plants that are ethylene-sensitive. Our research focuses on the discovery and
development of certain gene technologies, which are designed to confer positive
traits on fruits, flowers, vegetables, forestry species and agronomic crops. To
date, we have isolated and characterized the senescence-induced lipase gene,
deoxyhypusine synthase, or DHS, gene and Factor 5A gene in certain species of
plants. Our 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. We have licensed this
technology to various strategic
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partners and have entered into a joint venture, and we intend to continue to
license this technology to additional strategic partners and/or enter into
additional joint ventures.
We are currently working with lettuce, melon, tomato, canola, Arabidopsis
(a model plant that produces oil in a manner similar to canola), banana, alfalfa
and certain species of trees, and have obtained proof of concept for the lipase,
DHS and Factor 5A genes in several of these plants. Also, we have initiated
field trials of lettuce and bananas with our respective partners. These field
trials have shown that our technology effectively reduces browning in cut
lettuce and extend the shelf life of banana fruit by 100%. Near-term research
and development initiatives include: (i) silencing or reducing the expression of
DHS and Factor 5A genes in these plants; and (ii) propagation and testing of
plants with our silenced genes. We have also completed our research and
development initiative in carnation flower, which yielded a 100% increase in
shelf life through the inhibition of the DHS reaction.
HUMAN HEALTH APPLICATIONS
Inhibiting Apoptosis
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We have also isolated the DHS and programmed cell death Factor 5A genes in
mammalian tissue. Our preliminary research reveals that DHS and Factor 5A genes
regulate apoptosis in animal and human cells. The mammalian apoptosis isoforms
of the DHS and Factor 5A genes were first isolated from rat ovarian tissue,
specifically the corpus luteum, 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 three 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. We believe
that our technology has potential application as a means of controlling a broad
range of diseases that are attributable to premature apoptosis. Apoptotic
diseases include neurodegenerative diseases, such as Alzheimer's disease and
Parkinson's disease, retinal diseases, such as glaucoma and macular
degeneration, heart disease, stroke and rheumatoid arthritis. We have commenced
pre-clinical research on heart tissue samples from both ischemic and
non-ischemic patients with heart disease and have found that Factor 5A is
significantly upregulated in ischemic heart tissue. Ischemia is the restriction
of blood supply to the heart that can result in heart attacks and damage to
heart tissue. We have also found that upregulation of Factor 5A correlates to
upregulation of two key inflammatory cytokines, Interleukin-1 and
Interleukin-18, which are pro-inflammatory molecules and are indicated in
numerous apoptopic diseases. In addition, we have initiated cell-line studies
for applications of our technology to glaucoma and surface ocular diseases and
on liver cell-lines.
Factor 5A appears to control expression of the suite of proteins required
for apoptosis. Such proteins include p53, interleukins, caspases, and tumor
necrosis factor (TNF-alpha). Expression of these cell death proteins is required
for the execution of apoptosis. We have found
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that blocking Factor 5A by treatment with siRNA, or antisense oligoneucleotides,
inhibits the expression of p53, a major cell death transcription factor that in
turn controls the formation of a suite of other cell death proteins. In
addition, down-regulation of Factor 5A up-regulates Bcl-2, a major suppressor of
apoptosis. Blocking Factor 5A also reduces the number of cells undergoing
apoptosis.
Accelerating Apoptosis
----------------------
Conversely, we have also established in pre-clinical studies that our
apoptosis Factor 5A gene is able to kill cancer cells. Tumors arise when cells
that have been targeted to undergo apoptosis are unable to do so because of an
inability to activate the apoptotic pathways. When our 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, virtually all cells
expressing the Factor 5A gene underwent apoptosis. 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 of apoptosis Factor 5A up
regulates p53, an important tumor suppressor gene that promotes 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 initiation point of the
apoptotic pathways, we believe that our gene technology has potential
application as a means of combating a broad range of cancers and have initiated
studies with invivo cancer models to determine Factor 5A's ability to shrink
human tumors grafted onto mice.
AGRICULTURAL TARGET MARKETS
Our 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 market, we have adopted a
multi-faceted commercialization strategy, in which we plan to enter into
licensing agreements or other strategic relationships with a variety of
companies or other entities on a crop-by-crop basis.
In November 2001, we entered into a worldwide exclusive development and
license agreement, referred to herein as the Harris Moran License, with Harris
Moran Seed Company to commercialize our technology in lettuce and certain melons
for an indefinite term, unless terminated by either party pursuant to the terms
of the agreement. To date, the development steps performed by Harris Moran and
us have all been completed on schedule in accordance with the protocol set forth
in the Harris Moran License. There has been extensive characterization of our
genes in lettuce in a 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 necessary to develop a commercial product. Harris Moran has
undertaken additional field trials of our technology in 2003.
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In June 2002, we entered into a three-year worldwide exclusive development
and option agreement, referred to herein as the ArborGen Agreement, with
ArborGen, LLC to develop our technology in certain species of trees. The
ArborGen Agreement also grants ArborGen an option to acquire an exclusive
worldwide license to commercialize our technology in various other forestry
products.
In September 2002, we entered into an exclusive development and license
agreement, referred to herein as the Cal/West License, with Cal/West Seeds to
commercialize our 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 our technology in various other forage crops.
In October 2002, we entered into a non-exclusive sales representative
agreement to market and promote our technology in the People's Republic of
China. Under the terms of the agreement, we will pay a commission to the sales
representative based on a percentage of the gross license fees we receive. With
the assistance of the sales representative, in November 2002, we executed a
non-binding letter of intent with the Tianjin Academy of Agricultural Sciences
for the exclusive use of our technology in a variety of fruit and vegetable
crops in China. We have held discussions with representatives of the Academy as
well as government representatives from the city of Tianjin and from a central
government department of China. We have also initiated discussions with two
Chinese biotechnology companies. Such a company would be necessary to secure the
financing for the proposed agreement with the Academy and to commercialize the
seeds developed with our technology under the proposed license. Due to the size
and scope of the proposed agreement and the complexities of doing business in
China, and in light of the recent SARS health crisis that occured in China, we
anticipate that our ongoing discussions will continue over the course of the
next several months.
HUMAN HEALTH TARGET MARKETS
We believe that our 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, rheumatoid
arthritis, retinal diseases such as glaucoma and macular degeneration, and
neurodegenerative diseases such as Alzheimer's disease and Parkinson's disease.
Accelerating apoptosis may be useful in treating certain forms of cancer because
the body's immune system is not able to force cancerous cells to undergo
apoptosis.
COMPETITION
Competitors that are presently attempting to distribute their technology
have generally utilized one of the following distribution channels: (i)
licensing technology to major marketing and distribution partners; (ii) entering
into strategic alliances; or (iii) developing in-house production and marketing
capabilities. In addition, some competitors are owned by established
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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Our 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; Bayer
Crop Science; Mendel Biotechnology; Renessen LLC; Exelixis Plant Sciences, Inc.;
PlantGenix, Inc.; Syngenta International AG; and Eden Bioscience.
Companies working in the field of apoptosis research include, among others:
OSI Pharmaceuticals, Inc.; Idun Pharmaceuticals; Novartis; Introgen
Therapeutics, Inc.; Genta, Inc.; and Vertex Pharmaceuticals, Inc.
MARKETING PROGRAM
We presently license our technology to agricultural companies capable of
incorporating our technology into crops grown for commercial agriculture. We
anticipate revenues from these relationships in the form of licensing fees and
royalties from our partners. In addition, we anticipate payments from our
partners upon our achievement of certain research and development benchmarks.
This commercialization strategy allows us to generate revenues at various stages
of product development, while ensuring that our technology is incorporated into
a wide variety of crops. Our optimal partners combine the technological know-how
to incorporate our technology into their product line along with the ability to
successfully market the enhanced final product, thereby eliminating the need for
us to develop and maintain a sales force. Based upon our commercialization
strategy, we anticipate that there may be a significant period of time before
plants enhanced using our technology reach consumers. Thus, we have not begun to
actively market our technology directly to consumers, but rather, we have sought
to establish ourselves within the industry through presentations at industry
conferences, our website and direct communication with prospective licensees.
RESEARCH PROGRAM
Our subsequent research and development initiatives include: (i) further
developing the DHS and Factor 5A gene technology in lettuce, melon and banana,
and implementing the technology in a variety of other commercially important
agricultural crops such as tomato, alfalfa and trees; (ii) testing the resultant
crops for new beneficial traits such as increased yield and increased tolerance
to environmental stress; and (iii) assessing the role of the DHS and Factor 5A
genes in human diseases through the accumulation of additional data from
pre-clinical experiments with cell lines, mammalian tissue and animal models.
Our strategy for agriculture 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.
Our research and development is performed by third party researchers at our
direction, pursuant to various research and license agreements. The primary
research and development effort takes place at the University of Waterloo in
Ontario, Canada, where the technology was developed, and at the University of
Colorado. Additional research and development is performed by our partners in
connection with the Harris Moran License, the ArborGen Agreement, the Cal/West
License and the Anawah Agreement, as well as through the joint venture with
Rahan Meristem Ltd. in Israel.
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JOINT VENTURE
On May 14, 1999, we entered into a joint venture agreement with Rahan
Meristem Ltd., referred to herein as Rahan Meristem, an Israeli company engaged
in the worldwide export marketing of banana germ-plasm, referred to herein as
the Rahan Joint Venture. Rahan Meristem accounts for approximately 10% of the
worldwide export of banana seedlings. We have contributed, by way of a limited,
exclusive, worldwide license to the Rahan Joint Venture, access to our
technology, discoveries, inventions and know-how, whether 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 Meristem has contributed its technology, inventions and
know-how with respect to banana plants. Rahan Meristem and Senesco equally own
the Rahan Joint Venture.
The Rahan Joint Venture applied for and received a conditional grant that
totals approximately $340,000, which constitutes 50% of the Rahan Joint
Venture's research and development budget over the four-year period, ending on
May 31, 2003, from the Israel - U.S. Binational Research and Development
Foundation, or BIRD Foundation, referred to herein as the BIRD Grant. Such
grant, along with certain royalty payments, shall only be repaid to the BIRD
Foundation upon the commercial success of the Rahan Joint Venture's technology.
The commercial success is measured based upon certain benchmarks and/or
milestones achieved by the Rahan Joint Venture. The Rahan Joint Venture reports
these benchmarks periodically to the BIRD Foundation.
All aspects of the Rahan 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 Rahan Joint Venture. Both the DHS and lipase genes
have been identified and isolated in banana, and the Rahan Joint Venture is
currently in the process of silencing these genes. The resultant plants are
being tested in field trials to assess extended shelf life of banana fruit and
enhanced tolerance to environmental stress. The trials indicated that Senesco's
proprietary technology extends the shelf life of the banana fruit up to 100%,
while allowing the banana fruit to ripen normally.
Consistent with our commercialization strategy, we intend to attract other
companies interested in strategic partnerships, joint ventures or licensing our
technology. The Harris Moran License, the ArborGen Agreement, the Cal/West
License and the Rahan Joint Venture are the first successes toward the execution
of our strategy.
INTELLECTUAL PROPERTY
Research and Development
------------------------
The inventor of our 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 our Executive Vice President of Research and
Development. Dr. Thompson is also one of our directors and owns 4.8% of the
outstanding shares of our common stock, $0.01 par value, as of June 30, 2003. On
September 1, 1998, we entered into, and subsequently have extended, a research
and development agreement with the University of Waterloo and Dr.
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Thompson as the principal inventor, referred to herein as the First Research and
Development Agreement. The First Research and Development Agreement is currently
set to expire on August 31, 2004. Also, effective May 1, 2002, we entered into
another research and development agreement, for a period of one year, with the
University of Waterloo and Dr. Thompson, referred to herein as 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 our direction, and we 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, we have all rights to the
intellectual property derived from the research.
Effective May 1, 1999, we entered into a consulting agreement for research
and development with Dr. Thompson. On July 1, 2001, we renewed the consulting
agreement with Dr. Thompson for an additional three-year term as provided for
under the terms and conditions of the agreement. 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 prior to the
end of the term.
In September 2002, we entered into an exclusive worldwide collaboration
agreement, referred to herein as the Anawah Agreement, with Anawah, Inc.
(formerly Tilligen, Inc.) to establish a research alliance to develop and
commercialize certain genetically enhanced species of produce. Under the Anawah
Agreement, Anawah will license its proprietary technology to us and will also
perform certain transformation functions in order to develop seeds in certain
species of produce that have been enhanced with our technology. The Anawah
Agreement 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.
For the fiscal year ended June 30, 2003, approximately 40% of our research
and development expenses were incurred on mammalian research applications. Since
our inception, the proportion of research and development expenses on mammalian
applications has increased, as compared to plant applications. This change is
primarily due to the fact that our research focus on mammalian applications has
increased and some of our research costs for plant applications have shifted to
our research partners.
Our future research and development program focuses on the discovery and
development of certain 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 our mammalian research programs. Over the next twelve
months, we plan to continue the following research and development initiatives:
(i) the development of plants that possess new beneficial traits, such as
protection against drought, with emphasis on lettuce, melon, corn, forestry
products, alfalfa and the other species described below with several entities,
including Anawah; (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, canola seed and melon plants, among others, at the University
of Waterloo; (vi) the
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development of enhanced banana plants through the Rahan Joint Venture; (vii) the
transformation of seed enhanced with our technology; and (viii) assessing the
function of the DHS and Factor 5A genes in human diseases at the University of
Waterloo and the University of Colorado. We may further expand our research and
development program beyond the initiatives listed above.
