UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2004
--------------------
[ ] Tansition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 001-31326
SENESCO TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 84-1368850
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
303 George Street, Suite 420, New Brunswick, New Jersey 08901
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(Address of Principal Executive Offices)
(732) 296-8400
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(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
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State the number of shares outstanding of each of the Issuer's classes of
common stock, as of April 30, 2004:
Class Number of Shares
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Common Stock, $0.01 par value 13,732,250
Transitional Small Business Disclosure Format (check one):
Yes: No: X
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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements........................................... 1
CONDENSED CONSOLIDATED BALANCE SHEET
as of March 31, 2004 (unaudited) and June 30, 2003.................. 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2004 and March 31, 2003,
For the Nine Months Ended March 31, 2004 and March 31, 2003, and
From Inception on July 1, 1998 through March 31, 2004 (unaudited)... 3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY
From Inception on July 1, 1998 through March 31, 2004 (unaudited)... 4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended March 31, 2004 and March 31, 2003,
and From Inception on July 1, 1998 through March 31, 2004
(unaudited)......................................................... 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited).............................................. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
Overview............................................................ 11
Factors That May Affect Our Business, Future Operating Results
and Financial Condition............................................. 14
Liquidity and Capital Resources..................................... 23
Changes to Critical Accounting Policies and Estimates............... 24
Results of Operations............................................... 25
Item 3. Controls and Procedures........................................ 29
PART II. OTHER INFORMATION.
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities........................................... 30
Item 6. Exhibits and Reports on Form 8-K............................... 30
SIGNATURES................................................................. 32
-i-
PART I. FINANCIAL INFORMATION.
-----------------------------
ITEM 1. FINANCIAL STATEMENTS.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. However, Senesco Technologies, Inc., a
Delaware corporation, and its wholly owned subsidiary, Senesco, Inc., a New
Jersey corporation (collectively, "Senesco" or the "Company"), believe that the
disclosures are adequate to assure that the information presented is not
misleading in any material respect.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.
-1-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
March 31, June 30,
2004 2003
----------------- -----------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 3,756,260 $ 319,930
Short-term investments........................................................ 800,679 2,099,295
Prepaid expenses and other current assets..................................... 67,610 185,535
-------------- --------------
Total Current Assets..................................................... 4,624,549 2,604,760
Property and equipment, net................................................... 56,119 75,203
Intangibles, net.............................................................. 773,049 578,810
Security deposit.............................................................. 7,187 7,187
-------------- --------------
TOTAL ASSETS............................................................. $ 5,460,904 $ 3,265,960
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 24,790 $ 56,136
Accrued expenses.............................................................. 464,258 263,160
Deferred revenue.............................................................. 45,833 --
-------------- --------------
Total Current Liabilities................................................ 534,881 319,296
Grant payable................................................................. 90,150 90,150
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TOTAL LIABILITIES........................................................ 625,031 409,446
============== ==============
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 13,601,850 and 11,880,045 shares.................... 136,018 118,800
Capital in excess of par...................................................... 16,812,193 12,234,373
Deficit accumulated during the development stage.............................. (12,112,338) (9,496,659)
-------------- --------------
Total Stockholders' Equity................................................. 4,835,873 2,856,514
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 5,460,904 $ 3,265,960
============== ==============
See Notes to Condensed Consolidated Financial Statements.