Patent and Patent Applications
------------------------------
On March 25, 2003, we were granted Patent No. 6,538,182, entitled "DNA
Encoding a Plant Deoxyhypusine Synthase, A Plant Eukaryotic Initiation Factor
5A, Transgenic Plants and A Method For Controlling Senescence and Programmed
Cell Death in Plants", from the United States Patent and Trademark Office, or
PTO. This patent represents successful prosecution of some of the claims set
forth in the Second Patent Application, as defined below. Further divisional
applications which cover other claims from the Second Patent Application are
currently being reviewed by the PTO.
We have three major families of patent applications in process domestically
and internationally. The first family of applications is based on the
application entitled "DNA Encoding a Plant Lipase, Transgenic Plants and a
Method for Controlling Senescence in Plants", referred to herein as the First
Patent Application, which was filed in February 1999. The second family of
applications is based on the application entitled "DNA Encoding A Plant
Deoxyhypusine Synthase, Transgenic Plants and a Method for Controlling Cell
Death in Plants", referred to herein as the Second Patent Application, which was
filed in July 1999. We have filed several new Continuations in Part and
Divisional Patent Applications on both the First Patent Application and the
Second Patent Application to protect our intellectual property pertaining to new
technological developments. We have also filed one additional application,
referred to herein as the Third Patent Application, followed by a substantial
Continuation in Part, in addition to those listed above, which pertain to the
possible mammalian applicability of our technology. The Third Patent Application
is focused on suppressing cell death as a prospective therapy for a wide range
of diseases and the Continuation in Part focuses on accelerating cell death as a
means of treating cancer. We have filed a second Continuation in Part on the
Third Patent Application based on data we gathered in studies of ischemic heart
tissue. We have also filed a third Continuation in Part on the Third Patent
Application based on data which correlates cytokine expression to Factor 5A. We
intend to continue our strategy of enhancing these new patent applications
through the addition of data as it is collected.
We have broadened the scope of our intellectual property protection by
utilizing the Patent Cooperation Treaty to facilitate international filing and
prosecution of the Patent Applications. The First Patent Application was
published through the Patent Cooperation Treaty 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 we have opted to file that have yet to issue a filing date. The Patent
Cooperation Treaty published the Second Patent Application in January 2001.
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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 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.
We believe that our current activities, which to date have been confined to
research and development efforts, do not require licensing or approval by any
governmental regulatory agency. However, we, or our licensees, may be required
to obtain such licensing or approval from governmental regulatory agencies prior
to the commercialization of our genetically transformed plants and mammalian
technology.
EMPLOYEES
In addition to the scientists performing funded research for us at the
University of Waterloo and the University of Colorado, as of June 30, 2003 and
currently, we have four employees and one consultant, four of whom are executive
officers and are involved in our management. We may hire additional employees
over the next twelve months to meet the needs created by possible expansion of
our operations.
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. In addition to his service on the Scientific Advisory
Board, we utilize Dr. Bennett as a consultant experienced in plant
transformation. Charles A. Dinarello, M.D., who serves as a member of the
Scientific Advisory Board, 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 serves as a member of the Scientific Advisory Board, 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.
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Furthermore, pursuant to the Research and Development Agreements, the
majority of our research and development activities are conducted at the
University of Waterloo under the supervision of Dr. Thompson. We utilize the
University's substantial research staff including graduate and post-graduate
researchers.
We have also undertaken pre-clinical 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. We may also contract research to additional university
laboratories or to other companies in order to advance the development of our
technology.
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, our
statements regarding the anticipated growth in the markets for our technologies,
the continued advancement of our research, the approval of our 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 our commercialization strategy, including the
success of the Harris Moran License, the ArborGen Agreement, the Cal/West
License, the Anawah Agreement and the Research and Development Agreements, the
successful implementation of the Rahan Joint Venture, the conversion of the
letter of intent with the Tianjin Academy of Agricultural Sciences into an
executed agreement, statements relating to our Patent Applications, the
anticipated longer term growth of our 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
our control. The factors discussed herein and expressed from time to time in our
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 we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
-10-
FACTORS THAT MAY AFFECT OUR BUSINESS, FUTURE OPERATING RESULTS AND FINANCIAL
CONDITION
The more prominent risks and uncertainties inherent in our business are
described below. However, additional risks and uncertainties may also impair our
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations may suffer.
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED SUBSTANTIAL LOSSES AND
EXPECT FUTURE LOSSES.
We are a developmental stage biotechnology company with a limited operating
history and limited assets and capital. We have incurred losses each year since
inception and have an accumulated deficit of $9,496,659 at June 30, 2003. We
have generated minimal revenues by licensing certain of our technology to
companies willing to share in our development costs. However, our technology may
not be ready for widespread commercialization for several years. We expect to
continue to incur losses over the next two to three years because we anticipate
that our expenditures on research and development, commercialization and
administrative activities will significantly exceed our revenues during that
period. We cannot predict when, if ever, we will become profitable.
WE DEPEND ON A SINGLE PRINCIPAL TECHNOLOGY.
Our primary business is the development and commercial exploitation of
technology to identify, isolate, characterize and silence genes which control
the aging and death of cells in plants and mammals. Our future revenue and
profitability critically depend upon our ability to successfully develop
senescence and apoptosis gene technology and later market and license such
technology at a profit. We have conducted experiments on certain crops with
favorable results and have conducted certain preliminary cell-line experiments,
which have provided us with data upon which we have designed additional research
programs. However, we cannot give any assurance that our technology will be
commercially successful or economically viable for all crops or mammalian
applications.
In addition, no assurance can be given that adverse consequences might not
result from the use of our technology such as the development of negative
effects on plants or mammals or reduced benefits in terms of crop yield or
protection. Our failure to obtain market acceptance of our technology or to
successfully commercialize such technology or develop a commercially viable
product would have a material adverse effect on our business.
WE OUTSOURCE ALL OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES.
We rely on third parties to perform all of our research and development
activities. Our primary research and development efforts take place at the
University of Waterloo in Ontario, Canada, where our technology was developed,
at the University of Colorado, at Anawah, Inc., formerly known as Tilligen,
Inc., and with our commercial partners. At this time, we do not have the
internal capabilities to perform our research and development activities.
Accordingly, the failure of third-party research partners, such as the
University of Waterloo, to perform under agreements entered into with us, or our
failure to renew important research agreements with these third parties, would
have a material adverse effect on our ability to develop and exploit our
technology.
-11-
WE HAVE SIGNIFICANT FUTURE CAPITAL NEEDS.
As of June 30, 2003, we had cash and highly-liquid investments valued at
$2,419,225 and working capital of $2,285,464. We believe that we can operate
according to our current business plan for at least twelve months using our
available reserves. To date, we have generated minimal revenues and anticipate
that our operating costs will exceed any revenues generated over the next
several years. Therefore, we anticipate that we will be required to raise
additional capital in the future in order to operate according to our current
business plan. We may require additional funding in less than twelve months, and
additional funding may not be available on favorable terms, if at all. In
addition, in connection with such funding, if we need to issue more equity
securities than our certificate of incorporation currently authorizes, or more
than 20% of the shares of our common stock outstanding, we may need stockholder
approval. If stockholder approval is not obtained or if adequate funds are not
available, we may be required to curtail operations significantly or to obtain
funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products or potential markets. Investors may experience dilution in
their investment from future offerings of our common stock. For example, if we
raise additional capital by issuing equity securities, such an issuance would
reduce the percentage ownership of existing stockholders. In addition, assuming
the exercise of all options and warrants granted, as of June 30, 2003, we had
12,041,802 shares of common stock authorized but unissued, which may be issued
from time to time by our board of directors without stockholder approval.
Furthermore, we may need to issue securities that have rights, preferences and
privileges senior to our common stock. Failure to obtain financing on acceptable
terms would have a material adverse effect on our liquidity.
Since inception, we have financed all of our operations through private
equity financings. Our future capital requirements depend on numerous factors,
including:
o the scope of our research and development;
o our ability to attract business partners willing to share in our
development costs;
o our ability to successfully commercialize our technology;
o competing technological and market developments;
o our ability to enter into collaborative arrangements for the
development, regulatory approval and commercialization of other
products; and
o the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights.
OUR BUSINESS DEPENDS ON OUR PATENTS, LICENSES AND PROPRIETARY RIGHTS AND THE
ENFORCEMENT OF THESE RIGHTS.
As a result of the substantial length of time and expense associated with
developing products and bringing them to the marketplace in the agricultural and
biotechnology industries, obtaining and maintaining patent and trade secret
protection for technologies, products and processes is of vital importance. Our
success will depend in part on several factors, including, without limitation:
o our ability to obtain patent protection for technologies, products and
processes;
o our ability to preserve trade secrets; and
o our ability to operate without infringing the proprietary rights of
other parties both in the United States and in foreign countries.
-12-
We have been issued one patent by the PTO. We have also filed patent
applications in the United States for our technology, which technology is vital
to our primary business, as well as several Continuations in Part on these
patent applications. Our success depends in part upon the enforcement of our
patent rights and whether patents are granted for our pending patent
applications.
Furthermore, although we believe that our technology is unique and will not
violate or infringe upon the proprietary rights of any third party, there can be
no assurance that such claims will not be made or if made, could be successfully
defended against. If we do not obtain and maintain patent protection, we may
face increased competition in the United States and internationally, which would
have a material adverse effect on our business.
Since patent applications in the United States are maintained in secrecy
until patents are issued, and since publication of discoveries in the scientific
and patent literature tend to lag behind actual discoveries by several months,
we cannot be certain that we were the first creator of the inventions covered by
our pending patent applications or that we were the first to file patent
applications for these inventions.
In addition, among other things, we cannot guarantee that:
o our patent applications will result in the issuance of patents;
o any patents issued or licensed to us will be free from challenge and
that if challenged, would be held to be valid;
o any patents issued or licensed to us will provide commercially
significant protection for our technology, products and processes;
o other companies will not independently develop substantially equivalent
proprietary information which is not covered by our patent rights;
o other companies will not obtain access to our know-how;
o other companies will not be granted patents that may prevent the
commercialization of our technology; or
o we will not require licensing and the payment of significant fees or
royalties to third parties for the use of their intellectual property in
order to enable us to conduct our business.
If any relevant claims of third-party patents which are adverse to us are
upheld as valid and enforceable, we could be prevented from commercializing our
technology or could be required to obtain licenses from the owners of such
patents. We cannot guarantee that such licenses would be available or, if
available, would be on acceptable terms.
We could become involved in infringement actions to enforce and/or protect
our patents. Regardless of the outcome, patent litigation is expensive and time
consuming and would distract our management from other activities.
The laws of some foreign countries do not protect proprietary rights to the
same extent as the laws of the United States, and many companies have
encountered significant problems and costs in protecting their proprietary
rights in these foreign countries.
Patent law is still evolving relative to the scope and enforceability of
claims in the fields in which we operate. We are like most biotechnology
companies in that our patent protection is highly uncertain and involves complex
legal and technical questions for which legal principles
-13-
are not yet firmly established. In addition, if issued, our patents may not
contain claims sufficiently broad to protect us against third parties with
similar technologies or products, or provide us with any competitive advantage.
The PTO and the courts have not established a consistent policy regarding
the breadth of claims allowed in biotechnology patents. The allowance of broader
claims may increase the incidence and cost of patent interference proceedings
and the risk of infringement litigation. On the other hand, the allowance of
narrower claims may limit the value of our proprietary rights.
Our success also depends upon know-how, unpatentable trade secrets, and the
skills, knowledge and experience of our scientific and technical personnel. As a
result, we require all employees to agree to a confidentiality provision that
prohibits the disclosure of confidential information to anyone outside of our
company, during the term of employment and thereafter. We also require all
employees to disclose and assign to us the rights to their ideas, developments,
discoveries and inventions. We also attempt to enter into similar agreements
with our consultants, advisors and research collaborators. We cannot guarantee
adequate protection for our trade secrets, know-how or other proprietary
information against unauthorized use or disclosure. We occasionally provide
information to research collaborators in academic institutions and request the
collaborators to conduct certain tests. We cannot guarantee that the academic
institutions will not assert intellectual property rights in the results of the
tests conducted by the research collaborators, or that the academic institutions
will grant licenses under such intellectual property rights to us on acceptable
terms, if at all. If the assertion of intellectual property rights by an
academic institution is substantiated, and the academic institution does not
grant intellectual property rights to us, these events could have a material
adverse effect on our business and financial results.
WE WILL HAVE TO PROPERLY MANAGE OUR GROWTH.
As our business grows, we may need to add employees and enhance our
management, systems and procedures. We will need to successfully integrate our
internal operations with the operations of our marketing partners,
manufacturers, distributors and suppliers to produce and market commercially
viable products. Although we do not presently intend to conduct research and
development activities in-house, we may undertake those activities in the
future. Expanding our business will place a significant burden on our management
and operations. Our failure to effectively respond to changes brought about by
our growth may have a material adverse effect on our business and financial
results.
WE HAVE NO MARKETING OR SALES HISTORY AND DEPEND ON THIRD-PARTY MARKETING
PARTNERS.
We have no history of marketing, distributing or selling biotechnology
products and we are relying on our ability to successfully establish marketing
partners or other arrangements with third parties to market, distribute and sell
a commercially viable product both here and abroad. Our business plan also
envisions creating strategic alliances to access needed commercialization and
marketing expertise. We may not be able to attract qualified sub-licensees,
distributors or marketing partners, and even if qualified, such marketing
partners may not be able to successfully market agricultural products or human
health applications developed with our technology. If we fail to successfully
establish distribution channels, or if our marketing partners fail to provide
adequate levels of sales, we will not be able to generate significant revenue.
-14-
WE DEPEND ON PARTNERS TO DEVELOP AND MARKET PRODUCTS.
In its current state of development, our technology is not ready to be
marketed to consumers. We intend to follow a multi-faceted commercialization
strategy that involves the licensing of our technology to business partners for
the purpose of further technological development, marketing and distribution. We
are seeking business partners who will share the burden of our development costs
while our technology is still being developed, and who will pay us royalties
when they market and distribute products incorporating our technology upon
commercialization. The establishment of joint ventures and strategic alliances
may create future competitors, especially in certain regions abroad where we do
not pursue patent protection. If we fail to establish beneficial business
partners and strategic alliances, our growth will suffer and the continued
development of our technology may be harmed.
COMPETITION IN THE AGRICULTURAL AND BIOTECHNOLOGY INDUSTRIES IS INTENSE AND
TECHNOLOGY IS CHANGING RAPIDLY.
Many agricultural and biotechnology companies are engaged in research and
development activities relating to senescence and apoptosis. The market for
plant protection and yield enhancement products is intensely competitive,
rapidly changing and undergoing consolidation. We may be unable to compete
successfully against our current and future competitors, which may result in
price reductions, reduced margins and the inability to achieve market acceptance
for products containing our technology. Our competitors in the field of plant
senescence gene technology are companies that develop and produce transgenic
plants and include major international agricultural companies, specialized
biotechnology companies, research and academic institutions and, potentially,
our joint venture and strategic alliance partners. Such companies include:
Paradigm Genetics; Bayer Crop Science; Mendel Biotechnology; Renessen LLC;
Exelixis Plant Sciences, Inc.; PlantGenix, Inc.; Syngenta International AG; and
Eden Bioscience, among others. Some of the companies involved in apoptosis
research include: OSI Pharmaceuticals, Inc.; Idun Pharmaceuticals; Novartis;
Introgen Therapeutics, Inc.; Genta, Inc.; and Vertex Pharmaceuticals, Inc. Many
of these competitors have substantially greater financial, marketing, sales,
distribution and technical resources than us and have more experience in
research and development, clinical trials, regulatory matters, manufacturing and
marketing. We anticipate increased competition in the future as new companies
enter the market and new technologies become available. Our technology may be
rendered obsolete or uneconomical by technological advances or entirely
different approaches developed by one or more of our competitors.
OUR BUSINESS IS SUBJECT TO VARIOUS GOVERNMENT REGULATIONS.
At present, the U.S. federal government regulation of biotechnology is
divided among three agencies: (i) the USDA regulates the import, field testing
and interstate movement of specific types of genetic engineering that may be
used in the creation of transgenic plants; (ii) the EPA regulates activity
related to the invention of plant pesticides and herbicides, which may include
certain kinds of transgenic plants; and (iii) the FDA regulates foods derived
from new plant varieties. The FDA requires that transgenic plants meet the same
standards for safety that are required for all other plants and foods in
general. Except in the case of additives that significantly alter a food's
structure, the FDA does not require any additional standards or specific
approval for genetically engineered foods, but expects transgenic plant
developers to
-15-
consult the FDA before introducing a new food into the marketplace. Use of our
technology, if developed for human health applications, will also be subject to
FDA regulation.
We believe that our current activities, which to date have been confined to
research and development efforts, do not require licensing or approval by any
governmental regulatory agency. However, federal, state and foreign regulations
relating to crop protection products and human health applications developed
through biotechnology are subject to public concerns and political
circumstances, and, as a result, regulations have changed and may change
substantially in the future. Accordingly, we may become subject to governmental
regulations or approvals or become subject to licensing requirements in
connection with our research and development efforts. We may also be required to
obtain such licensing or approval from the governmental regulatory agencies
described above, or from state agencies, prior to the commercialization of our
genetically transformed plants and mammalian technology. In addition, our
marketing partners who utilize our technology or sell products grown with our
technology may be subject to government regulations. The imposition of
unfavorable governmental regulations on our technology or the failure to obtain
licenses or approvals in a timely manner would have a material adverse effect on
our business.
THE HUMAN HEALTH APPLICATIONS OF OUR TECHNOLOGY ARE SUBJECT TO A LENGTHY AND
UNCERTAIN REGULATORY PROCESS.
The FDA must approve any drug or biologic product before it can be marketed
in the United States. In addition, prior to being sold outside of the U.S., any
products resulting from the application of our apoptosis related technology must
be approved by the regulatory agencies of foreign governments. Prior to filing a
new drug application or biologics license application with the FDA, we would
have to perform extensive pre-clinical testing and clinical trials, which could
take several years and may require substantial expenditures. Any failure to
obtain regulatory approval could delay or prevent the commercialization of our
apoptosis related technology.
CLINICAL TRIALS ON OUR HUMAN HEALTH APPLICATIONS MAY BE UNSUCCESSFUL IN
DEMONSTRATING EFFICACY AND SAFETY, WHICH COULD DELAY OR PREVENT REGULATORY
APPROVAL.
Clinical trials may reveal that our mammalian technology is ineffective or
harmful, which would significantly limit the possibility of obtaining regulatory
approval for any drug or biologic product manufactured with our technology. The
FDA requires submission of extensive pre-clinical, clinical and manufacturing
data to assess the efficacy and safety of potential products. Furthermore, the
success of preliminary studies does not ensure commercial success, and
later-stage clinical trials may fail to confirm the results of the preliminary
studies.
CONSUMERS MAY NOT ACCEPT OUR TECHNOLOGY.
We cannot guarantee that consumers will accept products containing our
technology. Recently, there has been consumer concern and consumer advocate
activism with respect to genetically engineered consumer products. The adverse
consequences from heightened consumer concern in this regard could affect the
markets for products developed with our technology and could also result in
increased government regulation in response to that concern. If the public or
potential customers perceive our technology to be genetic modification or
genetic engineering, agricultural products grown with our technology may not
gain market acceptance.
-16-
WE DEPEND ON OUR KEY PERSONNEL.
We are highly dependent on our scientific advisors, consultants and
third-party research partners. Dr. Thompson is the inventor of our technology
and the driving force behind our current research. The loss of Dr. Thompson
would severely hinder our technological development. Our success will also
depend in part on the continued service of our key employees and our ability to
identify, hire and retain additional qualified personnel in an intensely
competitive market. We do not maintain key person life insurance on any member
of management. The failure to attract and retain key personnel could limit our
growth and hinder our research and development efforts.
CERTAIN PROVISIONS OF OUR CHARTER, BY-LAWS AND DELAWARE LAW COULD MAKE A
TAKEOVER DIFFICULT.
Certain provisions of our certificate of incorporation and by-laws could
make it more difficult for a third party to acquire control of us, even if the
change in control would be beneficial to stockholders. Our certificate of
incorporation authorizes our board of directors to issue, without stockholder
approval, except as may be required by the rules of the American Stock Exchange,
5,000,000 shares of preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of our common stock. Similarly, our by-laws do not restrict our board of
directors from issuing preferred stock without stockholder approval.
In addition, we are subject to the Business Combination Act of the Delaware
General Corporation Law which, subject to certain exceptions, restricts certain
transactions and business combinations between a corporation and a stockholder
owning 15% or more of the corporation's outstanding voting stock for a period of
three years from the date such stockholder becomes a 15% owner. These provisions
may have the effect of delaying or preventing a change of control of us without
action by our stockholders and, therefore, could adversely affect the value of
our common stock.
Furthermore, in the event of our merger or consolidation with or into
another corporation, or the sale of all or substantially all of our assets in
which the successor corporation does not assume outstanding options or issue
equivalent options, our board of directors is required to provide accelerated
vesting of outstanding options.
OUR MANAGEMENT AND OTHER AFFILIATES HAVE SIGNIFICANT CONTROL OF OUR COMMON
STOCK AND COULD CONTROL OUR ACTIONS IN A MANNER THAT CONFLICTS WITH OUR
INTERESTS AND THE INTERESTS OF OTHER STOCKHOLDERS.
As of June 30, 2003, our executive officers, directors and affiliated
entities together beneficially own approximately 45.0% of the outstanding shares
of our common stock, assuming the exercise of options and warrants which are
currently exercisable, held by these stockholders. As a result, these
stockholders, acting together, will be able to exercise considerable influence
over matters requiring approval by our stockholders, including the election of
directors, and may not always act in the best interests of other stockholders.
Such a concentration of ownership may have the effect of delaying or preventing
a change in control of us, including transactions in which our stockholders
might otherwise receive a premium for their shares over then current market
prices.
-17-
OUR STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION AS A RESULT OF
OUTSTANDING OPTIONS AND WARRANTS TO PURCHASE OUR COMMON STOCK.
As of June 30, 2003, we have granted options outside of our stock option
plan to purchase 10,000 shares of our common stock and warrants to purchase
4,207,153 shares of our common stock. In addition, as of June 30, 2003, we have
reserved 3,000,000 shares of our common stock for issuance upon the exercise of
options granted pursuant to our stock option plan, 1,781,000 of which have been
granted and 1,219,000 of which may be granted in the future. The exercise of
these options and warrants will result in dilution to our existing stockholders
and could have a material adverse effect on our stock price.
SHARES ELIGIBLE FOR PUBLIC SALE.
As of June 30, 2003, we had 11,880,045 shares of our common stock issued
and outstanding, of which approximately 8,000,000 shares are registered pursuant
to a registration statement on Form S-3, which was deemed effective on June 28,
2002, and the remainder of which are in the public float. In addition, we have
registered 3,000,000 shares of our common stock underlying options granted or to
be granted under our stock option plan. Consequently, sales of substantial
amounts of our common stock in the public market, or the perception that such
sales could occur, may adversely affect the market price of our common stock.
OUR STOCK HAS A LIMITED TRADING MARKET.
Our common stock is quoted on the American Stock Exchange and currently has
a limited trading market. We cannot assure that an active trading market will
develop or, if developed, will be maintained. As a result, our stockholders may
find it difficult to dispose of shares of our common stock and, as a result, may
suffer a loss of all or a substantial portion of their investment.
OUR STOCK PRICE MAY FLUCTUATE.
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
o quarterly variations in operating results;
o the progress or perceived progress of our research and development
efforts;
o changes in accounting treatments or principles;
o announcements by us or our competitors of new technology, product and
service offerings, significant contracts, acquisitions or strategic
relationships;
o additions or departures of key personnel;
o future offerings or resales of our common stock or other securities;
o stock market price and volume fluctuations of publicly-traded companies
in general and development companies in particular; and
o general political, economic and market conditions.
IF OUR COMMON STOCK IS DELISTED FROM THE AMERICAN STOCK EXCHANGE, IT MAY BE
SUBJECT TO THE "PENNY STOCK" REGULATIONS WHICH MAY AFFECT THE ABILITY OF OUR
STOCKHOLDERS TO SELL THEIR SHARES.
In general, regulations of the SEC define a "penny stock" to be an equity
security that is not listed on a national securities exchange or Nasdaq and that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain
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exceptions. If the American Stock Exchange delists our common stock, it could be
deemed a penny stock, which imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than certain qualified
investors. For transactions involving a penny stock, unless exempt, a
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written consent to the transaction prior to the
sale. In addition, the rules on penny stocks require delivery, prior to and
after any penny stock transaction, of disclosures required by the SEC.
If our common stock were subject to the rules on penny stocks, the market
liquidity for our common stock could be severely and adversely affected.
Accordingly, the ability of holders of our common stock to sell their shares in
the secondary market may also be adversely affected.
INCREASING POLITICAL AND SOCIAL TURMOIL, SUCH AS TERRORIST AND MILITARY
ACTIONS, INCREASE THE DIFFICULTY FOR US AND OUR STRATEGIC PARTNERS TO FORECAST
ACCURATELY AND PLAN FUTURE BUSINESS ACTIVITIES.
Recent political and social turmoil, including the terrorist attacks of
September 11, 2001, the conflict in Iraq, the current crisis in the Middle East
and the outbreak of SARS in China, can be expected to put further pressure on
economic conditions in the United States and worldwide. These political, social
and economic conditions may make it difficult for us to plan future business
activities. Specifically, if the current crisis in Israel continues to escalate,
the Rahan Joint Venture could be adversely affected. In addition, the SARS
crisis could continue to affect the pace of discussions related to the letter of
intent with the Tianjin Academy of Agricultural Sciences.
ITEM 2. PROPERTIES.
We lease office space in New Brunswick, New Jersey for a monthly rental fee
of $2,838, subject to certain escalations for our proportionate share of
increases, over the base year of 2001, in the building's operating costs. The
lease expires in May 2006. We have an option to renew the lease for an
additional five-year period through May 2011. The space is in good condition and
we believe it will adequately serve as our headquarters over the term of the
lease. We also believe that this office space is adequately insured by the
lessor.
ITEM 3. LEGAL PROCEEDINGS.
We are not currently a party to any legal proceedings, however, we may
become involved in various claims and legal actions arising in the ordinary
course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
From January 25, 1999 through May 16, 2002, our common stock had been
trading on the NASD OTC Bulletin Board under the symbol SENO. On May 17, 2002,
our 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 our common stock for each of the quarters since the quarter ended September
30, 2001, as reported on the NASD OTC Bulletin Board and the American Stock
Exchange.