-2-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(unaudited)
From Inception on
For the Three For the Three For the Nine For the Nine July 1, 1998
Months Ended Months Ended Months Ended Months Ended through
March 31, March 31, March 31, March 31, March 31,
2004 2003 2004 2003 2004
------------- ------------- ------------ ------------- ---------------
Revenue................................ $ 4,167 $ -- $ 4,167 $ 10,000 $ 214,167
------------ ----------- ----------- ------------- -------------
Operating Expenses:
General and administrative........... 294,125 294,403 2,031,044 1,178,713 9,607,015
Research and development............. 320,559 237,687 893,704 612,654 3,484,950
------------ ----------- ----------- ------------- -------------
Total Operating Expenses............... 614,684 532,090 2,924,748 1,791,367 13,091,965
------------ ----------- ----------- ------------- -------------
Loss From Operations................... (610,517) (532,090) (2,920,581) (1,781,367) (12,877,798)
Sale of state income tax loss.......... -- -- 91,448 130,952 433,282
Other noncash income................... 185,627 -- 185,627 -- 185,627
Interest income, net................... 7,879 16,407 27,827 57,690 146,551
------------ ----------- ----------- ------------- -------------
Net Loss............................... $ (417,011) $ (515,683) $(2,615,679) $ (1,592,725) $ (12,112,338)
============ =========== ----------- ============= =============
Basic and Diluted Net Loss Per
Common Share........................... $ (0.03) $ (0.04) $ (0.21) $ (0.13)
============ =========== =========== =============
Basic and Diluted Weighted
Average Number of Common
Shares Outstanding..................... 13,137,522 11,880,045 12,319,576 11,880,045
============ =========== =========== ==========
See Notes to Condensed Consolidated Financial Statements.
-3-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2004
-----------------------------------------------------
(unaudited)
Deficit
Accumulated
Capital in During the
Excess of Development
Common Stock Par Value Stage Total
------------------------ ----------------- ------------------- -------------
Shares Amount
------ ------
Common stock outstanding........... 2,000,462 $ 20,005 $ (20,005) -- --
Contribution of capital............ -- -- 85,179 -- $ 85,179
Issuance of common stock in
reverse merger on January 22,
1999 at $0.01 per share............ 3,400,000 34,000 (34,000) -- --
Issuance of common stock for
cash on May 21, 1999 at
$2.63437 per share................. 759,194 7,592 1,988,390 -- 1,995,982
Issuance of common stock for
placement fees on May 21, 1999
at $0.01 per share................. 53,144 531 (531) -- --
Issuance of common stock for
cash on January 26, 2000 at
$2.867647 per share................ 17,436 174 49,826 -- 50,000
Issuance of common stock for
cash on January 31, 2000 at
$2.87875 per share................. 34,737 347 99,653 -- 100,000
Issuance of common stock for
cash on February 4, 2000 at
$2.934582 per share................ 85,191 852 249,148 -- 250,000
Issuance of common stock for
cash on March 15, 2000 at
$2.527875 per share................ 51,428 514 129,486 -- 130,000
Issuance of common stock for
cash on June 22, 2000 at $1.50
per share.......................... 1,471,700 14,718 2,192,833 -- 2,207,551
(continued)
See Notes to Condensed Consolidated Financial Statements.
-4-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2004
-----------------------------------------------------
(unaudited)
Deficit
Accumulated
Capital in During the
Excess of Development
Common Stock Par Value Stage Total
---------------------- ------------------ ------------------ --------------
Shares Amount
------ ------
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2000............... -- -- $ (260,595) -- $ (260,595)
Fair market value of options
and warrants vested during the
year ended June 30, 2000............... -- -- 873,779 -- 873,779
Fair market value of warrants
vested during the year ended June
30, 2001............................... -- -- 80,700 -- 80,700
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
Issuance of common stock and
warrants associated with bridge
loan conversion on December 3,
2001................................... 305,323 3,053 531,263 -- 534,316
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2002............... -- -- (846,444) -- (846,444)
Fair market value of options and
warrants vested during the year
ended June 30, 2002.................... -- -- 577,708 -- 577,708
Fair market value of options and
warrants vested during the year
ended June 30, 2003.................... -- -- 97,497 -- 97,497
(continued)
See Notes to Condensed Consolidated Financial Statements.