Quarter Common
Ended Stock
- ------------------------------------------ -------------------------
High Low
---- ---
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
September 30, 2002 $2.35 $1.20
December 31, 2002 $2.75 $1.60
March 31, 2003 $2.50 $1.95
June 30, 2003 $2.50 $1.50
================
As of September 19, 2003, the approximate number of holders of record of
our common stock was 285.
We have neither paid nor declared dividends on our common stock since our
inception and we do not plan to pay dividends on our common stock in the
foreseeable future. We expect that any earnings, which we may realize, will be
retained to finance the growth of our company.
-20-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
We do not expect to generate significant revenues for approximately the
next two to three years, during which time we will engage in significant
research and development efforts. However, we have entered into the Harris Moran
License, the ArborGen Agreement and the Cal/West License to develop and
commercialize our technology in certain varieties of lettuce, melons, trees and
alfalfa. The Harris Moran License and the Cal/West License also provide for
royalty payments to us 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, we will receive a
license fee and royalties from ArborGen. The Cal/West License contains an option
for Cal/West to develop our technology in various other forage crops. We also
have entered into the Rahan Joint Venture to develop and commercialize our
technology in banana plants. In connection with the Rahan Joint Venture, we will
receive 50% of the profits from the sale of enhanced banana plants.
Consistent with our commercialization strategy, we intend to attract other
companies interested in strategic partnerships or licensing our technology that
may result in additional license fees, revenues from contract research and other
related revenues. Successful future operations will depend on our ability to
transform our research and development activities into commercializable
technology.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We recognize revenue from license and development agreements as services
are provided and milestones are achieved.
We are amortizing the cost of an initial $200,000 non-refundable payment
made under a research agreement over the estimated eighteen-month term of the
project. As of June 30, 2003, $100,000, which will be amortized over the
remaining estimated nine months of the research project, is included in the
balance sheet as a prepaid expense.
We have recorded valuation allowances against our entire deferred tax
assets of $2,856,000 at June 30, 2003. The valuation allowances relate primarily
to the net operating loss carryforward deferred tax asset where the tax benefit
of such asset is not assured.
As of June 30, 2003, we have determined that the estimated future
undiscounted cash flows related to our patent applications will be sufficient to
recover their carrying value.
Accrued expenses partially consist of estimates for costs incurred in
connection with certain research projects. The estimates are based upon the
research activities performed and their correlation to the research budget
provided.
We do not have any off-balance sheet arrangements.
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LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
As of June 30, 2003, our cash balance and investments totaled $2,419,225,
and we had working capital of $2,285,464. As of June 30, 2003, we had a federal
tax loss carryforward of approximately $7,470,000 and a state tax loss
carry-forward of approximately $3,511,000 to offset future taxable income. There
can be no assurance, however, that we will be able to take advantage of any or
all of such tax loss carryforwards, if at all, in future fiscal years.
FINANCING NEEDS
We have research and development agreements with the University of
Waterloo, which provide for research and development services to be performed at
the direction of our company and Dr. Thompson. We have paid the University of
Waterloo an aggregate of approximately US $1,120,000 under the First Research
and Development Agreement. Effective September 1, 2002, we extended our First
Research and Development Agreement for an additional two-year period, in the
amount of Can $1,092,800, which represented approximately US $806,000 as of June
30, 2003. Effective May 1, 2002, we entered into a Second Research and
Development for a one-year period, under which we paid Can $50,000, which
represented US $42,646 as of June 30, 2003. During the years ended June 30, 2003
and June 30, 2002, we incurred expenses of $415,886 and $254,347, respectively,
in connection with the Research and Development Agreements.
In September 2002, we entered into the Anawah Agreement, which provides us
with a license to use Anawah's technology to develop and commercialize enhanced
species of produce. The agreement 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. In connection with the execution of the
agreement, we incurred an initial fee of $200,000, which is being amortized over
the term of the research to be performed under the agreement. Upon the
completion of certain benchmarks, we will incur additional research and
development fees and will make certain royalty payments to Anawah.
As of June 30, 2003, we have directly received a total of $90,150, $22,178
of which was received during the current year, from the BIRD Foundation for
research and development expenses we have incurred which are associated with the
research and development efforts of the Rahan Joint Venture. We expect to
receive one additional installment of the BIRD Grant as our expenditures
associated with the Rahan Joint Venture increased above certain levels. Our
portion of the Rahan Joint Venture's aggregate expenses totaled approximately
$53,500 and $41,000 for the years ended June 30, 2003 and June 30, 2002,
respectively, and is included in research and development expenses. As of June
30, 2003, our portion of the Rahan Joint Venture's aggregate expenses to date
totaled approximately $208,000.
We lease office space in New Brunswick, New Jersey for a monthly rental fee
of $2,838, subject to certain escalations for our proportionate share of
increases in the building's operating costs. The lease expires in May 2006, but
is renewable for an additional five-year term.
-22-
We have employment agreements with certain employees, who are also
stockholders, which provide for a base compensation and additional amounts, as
set forth in each agreement. The agreements expire between January 2004 and June
2006. As of June 30, 2003, future base compensation to be paid under the
agreements through June 2006 totals $673,750.
We have consulting agreements with each of Dr. Thompson and Dr. Bennett,
which provide for monthly payments in exchange for research and development
services. The agreement with Dr. Thompson provides for monthly payments of
$5,000 through June 2004, and is automatically renewable unless terminated by
either party within six months prior to the end of the term. The agreement with
Dr. Bennett provides for monthly payments of $2,400 until November 2003.
In February 2002, we entered into scientific advisory board agreements with
each of Dr. Russell A. Jones and Dr. Charles A. Dinarello, which provide for
payments of $10,000 per year, payable in quarterly installments, to each of Drs.
Jones and Dinarello, respectively, through February 28, 2005 and may be
terminated by either party within 90 days written notice.
In December 2002, we entered into a six-month financial consulting
agreement with Perrin, Holden & Davenport Capital Corp. The agreement was
effective on February 1, 2003 and provides for monthly payments of $5,000.
Effective August 1, 2003, the financial consulting agreement with Perrin, Holden
& Davenport Capital Corp. was extended for an additional three-month period on
the same terms.
The following table lists our cash contractual obligations as of June 30,
2003:
- -------------------------------------------------------------------------------------------------------------
Payments Due by Period
- -------------------------------------------------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1 - 3 years 4 - 5 years 5 years
- -------------------------------------------------------------------------------------------------------------
Research and Development
Agreements (1) $ 402,500 $ 345,000 $ 57,500 $ -- $ --
- -------------------------------------------------------------------------------------------------------------
Facility, Rent and
Operating Leases (2) $ 96,492 $ 34,056 $ 62,436 $ -- $ --
- -------------------------------------------------------------------------------------------------------------
Employment, Consulting
and Scientific Advisory
Board Agreements (3) (4) $ 817,517 $ 491,433 $ 326,083 $ -- $ --
=============================================================================================================
Total Contractual
Cash Obligations $ 1,316,509 $ 870,489 $ 446,019 $ -- $ --
=============================================================================================================
(1) Certain of our research and development agreements disclosed herein provide
that payment is to be made in Canadian dollars and, therefore, the
contractual obligations are subject to fluctuations in the exchange rate.
(2) The lease for our office space in New Brunswick, New Jersey is subject to
certain escalations for our proportionate share of increases in the
building's operating costs.
-23-
(3) Certain of our employment and consulting agreements provide for automatic
renewal (which is not reflected in the table), unless terminated earlier by
the parties to the respective agreements.
(4) Includes $366,000 for an employment agreement that was not effective until
July 1, 2003 and $15,000 for a consulting agreement that was not effective
until August 1, 2003.
We expect our capital requirements to increase significantly over the next
several years as we commence new research and development efforts, increase our
business and administrative infrastructure and embark on developing in-house
business capabilities and facilities. Our future liquidity and capital funding
requirements will depend on numerous factors, including, but not limited to, the
levels and costs of our research and development initiatives and the cost and
timing of the expansion of our business development and administrative staff.
CAPITAL RESOURCES
Since inception, we have generated revenues of $210,000 in connection with
the initial fees received under the Harris Moran License, the ArborGen Agreement
and the Cal/West License. We have not been profitable since inception, we will
continue to incur additional operating losses in the future, and we will require
additional financing to continue the development and subsequent
commercialization of our technology. While we do not expect to generate
significant revenues from the licensing of our technology in the near future, we
may enter into additional licensing or other agreements with marketing and
distribution partners that may result in additional license fees, receive
revenues from contract research, or other related revenue.
In November 2001, we entered into a worldwide exclusive development and
license agreement with Harris Moran Seed Company to commercialize our 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, we received an initial license fee of $125,000 in November
2001. Upon our signing of an agreement with a distributor, Harris Moran Seed
Company will pay us an additional $125,000 fee. The Harris Moran License also
provides for the distributor to make development payments to us of $3,750,000
upon our completion of development benchmarks, as well as royalties upon
commercial introduction.
In June 2002, we entered into a three-year worldwide exclusive development
and option agreement with ArborGen to develop our technology in certain species
of trees. In connection with the ArborGen Agreement, we received an initial
development fee of $75,000 in July 2002. Upon the completion of certain
development benchmarks set forth in the ArborGen Agreement, we 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 our technology in
various forestry products, and upon the execution of a license agreement, we
will receive a license fee and royalties from ArborGen.
In September 2002, we entered into an exclusive development and license
agreement with Cal/West to develop our 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 our technology in various other forage crops. In
-24-
connection with the execution of the Cal/West License, we received an initial
fee of $10,000 in September 2002. Upon the completion of certain development
benchmarks, we will receive an additional $20,000 in periodic payments, and upon
the commercialization of certain products, we will receive royalty payments from
Cal/West.
In each of September 2002 and February 2003, we received a payment of
$11,089 from the BIRD Foundation for research and development expenses that we
have incurred in connection with the Rahan Joint Venture. We anticipate
receiving one additional payment from the BIRD Grant in the future to assist in
funding the Rahan Joint Venture, subject to the Rahan Joint Venture achieving
its stated research and development objectives.
In December 2002, pursuant to the New Jersey Technology Tax Credit Transfer
Program, we received approval from the New Jersey Economic Development Authority
to sell our New Jersey net operating loss tax benefit in the amount of $151,390
for the fiscal year ended June 30, 2001. In December 2002, we sold our entire
New Jersey net operating loss tax benefit and received net proceeds of $130,952.
We have applied to participate in the program to sell our New Jersey net
operating loss tax benefit in the amount of approximately $132,000 for the
fiscal year ended June 30, 2002. However, there can be no assurance that we will
be approved to participate in the Program for the fiscal year ended June 30,
2002, or if approved, that we will be able to sell all or part of our New Jersey
net operating loss tax benefit.
We anticipate that, based upon our current cash and investments, we will be
able to fund operations for at least the next twelve months. Over the next
twelve months, we plan to fund our research and development and
commercialization activities by utilizing our current cash balance and
investments, achieving the milestones set forth in our current licensing
agreements, and through the consummation of additional licensing agreements for
our technology.
FOREIGN CURRENCY RISK
Except for our Research and Development Agreements with the University of
Waterloo, which is payable in Canadian dollars, we have no other agreements or
transactions denominated in foreign currency. Thus, we do not believe that any
fluctuations in foreign currency exchange rates would have a material impact on
our financial condition or results of operations.
-25-
RESULTS OF OPERATIONS
Fiscal Years ended June 30, 2003 and June 30, 2002
- --------------------------------------------------
Revenue for the year ended June 30, 2003 was $10,000, which represented the
initial license fee in connection with the Cal/West License. Revenue for the
year ended June 30, 2002 was $200,000, which represented the initial fees in
connection with the Harris Moran License and ArborGen Agreement.
Operating expenses consist of general and administrative expenses, research
and development expenses and stock-based compensation. Operating expenses for
the years ended June 30, 2003 and June 30, 2002 were $2,278,606 and $2,314,233,
respectively, a decrease of $35,627, or 1.5%. This decrease in operating
expenses was primarily the result of a decrease in stock-based compensation
which was mostly offset by an increase in general and administrative and
research and development expenses.
General and administrative expenses consist primarily of payroll and
benefits, professional and consulting services, investor relations, office rent
and corporate insurance. General and administrative expenses for the years ended
June 30, 2003 and June 30, 2002 were $1,347,526 and $1,308,856, respectively, an
increase of $38,670, or 3.0%. This increase was primarily the result of an
increase in payroll and benefits and investor relations, partially offset by a
decrease in consulting services, recruiting costs and legal fees. Consulting
services decreased during the year ended June 30, 2003, as a result of the
hiring of Mr. Galton on October 4, 2001, as our President and Chief Executive
Officer. From July 1, 2001 through October 4, 2001, the positions of President
and CEO were held by two non-employee board members and, accordingly, their
compensation for those functions was categorized as consulting services. The
decrease in consulting services was partially offset by an increase in employee
payroll and benefits during the year ended June 30, 2003 as a result of the
President and CEO compensation being classified as payroll instead of consulting
services. In connection with our strategy to increase our recognition in the
public market, expenses related to investor relations increased during the year
ended June 30, 2003, primarily as a result of fees incurred for our investor
relations firm, listing fees for the American Stock Exchange, financial
consulting fees and costs associated with presentations to various analysts,
money managers and funds, all of which were not incurred during the year ended
June 30, 2002.
Research and development expenses consist primarily of fees associated with
the Research and Development Agreements, costs associated with the research
being performed at the University of Colorado, amortization of the initial fee
in connection with the Anawah Agreement and consulting fees to the Scientific
Advisory Board, Dr. Thompson and Dr. Bennett. Research and development expenses
for the years ended June 30, 2003 and June 30, 2002 were $793,903 and $370,191,
respectively, an increase of $423,712, or 114.5%. This increase was primarily
the result of an increase in the research and development costs incurred in
connection with the expanded research undertaken by the University of Waterloo,
the implementation of our mammalian cell research programs and the
implementation of new plant research being conducted in connection with the
Anawah Agreement.
-26-
Stock-based compensation consists of non-employee stock options and
warrants granted and vesting as consideration for certain professional,
consulting, legal and advertising services. Stock-based compensation for the
years ended June 30, 2003 and June 30, 2002 was $137,177 and $635,186,
respectively, a decrease of $498,009, or 78.4%. The decrease was primarily the
result of a decrease in stock options granted and becoming vested to members of
the Scientific Advisory Board and consultants and warrants granted and becoming
vested to certain financial advisors during the year ended June 30, 2003.
From Inception on July 1, 1998 through June 30, 2003
- ----------------------------------------------------
From inception of operations on July 1, 1998 through June 30, 2003, we had
revenues of $210,000, which consisted of the initial license fees in connection
with two of our development and license agreements. We do not expect to generate
significant revenues for approximately the next two to three years, during which
time we will engage in significant research and development efforts.
We have incurred losses each year since inception and have an accumulated
deficit of $9,496,659 at June 30, 2003. We expect to continue to incur losses as
a result of expenditures on research, product development and administrative
activities.
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.
ITEM 8A. CONTROLS AND PROCEDURES.
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of June 30, 2003. Based on this evaluation, our chief executive officer
and chief financial officer concluded that as of June 30, 2003, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to us, including our consolidated subsidiaries, is made known to our
chief executive officer and chief financial officer by others within those
entities, particularly during the period in which this report was being prepared
and (2) effective, in that they provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
No change in our internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
year ended June 30, 2003 that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial reporting.
-27-
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.
The information relating to our directors, nominees for election as
directors and executive officers under the headings "Election of Directors" and
"Executive Officers" in our definitive proxy statement for the 2003 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 our definitive
proxy statement for the 2003 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 our definitive proxy statement for the 2003 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 our definitive proxy statement for the 2003 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 31.
(b) Reports on Form 8-K.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Pursuant to SEC Release No. 33-8183 (as corrected by Release No. 33-8183A),
the disclosure requirements of this Item 14 are not effective until the filing
of the Annual Report on Form 10-KSB for the first fiscal year ending after
December 15, 2003.
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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 29th day of
September 2003.
SENESCO TECHNOLOGIES, INC.
By: /s/ Bruce C. Galton
---------------------------------
Bruce C. Galton, President and
Chief Executive Officer
-29-
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 29, 2003
- -------------------------------
Ruedi Stalder
/s/ Bruce C. Galton President and Chief Executive September 29, 2003
- ------------------------------- Officer (principal executive officer)
Bruce C. Galton and Director
/s/ Joel Brooks Chief Financial Officer September 29, 2003
- ------------------------------- and Treasurer (principal financial
Joel Brooks and accounting officer)
/s/ John E. Thompson Executive Vice President of Research September 29, 2003
- -------------------------------- and Development and Director
John E. Thompson
/s/ Christopher Forbes Director September 29, 2003
- -------------------------------
Christopher Forbes
/s/ Thomas C. Quick Director September 29, 2003
- -------------------------------
Thomas C. Quick
/s/ David Rector Director September 29, 2003
- -------------------------------
David Rector
-30-
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 Senesco Technologies,
Inc. 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 Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended September 30, 1999.)
3.1 Amended and Restated Certificate of Incorporation of Senesco
Technologies, Inc. filed with the State of Delaware on December 26,
2002. (Incorporated by reference to Senesco Technologies, Inc.
quarterly report on Form 10-QSB for the period ended December 31,
2002.)
3.2 Amended and Restated By-laws of Senesco Technologies, Inc. as adopted
on October 2, 2000. (Incorporated by reference to Senesco
Technologies, Inc. quarterly report on Form 10-QSB for the period
ended December 31, 2000.)
4.1 Form of Common Stock Purchase Agreement by and among Senesco
Technologies, Inc. and the Purchasers (as defined therein), dated May
11, 1999. (Incorporated by reference to Senesco Technologies, Inc.
quarterly report on Form 10-QSB for the period ended March 31, 1999.)
4.2 Form of Registration Rights Agreement by and among Senesco
Technologies, Inc. and the Purchasers (as defined therein), dated May
11, 1999. (Incorporated by reference to Senesco Technologies, Inc.
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
Senesco Technologies, Inc. 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 Senesco Technologies, Inc. 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 Senesco Technologies, Inc. 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 Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 1999.)
-31-
4.7 Form of Warrant with Fahnestock & Co. Inc., dated March 30, 2000.
(Incorporated by reference to Senesco Technologies, Inc. annual report
on Form 10-KSB for the period ended June 30, 2000.)
4.8 Form of Registration Rights Agreement by and between Senesco
Technologies, Inc. and Fahnestock & Co. Inc., dated as of March 30,
2000. (Incorporated by reference to Senesco Technologies, Inc. annual
report on Form 10-KSB for the period ended June 30, 2000.)
4.9 Form of Common Stock Purchase Agreement by and among Senesco
Technologies, Inc. and the Purchasers (as defined therein), dated as
of May 31, 2000 and June 14, 2000, respectively. (Incorporated by
reference to Senesco Technologies, Inc. annual report on Form 10-KSB
for the period ended June 30, 2000.)
4.10 Form of Registration Rights Agreements by and among Senesco
Technologies, Inc. and the Purchasers (as defined therein), dated May
31, 2000 and June 14, 2000, respectively. (Incorporated by reference
to Senesco Technologies, Inc. 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 Senesco Technologies, Inc.
quarterly report on Form 10-QSB for the period ended December 31,
2000.)
4.12 Warrant Agreement by and between Senesco Technologies, Inc. and
Christenson, Hutchinson, McDowell, LLC. (Incorporated by reference to
Senesco Technologies, Inc. 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 Senesco Technologies, Inc. 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 Senesco Technologies, Inc. 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
Senesco Technologies, Inc. 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 Senesco
Technologies, Inc. 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 Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended December 31, 2002.)
-32-
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 Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 2002.)
10.1 Indemnification Agreement by and between Senesco Technologies, Inc.
and Christopher Forbes, dated January 21, 1999. (Incorporated by
reference to Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended December 31, 1998.)
10.2 Indemnification Agreement by and between Senesco Technologies, Inc.
and Thomas C. Quick, dated February 23, 1999. (Incorporated by
reference to Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended March 31, 1999.)
10.3 Indemnification Agreement by and between Senesco Technologies, Inc.
and Ruedi Stalder, dated March 1, 1999. (Incorporated by reference to
Senesco Technologies, Inc. quarterly report on Form 10-QSB for the
period ended March 31, 1999.)
10.4* Employment Agreement by and between Senesco, Inc. and Sascha P.
Fedyszyn, dated January 21, 1999. (Incorporated by reference to
Senesco Technologies, Inc. quarterly report on Form 10-QSB for the
period ended December 31, 1998.)
10.5 Research Agreement by and among Senesco Technologies, Inc., Dr. John
E. Thompson and the University of Waterloo, dated September 1, 1998,
as amended. (Incorporated by reference to Senesco Technologies, Inc.
quarterly report on Form 10-QSB for the period ended December 31,
1998.)
10.6* Consulting Agreement by and between Senesco Technologies, Inc. and
John E. Thompson, Ph.D., dated July 12, 1999. (Incorporated by
reference to Senesco Technologies, Inc. annual report on Form 10-KSB
for the period ended June 30, 2000.)
10.7 Office lease by and between Senesco Technologies, Inc. and Matrix/AEW
NB, LLC, dated March 16, 2001. (Incorporated by reference to Senesco
Technologies, Inc. quarterly report on Form 10-QSB for the period
ended March 31, 2001.)
10.8 Securities Purchase Agreement by and between Senesco Technologies,
Inc. and Stanford Venture Capital Holdings, Inc., dated November 30,
2001. (Incorporated by reference to Exhibit 10.1 of Senesco
Technologies, Inc. quarterly report on Form 10-QSB for the period
ended December 31, 2001.)
10.9 Securities Purchase Agreement by and between Senesco Technologies,
Inc. and Stanford Venture Capital Holdings, Inc., dated January 16,
2002. (Incorporated by reference to Exhibit 10.2 of Senesco
Technologies, Inc. quarterly report on Form 10-QSB for the period
ended December 31, 2001.)
10.10 Form of Securities Purchase Agreement by and between Senesco
Technologies, Inc. and certain directors of Senesco Technologies, Inc.
(with attached schedule of parties and terms thereto). (Incorporated
by reference to Exhibit 10.3 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 2001.)
-33-
10.11 Form of Securities Purchase Agreement by and between Senesco
Technologies, Inc. and certain accredited investors (with attached
schedule of parties and terms thereto). (Incorporated by reference to
Exhibit 10.4 of Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended December 31, 2001.)
10.12 Form of Securities Purchase Agreement by and between Senesco
Technologies, Inc. and certain accredited investors (with attached
schedule of parties and terms thereto). (Incorporated by reference to
Exhibit 10.2 of Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended March 31, 2002.)
10.13 Form of Registration Rights Agreement by and between Senesco
Technologies, Inc. and each of certain accredited investors (with
attached schedule of parties and terms thereto). (Incorporated by
reference to Exhibit 10.6 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 2001.)
10.14 Form of Registration Rights Agreement by and between Senesco
Technologies, Inc. and each of certain accredited investors (with
attached schedule of parties and terms thereto). (Incorporated by
reference to Exhibit 10.4 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended March 31, 2002.)
10.15* 1998 Stock Incentive Plan, as amended on December 13, 2002.
(Incorporated by reference to Exhibit 10.7 of Senesco Technologies,
Inc. quarterly report on Form 10-QSB for the period ended December 31,
2002.)
10.16^ License Agreement by and between Senesco Technologies, Inc. and Harris
Moran Seed Company, dated November 19, 2001. (Incorporated by
reference to Exhibit 10.8 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 2001.)
10.17* Employment Agreement by and between Senesco Technologies, Inc. and
Bruce C. Galton, dated October 4, 2001. (Incorporated by reference to
Exhibit 10.9 of Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended December 31, 2001.)
10.18 Indemnification Agreement by and between Senesco Technologies, Inc.
and Bruce C. Galton, dated October 4, 2001. (Incorporated by reference
to Exhibit 10.10 of Senesco Technologies, Inc. quarterly report on
Form 10-QSB for the period ended December 31, 2001.)
10.19 Consulting Agreement by and between Senesco Technologies, Inc. and
Alan B. Bennett, Ph.D., dated November 1, 2002. (Incorporated by
reference to Exhibit 10.3 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 2002.)
10.20 Agreement for Service on Senesco Technologies, Inc. Scientific
Advisory Board by and between Senesco Technologies, Inc. and Dr.
Russell A. Jones, dated February 12, 2002. (Incorporated by reference
to Exhibit 10.5 of Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended March 31, 2002.)
-34-
10.21 Agreement for Service on Senesco Technologies, Inc. Scientific
Advisory Board by and between Senesco Technologies, Inc. and Dr.
Charles A. Dinarello, dated February 12, 2002. (Incorporated by
reference to Exhibit 10.6 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended March 31, 2002.)
10.22 Financial Consulting Agreement by and between Senesco Technologies,
Inc. and Perrin, Holden & Davenport Capital Corp., dated February 1,
2003. (Incorporated by reference to Exhibit 10.4 of Senesco
Technologies, Inc. quarterly report on Form 10-QSB for the period
ended December 31, 2002.)
10.23 Research Agreement by and among Senesco Technologies, Inc., Dr. John
E. Thompson and the University of Waterloo, dated May 1, 2002.
(Incorporated by reference to Exhibit 10.29 of Senesco Technologies,
Inc. annual report on Form 10-KSB for the year ended June 30, 2002.)
10.24^ Development Agreement by and between Senesco Technologies, Inc. and
ArborGen, LLC, dated June 28, 2002. (Incorporated by reference to
Exhibit 10.31 of Senesco Technologies, Inc. annual report on Form
10-KSB for the year ended June 30, 2002.)
10.25^ Development and License Agreement by and between Senesco Technologies,
Inc. and Calwest Seeds, dated September 14, 2002. (Incorporated by
reference to Exhibit 10.1 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended September 30, 2002.)
10.26 Collaboration Agreement by and between Senesco Technologies, Inc. and
Tilligen, Inc. (currently known as Anawah, Inc.), dated September 20,
2002. (Incorporated by reference to Exhibit 10.1 of Senesco
Technologies, Inc. quarterly report on Form 10-QSB for the period
ended September 30, 2002.)
10.27 Sales Representative Agreement by and between Senesco Technologies,
Inc. and DP, Inc., dated October 14, 2002. (Incorporated by reference
to Exhibit 10.1 of Senesco Technologies, Inc. quarterly report on Form
10-QSB for the period ended December 31, 2002.)
10.28* Amendment to Consulting Agreement of July 12, 1999, as modified on
February 8, 2001, by and between Senesco Technologies, Inc. and John
E. Thompson, Ph.D., dated December 13, 2002. (Incorporated by
reference to Exhibit 10.1 of Senesco Technologies, Inc. quarterly
report on Form 10-QSB for the period ended December 31, 2002.)
10.29*+ Employment Agreement by and between Senesco Technologies, Inc. and
Joel Brooks, dated July 1, 2003.
10.30+ Letter Agreement effective August 1, 2003, extending the Financial
Consulting Agreement by and between Senesco Technologies, Inc. and
Perrin, Holden & Davenport Capital Corp., dated February 1, 2003.
21 Subsidiaries of the Registrant. (Incorporated by reference to Senesco
Technologies, Inc. annual report on Form 10-KSB for the period ended
June 30, 1999.)
-35-
23.1+ Consent of Goldstein Golub Kessler LLP.
31.1+ Certification of the principal executive officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2+ Certification of the principal financial and accounting officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+ Certification of the principal executive officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2+ Certification of the principal financial and accounting officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 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.
-36-
SENESCO TECHNOLOGIES, INC.
AND SUBSIDIARY
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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,
2003, 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, 2003. 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, 2003, 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, 2003 in conformity with
accounting principles generally accepted in the United States of America.
/s/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
August 20, 2003
F-2
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
JUNE 30, 2003
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 319,930
Short-term investments 2,099,295
Prepaid expenses and other current assets 185,535
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,604,760
Property and Equipment, at cost, net of accumulated depreciation
and amortization of $82,517 75,203
Intangibles, at cost, net of accumulated amortization of $896 578,810
Deferred Income Tax Asset, net of valuation allowance of $2,856,000 -
Security Deposit 7,187
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 3,265,960
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 56,136
Accrued expenses 263,160
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 319,296
Grant Payable 90,150
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 409,446
- --------------------------------------------------------------------------------
Commitments
Stockholders' Equity:
Preferred stock - $0.01 par value; authorized 5,000,000 shares,
no shares issued -
Common stock - $0.01 par value; authorized 30,000,000 shares,
issued and outstanding 11,880,045 shares 118,800
Capital in excess of par 12,234,373
Deficit accumulated during the development stage (9,496,659)
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 2,856,514
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,265,960
================================================================================
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
2003 2002 Inception
- ------------------------------------------------------------------------------------------------------------------
Revenue $ 10,000 $ 200,000 $ 210,000
- ------------------------------------------------------------------------------------------------------------------
Operating expenses:
General and administrative 1,347,526 $ 1,308,856 6,375,303
Research and development 793,903 370,191 2,293,479
Stock-based compensation 137,177 635,186 1,498,435
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,278,606 2,314,233 10,167,217
- ------------------------------------------------------------------------------------------------------------------
Loss from operations (2,268,606) (2,114,233) (9,957,217)
Sale of state income tax loss 130,952 150,551 341,834
Interest income - net 71,316 24,263 118,724
- ------------------------------------------------------------------------------------------------------------------
Net loss $(2,066,338) $(1,939,419) $(9,496,659)
==================================================================================================================
Basic and diluted loss per common share $ (.17) $ (.20) -
==================================================================================================================
Basic and diluted weighted-average number
of common shares outstanding 11,880,045 9,624,563 -
==================================================================================================================
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, 2002 and 2003
- -------------------------------------------------------------------------------------------------------------------
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, 2002 and 2003
- ------------------------------------------------------------------------------------------------------------------------------------
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 from November 30, 2001 through
April 17, 2002 at $1.75 per unit 3,701,430 37,014 6,440,486 - - 6,477,500
Fair market value of warrants
granted on December 1, 2001 - - 262,550 - - 262,550
Issuance of common stock and
warrants associated with bridge
loan conversion on December 3, 2001 305,323 3,053 531,263 - - 534,316
Fair market value of options vested
and extended on January 1, 2002 - - 94,146 - - 94,146
(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, 2002 and 2003
- ------------------------------------------------------------------------------------------------------------------------------------
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, 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
Fair market value of warrants
vested on October 15, 2002 - - 27,832 - - 27,832
Fair market value of warrants
vested on November 1, 2002 - - 69,665 - - 69,665
Fair value of options and warrants
vested and change in fair market
value of options and warrants granted - - (20,803) - 60,482 39,679
Net loss - - - (2,066,338) - (2,066,338)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003 11,880,045 $118,800 $12,234,373 $(9,496,659) $ - 0 - $ 2,856,514
====================================================================================================================================
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
2003 2002 Inception
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(2,066,338) $(1,939,419) $(9,496,659)
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 137,177 635,186 1,498,435
Depreciation and amortization 38,697 24,356 83,413
(Increase) decrease in operating assets:
Accounts receivable 75,000 (75,000) -
Prepaid expenses and other current assets (129,763) (40,218) (185,535)
Security deposit - - (7,187)
Increase (decrease) in operating liabilities:
Accounts payable (24,065) (88,721) 56,136
Accrued expenses (33,187) 30,615 263,160
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,002,479) (1,312,635) (7,562,492)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Patent costs (231,728) (190,058) (579,706)
Redemption (purchase) of investments, net 1,766,672 (3,865,967) (2,099,295)
Purchase of property and equipment (33,424) (25,180) (157,721)
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities 1,501,520 (4,081,205) (2,836,722)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from grant 22,178 22,165 90,150
Proceeds from issuance of bridge notes - 525,000 525,000
Proceeds from issuance of common stock and
warrants, net - 5,631,056 10,103,994
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 22,178 6,178,221 10,719,144
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (478,781) 784,381 319,930
Cash and cash equivalents at beginning of period 798,711 14,330 -
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 319,930 $ 798,711 $ 319,930
======================================================================================================================
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.
On December 12, 2002, the shareholders approved a proposal
to increase the authorized Common Stock of the Company from
20,000,000 shares to 30,000,000 shares.
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.
F-9
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's investments consist of United States treasury
notes and high-grade corporate and federal governmental
agency debt instruments. Based on the Company's intentions
regarding these instruments, the Company has classified all
marketable debt securities as held-to-maturity and has
accounted for these investments at amortized cost.
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. Issued patents are being amortized over 20 years.
Pending patent applications 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 applies APB Opinion No. 25 and related
interpretations in accounting for its stock option 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
F-10
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated below:
Year ended June 30, 2003 2002
----------------------------------------------------------------------------------------
Net loss:
As reported $(2,066,338) $(1,939,419)
Stock-based employee compensation costs (737,841) (1,032,600)
----------------------------------------------------------------------------------------
Pro forma $(2,804,179) $(2,972,019)
========================================================================================
Loss per share:
As reported $ (.17) $ (.20)
========================================================================================
Pro forma $ (.24) $ (.31)
========================================================================================
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, 2003 and 2002 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 3.00% to 4.22% and 4.24% to 5.18%, 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. 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.
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
reporting period. The critical accounting policies that
require management's most significant estimate and judgment
are the assessment of the recoverability of intangible
assets, the valuation allowance on deferred tax assets and
the amount of accrued research costs. 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.
F-11
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. INVESTMENTS: At June 30, 2003, the amortized cost basis, aggregate fair
value, gross unrealized gains and maturity by majority
security type were as follows:
Gross
Unrealized Aggregate Amortized
Gain Fair Value Cost Basis
--------------------------------------------------------------------------------------------------
Held-to-maturity securities:
Debt securities issued by United
States (maturing within one year) $4,698 $1,003,993 $ 999,295
Corporate debt securities (maturing
within one year) 783 1,100,783 1,100,000
--------------------------------------------------------------------------------------------------
$5,481 $2,104,776 $ 2,099,295
==================================================================================================
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
--------------------------------------------------------------------------------------------------
Company Web site $ 26,500 3 years
Equipment 56,313 4 years
Leasehold improvements 7,233 5 years
Furniture and fixtures 67,674 7 years
--------------------------------------------------------------------------------------------------
157,720
Accumulated depreciation and amortization (82,517)
--------------------------------------------------------------------------------------------------
$ 75,203
==================================================================================================
Depreciation and amortization aggregated $37,801 and $24,356
for the years ended June 30, 2003 and 2002, respectively.
4. ACCRUED The following are included in accrued expenses at June 30,
EXPENSES: 2003:
Accrued research $179,316
Accrued accounting 37,500
Accrued patent costs 29,743
Accrued payroll 10,711
Accrued legal 5,890
--------------------------------------------------------------------------------------------------
$263,160
==================================================================================================
F-12
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. RELATED PARTY During the year ended June 30, 1999, a stockholder and
TRANSACTIONS: former director 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.
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)
F-13
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 1,142,858
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.
F-14
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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
F-15
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 3,000,000
shares of common stock have been reserved for issuance. On
March 28, 2003, the Company filed a registration statement
with the Securities and Exchange Commission to register all
of the 3,000,000 shares of Common Stock underlying the Plan.
The registration statement was deemed effective upon filing.
Stock option activity under the Plan is summarized as
follows:
Year ended June 30, 2003 2002
--------------------------------------------------------------------------------------------------
Weighted- Weighted-
average average
Exercise Exercise
Shares Price Shares Price
---------------------------------------------------------------------------------------------------
Options outstanding at beginning of year 1.616,000 $2.63 450,000 $3.40
Granted 245,000 $2.22 1,181,000 $2.46
Expired (80,000) $3.05 (15,000) $3.50
---------------------------------------------------------------------------------------------------
Options outstanding at end of year 1,781,000 $2.56 1,616,000 $2.63
===================================================================================================
Options exercisable at end of year 1,338,500 $2.70 1,095,666 $2.80
===================================================================================================
Weighted-average fair value of options
granted during the year $2.08 $1.83
===================================================================================================
The following table summarizes information about stock
options outstanding at June 30, 2003:
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, 2003 Life (Years) Price June 30, 2003 Price
--------------------------------------------------------------------------------------------------
$1.50 - $4.00 1,781,000 7.34 $2.56 1,338,500 $2.70
==================================================================================================
F-16
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
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, 2003, the Company had warrants outstanding
for the purchase of 4,207,153 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
2.35 15,000
2.15 110,000
2.00 1,810,450
1.50 100,000
1.00 50,000
0.01 20,000
------------------------------------------------------------
4,207,153
============================================================
For the years ended June 30, 2003 and 2002, the Company
incurred a compensation charge of $137,177 and $635,186,
respectively, relating to the above options and warrants. As
of June 30, 2003, 4,148,820 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 3.50% to 3.93% and 4.24% to 5.15%,
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.
F-17
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 2003 2002
------------------------------------------------------------
Federal statutory rate (34)% (34)%
Increase in valuation allowance 34 34
------------------------------------------------------------
- 0 - % - 0 - %
============================================================
At June 30, 2003, the deferred income tax asset consists of
the following:
Deferred tax asset:
Net operating loss carryforward $ 2,856,000
Valuation allowance (2,856,000)
------------------------------------------------------------
$ - 0 -
============================================================
In December 2002 and 2001, the Company sold its entire state
net operating losses for the years ended June 30, 2001 and
2000, and received net proceeds of $130,952 and $150,551,
respectively.
At June 30, 2003, the Company has federal and state net
operating loss carryforwards of approximately $7,470,000 and
$3,511,000, respectively, available to offset future taxable
income expiring on various dates through 2023.
8. COMMITMENTS: Effective September 1, 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 expenses under this agreement for the years
ended June 30, 2003 and 2002 aggregated U.S. $373,240 and
U.S. $254,347 respectively, and U.S. $1,446,204 for the
cumulative period through June 30, 2003.
Effective May 1, 2002, the Company entered into an
additional one-year research and development agreement in
the amount of Can $50,000 or U.S. $42,626, all of which was
incurred during the year ended June 30, 2003.
F-18
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Effective May 1, 1999, the Company entered into a consulting
agreement for research and development with such
stockholder. Effective January 1, 2003, the agreement was
amended to provide for an increase in the monthly payments
from $3,000 to $5,000 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, all 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 2004 and June 2006. Future base compensation
to be paid through June 2006 under the agreements as of June
30, 2003 is $673,750.
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, 2003 are as
follows:
Year ending June 30,
2004 $ 34,056
2005 34,056
2006 28,380
-------------------------------------------------------------
$ 96,492
=============================================================
Rent expense charged to operations for the years ended June
30, 2003 and 2002 is $38,252 and $37,037, 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 tissue culture
plants. The purpose of the Joint Venture is to develop
enhanced banana plants which will result in banana fruit
with improved consumer- and grower-driven traits. 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 $53,500 and $41,000 for the years ended June
30, 2003 and 2002, 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 ending May 31, 2003. 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
$90,150, of which $22,178 and $22,165 was received during
the years ended June 30, 2003 and 2002, respectively, from
the BIRD Foundation for research
F-19
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
and development expenses the Company has incurred which are
associated with research and development efforts of the
Joint Venture. The Company expects to receive one additional
installment from the BIRD Foundation in connection with
expenses incurred by the Company during the period from
December 1, 2002 through May 31, 2003.
10. LICENSE AND In November 2001, the Company entered into a worldwide
DEVELOPMENT exclusive license with Harris Moran Seed Company (the
AGREEMETNS: "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 signing an agreement with a marketing
partner, Harris Moran Seed Company will pay the Company an
additional $125,000 fee. The License also provides for the
marketing partner to make development payments to the
Company of $3,750,000 upon the completion of development
benchmarks, as well as certain royalties upon commercial
introduction.
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.
In September 2002, the Company entered into an exclusive
development and license agreement with Cal/West Seeds (the
"Cal/West License") to commercialize the Company's
technology in certain varieties of alfalfa. In connection
with the execution of the Cal/West License, the Company
received an initial fee of $10,000. 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.
Also in September 2002, the Company entered into an
exclusive worldwide collaboration agreement with Anawah,
Inc. (the "Anawah Agreement") to establish a research
alliance to develop and commercialize certain genetically
enhanced species of produce. Under the Anawah Agreement,
Anawah will license its proprietary technology to the
Company and will also perform certain transformation
functions in order to develop seeds in certain species of
produce that have been enhanced with our technology. In
connection with the execution of the Anawah Agreement, the
Company incurred an initial research and development fee of
$200,000, which is being amortized over the term of the
research to be performed under the agreement. Upon the
completion of certain development benchmarks, the Company
will incur additional research and development fees, and
upon commercialization of the enhanced produce, the Company
will make certain royalty payments to Anawah.
F-20
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of the 1st day of
July, 2003, and is by and between Senesco, Inc., a New Jersey corporation with
an office for purposes of this Agreement at 303 George Street, Suite 420, New
Brunswick, New Jersey 08901 (hereinafter the "Company" or "Employer"), and Joel
Brooks with an address at 12 Quince Place, North Brunswick, NJ 08902
(hereinafter the "Employee").
W I T N E S S E T H:
WHEREAS:
(a) Company wishes to retain the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
(b) Employee wishes to perform such services for and on behalf of
the Company, in accordance with the following terms, conditions and provisions.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained the parties hereto intending to be legally bound
hereby agree as follows:
1. EMPLOYMENT. Company hereby employs Employee and Employee accepts
-----------
such employment and shall perform his duties and the responsibilities provided
for herein in accordance with the terms and conditions of this Agreement.
2. EMPLOYMENT STATUS. Employee shall at all times be Company's
-------------------
Employee subject to the terms and conditions of this Agreement.
3. TERM. Unless earlier terminated pursuant to terms and provisions
-----
of this Agreement, this Agreement shall have a term (the "Term") of three (3)
years following the date hereof. The Term shall automatically renew for
successive one (1) year terms thereafter unless
either party delivers written notice of termination to the other at least 120
days prior to the end of the initial three (3) year term or any succeeding one
(1)-year term.
4. POSITION. During Employee's employment hereunder, Employee shall
---------
serve as Chief Financial Officer of the Company. In such position, Employee
shall have the customary powers, responsibilities and authorities of officers in
such position of corporations of the size, type and nature of the Company
including being generally responsible for the financial activities of Employer's
business. Employee shall perform such duties and exercise such powers
commensurate with his positions and responsibilities as shall be determined from
time to time by the Board of Directors of the Company (the "Board") or the Chief
Executive Officer of the Employer (the "CEO") and shall report directly to the
CEO and, at their sole discretion, the Board or Audit Committee of the Company
and to no other person, entity or committee. Neither Employee's title nor any of
his functions nor the manner in which he shall report shall be changed,
diminished or adversely affected during the Term without his written consent.
Employee shall be provided with an office, staff and other working facilities at
the executive offices of the Company consistent with his positions and as
required for the performance of his duties.
5. COMPENSATION.
-------------
(a) For the performance of all of Employee's services to be
rendered pursuant to the terms of this Agreement, Company will pay and Employee
will accept the following compensation:
Base Salary. During the Term, Company shall pay the Employee
------------
an initial base annual salary of $122,000 (the "Base Salary") payable in
bi-monthly installments, and such Base Salary shall not be decreased during the
Term. Employee shall be entitled to such further
2
increases, if any, in his Base Salary as may be determined from time to time in
the sole discretion of the Board. Employee's Base Salary, as in effect from time
to time, is hereinafter referred to as the "Employee's Base Salary."
(b) Employee shall be eligible to receive bonuses at such times
and in such amounts as the Board shall determine in its sole and absolute
discretion on the basis of the performance of the Employee.
(c) Company shall deduct and withhold from Employee's
compensation all necessary or required taxes, including but not limited to
Social Security, withholding and otherwise, and any other applicable amounts
required by law or any taxing authority.
6. Employee Benefits.
-------------------
(a) During the Term hereof and so long as Employee is not
terminated for cause (as such term is defined herein), Employee shall receive
and be provided health insurance, and during Employee's employment hereunder,
such other employee benefits including, without limitation, fringe benefits,
vacation, and life, health, accident and disability insurance, etc. on the same
basis as provided under the Company plans.
(b) Employee shall be entitled to receive four (4) weeks paid
vacation per year. If such vacation time is not taken by Employee in the then
current year, Employee at his option may accrue up to two weeks vacation for
carryover into the next year.
(c) Reasonable travel, entertainment and other business expenses
incurred by Employee in the performance of his duties hereunder shall be
reimbursed by the Company in accordance with Company policies as in effect from
time to time.
7. Termination.
------------
(a) For Cause by the Company.
-------------------------
3
Employee's employment hereunder may be terminated by the Company for
cause. For purposes of this Agreement, "cause" shall mean:
(i) Employee's failure to substantially perform duties
hereunder consistent with the terms hereof within twenty (20) business days
following Employee's receipt of written notice of such failure (which notice
shall have been authorized by the Board of Directors and shall set forth in
reasonable detail the purported failure to perform and the specific steps to
cure such failure, which shall be consistent with the terms hereof);
(ii) misappropriation of Company funds or willful misconduct
which results in material damage to the Company;
(iii) Employee's conviction of, or plea of nolo contendere
to, any crime constituting a felony under the laws of the United States or any
State thereof, or any crime constituting a misdemeanor under any such law
involving moral turpitude; or
(iv) Employee's material breach of any of the material
provisions of this Agreement, which breach Employee has failed to cure within
twenty (20) business days after receipt of written notice by Employee of such
breach or which breach Employee has failed to begin to attempt to cure during
said twenty (20)-day period if the breach requires more than the twenty (20)-day
period to cure. Any termination of Employee's employment pursuant to this
Subsection 7(a) shall be made by delivery to Employee of a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the Board at
an actual meeting of the Board called and held for that purpose (after twenty
(20) days prior written notice to Employee and a reasonable opportunity for
Employee to be heard before the Board prior to such vote) finding that in the
good faith judgment of the Board, Employee was guilty of conduct set forth in
any of clauses (i) through (iv) above and specifying the particulars thereof;
and
4
(v) If Employee is terminated for cause, he shall be
entitled to receive Employee's Base Salary from Company through the date of
termination and Employee shall be entitled to no other payments of Employee's
Base Salary under this Agreement. All other benefits, if any, due Employee
following Employee's termination of employment pursuant to this Subsection 7(a)
shall be determined in accordance with the plans, policies and practices of the
Company for most senior executives.
(b) Disability or Death.
--------------------
(i) Employee's employment hereunder shall terminate upon
his death or if Employee becomes physically or mentally incapacitated and is
therefore unable (or will, as a result thereof, be unable) to perform his duties
for a period of nine (9) consecutive months or for an aggregate of fifteen (15)
months in any twenty-four (24) consecutive month period (such incapacity is
hereinafter referred to as "Disability"). If Company terminates Employee's
employment under the terms of this Agreement and Employee does not receive
disability insurance payments under the terms hereof in an amount at least equal
to the then effective Employee's Base Salary pursuant to a policy maintained and
paid for by the Company, Company shall be responsible to continue to pay
Employee's Base Salary during the then remaining Term to the extent required to
bring the Employee's annual compensation (together with disability payments) up
to the amount equal to the Employee's Base Salary immediately prior to the
termination for Disability. The Employee shall also receive a pro rata bonus
--- ----
payment with respect to the portion of the year lapsed prior to the termination
based on the bonus paid to the Employee for the prior year. Any question as to
the existence of the Disability of Employee as to which Employee and the Company
cannot agree shall be determined in writing by a qualified independent physician
mutually acceptable to Employee and the Company. If Employee and the
5
Company cannot agree as to a qualified independent physician, each shall appoint
such a physician and those two physicians shall select a third who shall make
such determination in writing. The determination of Disability made in writing
to the Company and Employee shall be final and conclusive for all purposes of
this Agreement.
(ii) Upon termination of Employee's employment hereunder
during the Term as a result of death, Employee's estate or named
beneficiary(ies) shall receive from the Company (x) Employee's Base Salary at
the rate in effect at the time of Employee's death through the end of the third
month following the month his death occurs and pro rata bonus payment with
respect to that portion of the year lapsed prior to his death based on the bonus
paid to the Employee for the prior year, and (y) the proceeds of any life
insurance policy maintained for his benefit by the Company pursuant to this
Agreement (or the Plans and Policies of the Company generally).
(iii) All other benefits, if any, due Employee following
Employee's termination of employment pursuant to this Subsection 7(b) shall be
determined in accordance with the plans, policies and practices of the Company.
(c) Without Cause by the Company or For Good Reason.
------------------------------------------------
(i) If Employee's employment is terminated by the Company
without cause (other than by reason of Disability or death) or Employee resigns
for Good Reason (as defined below), in either case prior to a Change of Control
(as defined below), then Employee shall be entitled to a lump sum cash payment
from the Company, payable within ten (10) days after such termination of
employment, in an amount equal to one (1.0) times the Employee's Base Salary (as
in effect as of the date of such termination) and the prior year's bonus. All
other benefits, if any, due Employee following Employee's termination of
employment pursuant to this Subsection 7(c)(i) shall be determined in accordance
with the plans, policies and practices of the Company.
(ii) If there is a Change of Control within one (1) year of
the termination of this Agreement without cause by the Company, Employee shall
be entitled to receive the difference between those monies he actually received
upon such termination and one (1.0) times Employee's base amount as defined in
Section 280G(b)(3) of the Internal Revenue code of 1986, as amended (the "Code")
(the "Employee Base Amount").
(iii) Subject to Subsection 7(f), if Employee's employment
is terminated by the Company without cause or by Employee for Good Reason during
the Term and coincident with or following a Change of Control, Employee shall be
entitled to a lump sum payment, payable within ten (10) days after such
termination of employment, equal to the product of (x) 1.0 times (y) the
Employee Base Amount.
(iv) For purposes of this Agreement "Good Reason" shall
mean:
(a) Any material breach by the Company of this
Agreement; or
(b) The failure of the Board of Directors to elect the
Employee as an officer of the Company with the
position set forth in Section 4 hereof during the
Term; or
(c) any action by the Company which results in a
material diminution of the Employee's position set
forth in Section 4 hereof or Employee's authority,
duties or responsibilities,
provided, that, the foregoing events shall not be deemed to constitute Good
- -------- ----
Reason unless Employee shall have notified the Board in writing of the
occurrence of such event(s) and the Board shall have failed to have cured or
remedied such event(s) within twenty (20) business days of its receipt of such
written notice or which breach Employer has failed to begin to attempt to cure
during said twenty (20)-day period if the breach is not curable during the
twenty (20)-day period.
(d) Termination by Employee. If Employee terminates
------------------------
his employment with the Company for any reason
(other than for Good Reason) during the Term,
Employee shall be entitled to the same payments he
would have received if his employment had
terminated by the Company for cause.
(e) Change of Control. For purposes of this Agreement,
-----------------
"Change of Control" shall mean:
(i) any transaction or series of transactions
(including, without limitation, a tender offer, merger or consolidation) the
result of which is that any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), becomes the "beneficial" owners (as defined in Rule 13(d)(3)
promulgated under the Exchange Act) of more than fifty percent (50%) of the
total
8
aggregate voting power of all classes of the voting stock of the Company and/or
warrants or options to acquire such voting stock, calculated on a fully diluted
basis;
(ii) during any period of two (2) consecutive
calendar years, individuals who at the beginning of such period constituted the
Board (together with any new directors whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office; or
(iii) a sale of assets constituting all or
substantially all of the assets of the Company (determined on a consolidated
basis). In the event of such Change of Control, the new entity shall be
obligated to assume the terms and conditions of this Agreement.
(f) Limitation on Certain Payments.
-------------------------------
(i) In the event it is determined pursuant to
clause (ii) below, that part or all of the consideration, compensation or
benefits to be paid to Employee under this Agreement in connection with
Employee's termination of employment following a Change of Control or under any
other plan, arrangement or agreement in connection therewith, constitutes a
"parachute payment" (or payments) under Section 280G(b)(2) of the Code, then, of
the aggregate present value of such parachute payments (the "Parachute Amount")
exceeds one (1.0) times the Employee Base Amount, the amounts constituting
"parachute payments" which would otherwise be payable to or for the benefit of
Employee shall be reduced to the extent necessary such that the Parachute Amount
is equal to one (1.0) times the Employee Base Amount. Employee shall have the
right to choose which amounts that would otherwise be due him but for the
limitations
9
described in this paragraph shall be subject to reduction. Notwithstanding the
foregoing, if it is determined that stockholder approval of the payment of such
compensation and benefits will reduce the applicability of Section 280G of the
Code to such payment, promptly after request by Employee, Company will undertake
reasonable efforts to hold such a meeting to obtain such approval or to solicit
such approval by written consent, and to obtain such approval.
(ii) Any determination that a payment constitutes
a parachute payment and any calculation described in this Subsection 7(f)
("determination") shall be made by the independent public accountants for the
Company, and may, at Company's election, be made prior to termination of
Employee's employment where Company determines that a Change in Control, as
provided in this Section 7, is imminent. Such determination shall be furnished
in writing no later than thirty (30) days following the date of the Change in
Control by the accountants to Employee. If Employee does not agree with such
determination from the accountants and within fifteen (15) days thereafter,
accountants of Employee's choice must deliver to the Company their determination
that in their judgment complies with the Code. If the two accountants cannot
agree upon the amount to be paid to Employee pursuant to this Section 7 within
ten (10) days of the delivery of the statement of Employee's accountants to the
Company, the two accountants shall choose a third accountant who shall deliver
their determination of the appropriate amount to be paid to Employee pursuant to
this Subsection 7(f), which determination shall be final. If the final
determination provides for the payment of a greater amount than that proposed by
the accountants of the Company, then the Company shall pay all of Employee's
costs incurred in contesting such determination and all other costs incurred by
the Company with respect to such determination.
10
(iii) If the final determination made pursuant to
clause (ii) of this Subsection 7(f) results in a reduction of the payments that
would otherwise be paid to Employee except for the application of clause (i) of
this Subsection 7(f), Employee may then elect, in his sole discretion, which and
how much of any particular entitlement shall be eliminated or reduced and shall
advise the Company in writing of his election within ten (10) days of the final
determination of the reduction in payments. If no such election is made by
Employee within such ten (10)-day period, the Company may elect which and how
much of any entitlement shall be eliminated or reduced and shall notify Employee
promptly of such election. Within ten (10) days following such determination and
the elections hereunder, the Company shall pay to or distribute to or for the
benefit of Employee such amounts as become due to Employee under this Agreement.
(iv) As a result of the uncertainty in the
application of Section 280G of the Code at the time of a determination
hereunder, it is possible that payments will be made by the Company which should
not have been made under clause (i) of this Subsection 7(f) ("Overpayment") or
that additional payments which are not made by the Company pursuant to clause
(i) of this Subsection 7(f) should have been made ("Underpayment"). In the event
that there is a final determination by the Internal Revenue Service, or a final
determination by a court of competent jurisdiction, that an Overpayment has been
made, any such Overpayment shall be treated for all purposes as a loan to
Employee which Employee shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code. In the
event that there is a final determination by the Internal Revenue Service, a
final determination by a court of competent jurisdiction or a change in the
provisions of the Code or regulations pursuant to which an Underpayment arises
under this Agreement, any such
11
Underpayment shall be promptly paid by the Company to or for the benefit of
Employee, together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code.
(v) This Subsection 7(f) is intended to ensure
that any payments made to the Employee shall comply with Section 280G of the
Code, and shall not have the effect of increasing the payments otherwise due to
the Employee under this Agreement.
8. NON-DISCLOSURE OF INFORMATION.
------------------------------
(a) Employee acknowledges that by virtue of his position he will
be privy to the Company's confidential information and trade secrets, as they
may exist from time to time, and that such confidential information and trade
secrets may constitute valuable, special, and unique assets of the Company
(hereinafter collectively "Confidential Information"). Accordingly, Employee
shall not, during the Term and for a period of five (5) years thereafter,
intentionally disclose all or any part of the Confidential Information to any
person, firm, corporation, association or any other entity for any reason or
purpose whatsoever, nor shall Employee and any other person by, through or with
Employee, during the Term and for a period of five (5) years thereafter,
intentionally make use of any of the Confidential Information for any purpose or
for the benefit of any other person or entity, other than Company, under any
circumstances.
(b) Company and Employee agree that a violation of the foregoing
covenants will cause irreparable injury to the Company, and that in the event of
a breach or threatened breach by Employee of the provisions of this Section 8,
Company shall be entitled to an injunction restraining Employee from disclosing,
in whole or in part, any Confidential Information, or from rendering any
services to any person, firm, corporation, association or other
12
entity to whom any such information, in whole or in part, has been disclosed or
is threatened to be disclosed in violation of this Agreement. Nothing herein
stated shall be construed as prohibiting the Company from pursuing any other
rights and remedies, at law or in equity, available to the Company for such
breach or threatened breach, including the recovery of damages from the
Employee.
(c) Notwithstanding anything contained in this Section 8 to the
contrary, "Confidential Information" shall not include (i) information in the
public domain as of the date hereof, (ii) information which enters the public
domain hereafter through no fault of the Employee, (iii) information known to
the Employee prior to his employment with the Company, or (iv) information
created, discovered or developed by the Employee independent of his association
with the Company. Nothing contained in this Section 8 shall be deemed to
preclude the proper use by the Employee of Confidential Information in the
exercise of his duties hereunder or the disclosure of Confidential Information
required by law.
9. RESTRICTIVE COVENANT.
---------------------
(a) During the term hereof and for a period of one (1) year
after the termination of this Agreement, Employee covenants and agrees that he
shall not own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or control,
whether directly or indirectly, as an individual on his own account, or as a
partner, member, joint venturer, officer, director or shareholder of a
corporation or other entity, of any business which competes with the business
conducted by Company at the time of the termination or expiration of this
Agreement. Notwithstanding the foregoing, (i) nothing in this Section 9 shall
prohibit Employee from owning up to five percent (5%) of the outstanding voting
capital stock of any corporation or other entity listed on Nasdaq
13
or traded on any national securities exchange, and (ii) in the event of a
termination by the Company without cause or a termination by the Employee for
Good Reason, such restriction shall apply only if the Company has paid to the
Employee all amounts required and is otherwise in compliance with Section 7
hereof.
(b) Employee acknowledges that the restrictions contained in
this Section 9 are reasonable. In that regard, it is the intention of the
parties to this Agreement that the provisions of this Section 9 shall be
enforced to the fullest extent permissible under the law and public policy
applied in each jurisdiction in which enforcement is sought. Accordingly, if any
portion of this Section 9 shall be adjudicated or deemed to be invalid or
unenforceable, the remaining portions shall remain in full force and effect, and
such invalid or unenforceable portion shall be limited to the particular
jurisdiction in which such adjudication is made.
10. BREACH OR THREATENED BREACH OF COVENANTS. In the event of
----------------------------------------------
Employee's actual or threatened breach of his obligations under either Sections
8 or 9, or both, of this Agreement, or Company's breach or threatened breach of
its obligations under this Agreement, in addition to any other remedies either
party may have, such party shall be entitled to obtain a temporary restraining
order and a preliminary and/or permanent injunction restraining the other from
violating these provisions. Nothing in this Agreement shall be construed to
prohibit Company or Employee, as the case may be, from pursuing and obtaining
any other available remedies which Company or Employee, as the case may be, may
have for such breach or threatened breach, whether at law or in equity,
including the recovery of damages from the other.
11. DISCLOSURE OF INNOVATIONS. The Employee hereby agrees to disclose
--------------------------
in writing to the Company all inventions, improvements and other innovations of
any kind that
14
the Employee makes, conceives, develops or reduces to practice, alone or jointly
with others, during the Term, to the extent they are related to the Employee's
work for the Company and whether or not they are eligible for patent, copyright,
trademark, trade secret or other legal protection ("Innovations"). Examples of
Innovations shall include, but are not limited to, discoveries, research,
inventions, formulas, techniques, processes, tools, know-how, marketing plans,
new product plans, production processes, advertising, packaging and marketing
techniques.
12. ASSIGNMENT OF OWNERSHIP OF INNOVATIONS. The Employee hereby agrees
---------------------------------------
that all Innovations will be the sole and exclusive property of the Company and
the Employee hereby assigns all of his rights, title or interest in the
Innovations and in all related patents, copyrights, trademarks, trade secrets,
rights of priority and other proprietary rights to the Company to the extent
they are related to the Employee's work for the Company. At the Company's
request and expense, during and after the Term, the Employee will assist and
cooperate with the Company in all respects and will execute documents, and,
subject to his reasonable availability, give testimony and take further acts
requested by the Company to obtain, maintain, perfect and enforce for the
Company patent, copyright, trademark, trade secret and other legal protection
for the Innovations. The Employee hereby appoints the CEO as his
attorney-in-fact to execute documents on his behalf for this purpose.
13. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee hereby
-----------------------------------------------
warrants and represents that he is not subject to or a party to any restrictive
covenants or other agreements that in any way preclude, restrict, restrain or
limit him (a) from being an employee of Company, (b) from engaging in the
business of Company in any capacity, directly
15
or indirectly, and (c) from competing with any other persons, companies,
businesses or entities engaged in the business of Company.
14. NOTICES. Any notice required, permitted or desired to be given
--------
under this Agreement shall be sufficient if it is in writing and (a) personally
delivered to Employee or an authorized member of Company, (b) sent by overnight
delivery or (c) sent by registered or certified mail, return receipt requested,
to Employer's or Employee's address as provided in this Agreement or to a
different address designated in writing by either party. In all instances of
notices to be given to Company, a copy by like means shall be delivered to
Company's counsel care of Hale and Dorr LLP, 650 College Road East, Princeton,
New Jersey 08540, Attention: Emilio Ragosa, Esq. In all instances of notices to
be given to Employee, a copy by like means shall be delivered to Employee's
counsel at the address supplied by the Employee. Notice is deemed given on the
day it is delivered personally or by overnight delivery, or five (5) business
days after it is mailed, if transmitted by the United States Post Office.
15. ASSIGNMENT. Employee acknowledges that his services are unique and
-----------
personal. Accordingly, Employee may not assign his rights or delegate his duties
or obligations under this Agreement. Company's rights and obligations under this
Agreement shall inure to the benefit of and shall be binding upon the Company's
successors and assigns. Company has the absolute right to assign its rights and
benefits under the terms of this Agreement.
16. WAIVER OF BREACH. Any waiver of a breach of a provision of this
-----------------
Agreement, or any delay or failure to exercise a right under a provision of this
Agreement, by either party, shall not operate or be construed as a waiver of
that or any other subsequent breach or right.
16
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement
------------------
of the parties. It may not be changed orally but only by an agreement in writing
which is signed by the parties. The parties hereto agree that any existing
employment agreement between them shall terminate as of the date of this
Agreement.
18. GOVERNING LAW. This Agreement shall be construed in accordance
---------------
with and governed by the internal laws of the State of New Jersey.
19. SEVERABILITY. The invalidity or non-enforceability of any
-------------
provision of this Agreement or application thereof shall not affect the
remaining valid and enforceable provisions of this Agreement or application
thereof.
20. CAPTIONS. Captions in this Agreement are inserted only as a matter
---------
of convenience and reference and shall not be used to interpret or construe any
provisions of this Agreement.
21. GRAMMATICAL USAGE. In construing or interpreting this Agreement,
------------------
masculine usage shall be substituted for those feminine in form and vice versa,
and plural usage shall be substituted or singular and vice versa, in any place
in which the context so requires.
22. CAPACITY. Employee has read and is familiar with all of the terms
---------
and conditions of this Agreement and has the capacity to understand such terms
and conditions hereof. By executing this Agreement, Employee agrees to be bound
by this Agreement and the terms and conditions hereof.
23. COUNTERPARTS. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
17
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first herein above written.
SENESCO TECHNOLOGIES, INC.
By:/s/ Bruce C. Galton
------------------------------------
Bruce C. Galton, President and Chief
Executive Officer
EMPLOYEE
/s/ Joel Brooks
------------------------------------
Joel Brooks
CONSENT OF GOLDSTEIN GOLUB KESSLER LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Senesco Technologies Inc.
We consent to the incorporation by reference in the Amendment No. 1 to the
Registration Statement on Form S-3 file number 333-89548 of Senesco Technologies
Inc. ("the Company") of our report dated August 20, 2003, appearing in the
Company's Annual Report on Form 10-KSB for the year ended June 30, 2003.
/s/ Goldstein Golub Kessler LLP
Goldstein Golub Kessler LLP
New York, New York
September 29, 2003
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Bruce C. Galton, President and Chief Executive Officer of Senesco
Technologies, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Senesco Technologies,
Inc.
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) [Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release 34-47986]
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 29, 2003
/s/ Bruce C. Galton
-------------------------------------
Bruce C. Galton
President and Chief Executive Officer
(principal executive officer)
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Joel Brooks, Chief Financial Officer and Treasurer of Senesco Technologies,
Inc., certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Senesco Technologies,
Inc.
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) [Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release 34-47986]
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 29, 2003
/s/ Joel Brooks
--------------------------------------------
Joel Brooks
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-KSB of Senesco
Technologies, Inc. for the year ended June 30, 2003 as filed with the Securities
and Exchange Commission on the date hereof, the undersigned, Bruce C. Galton,
President and Chief Executive Officer, hereby certifies, pursuant to 18 U.S.C.
Section 1350, that:
(1) The Annual Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of Senesco
Technologies, Inc.
Dated: September 29, 2003 /s/ Bruce C. Galton *
--------------------------------------------
Bruce C. Galton
President and Chief Executive Officer
(principal executive officer)
* A signed original of this written statement required by Section 906 has been
provided to us and will be retained by us and furnished to the Securities and
Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-KSB of Senesco
Technologies, Inc. for the year ended June 30, 2003 as filed with the Securities
and Exchange Commission on the date hereof, the undersigned, Joel Brooks, Chief
Financial Officer and Treasurer, hereby certifies, pursuant to 18 U.S.C. Section
1350, that:
(1) The Annual Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of Senesco
Technologies, Inc.
Dated: September 29, 2003 /s/ Joel Brooks *
--------------------------------------------
Joel Brooks
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
* A signed original of this written statement required by Section 906 has been
provided to us and will be retained by us and furnished to the Securities and
Exchange Commission or its staff upon request.