-5-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------
FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2004
-----------------------------------------------------
(unaudited)
Deficit
Accumulated
Capital in During the
Excess of Development
Common Stock Par Value Stage Total
----------------------- ---------------- ---------------- ---------------
Shares Amount
------ ------
Issuance of common stock and
warrants for cash from
January 15, 2004 through
February 12, 2004 at $2.37 per
unit................................. 1,536,922 $ 15,369 $ 3,627,131 -- $ 3,642,500
Commissions, legal and bank fees
associated with issuances for the
year ended June 30, 2004............. -- -- (357,304) -- (357,304)
Change in valuation of liability
associated with registration of
warrant issuances from January
15, 2004 through February 12,
2004................................. -- -- (185,627) -- (185,627)
Fair market value of options
and warrants vested during the
nine month period ended March
31, 2004............................. -- -- 1,177,845 -- 1,177,845
Options and warrants exercised
and other transactions during the
nine month period ended March
31, 2004............................. 184,883 1,849 315,775 -- 317,624
Net loss............................. -- -- -- $(12,112,338) (12,297,965)
--------- --------- ------------ ------------ ------------
Balance at March 31, 2004............ 13,601,850 $ 136,018 $ 16,812,193 $(12,112,338) $ 4,835,873
See Notes to Condensed Consolidated Financial Statements.
-6-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
From Inception on
For the Nine Months Ended July 1, 1998 through
March 31, March 31,
2004 2003 2004
---------------- ----------------- --------------------
Cash flows from operating activities:
Net loss........................................................ $ (2,615,679) $ (1,592,725) $ (12,112,338)
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
Noncash income related to related filing of registration
statement..................................................... (185,627) -- (185,627)
Issuance of common stock and warrants for interest.............. -- -- 9,316
Issuance and vesting of stock options and warrants
for services.................................................. 1,177,845 137,177 2,676,280
Depreciation and amortization................................... 22,820 30,138 106,233
(Increase) decrease in operating assets:
Accounts receivable............................................. -- 75,000 --
Prepaid expense and other current assets........................ 117,925 (115,145) (67,610)
Security deposit................................................ -- -- (7,187)
Increase (decrease) in operating liabilities:
Accounts payable................................................ (31,346) (18,070) 24,790
Accrued expenses................................................ 201,098 69,177 464,258
Deferred revenue................................................ 45,833 -- 45,833
--------------- -------------- --------------
Net cash used in operating activities........................... (1,267,131) (1,414,448) (8,829,623)
--------------- -------------- --------------
Cash flows from investing activities:
Patent costs.................................................... (196,255) (117,636) (775,961)
Redemption (purchase) of investments, net....................... 1,298,616 820,859 (800,679)
Purchase of property and equipment.............................. (1,720) (33,425) (159,440)
--------------- -------------- --------------
Net cash provided by (used in) investing activities............. 1,100,641 669,798 (1,736,080)
--------------- -------------- --------------
Cash flows from financing activities:
Proceeds from grant............................................. -- 22,178 90,150
Proceeds from issuance of bridge notes.......................... -- -- 525,000
Proceeds from issuance of common stock and warrants, net........ 3,602,820 -- 13,706,813
--------------- -------------- --------------
Cash provided by financing activities........................... 3,602,820 22,178 14,321,963
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents............ 3,436,330 (722,472) 3,756,260
Cash and cash equivalents at beginning of period................ 319,930 798,711 --
--------------- -------------- --------------
Cash and cash equivalents at end of period...................... $ 3,756,260 $ 76,239 $ 3,756,260
=============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ -- $ -- $ 22,317
=============== ============== ==============
Supplemental schedule of noncash financing activity:
Conversion of bridge notes into stock......................... $ -- $ -- $ 534,316
=============== ============== ==============
See Notes to Condensed Consolidated Financial Statements.
-7-
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
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(A DEVELOPMENT STAGE COMPANY)
-----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2003.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, consisting
solely of those which are of a normal recurring nature, necessary to present
fairly its financial position as of March 31, 2004, the results of its
operations for the three-month periods ended March 31, 2004 and 2003, the
results of its operations and cash flows for the nine-month periods ended March
31, 2004 and 2003, and for the period from inception on July 1, 1998 through
March 31, 2004.
The Company had previously reported stock-based compensation as a separate
category in its consolidated statement of operations. Beginning in fiscal 2004,
the Company no longer reports stock-based compensation as a separate category
and has included such stock-based compensation in general and administrative and
research and development expenses, as applicable. Therefore, certain
reclassifications have been made to the prior year consolidated financial
statements in order to conform to the current year's classification.
Interim results are not necessarily indicative of results for the full
fiscal year.
NOTE 2 - LOSS PER SHARE:
Net loss per common share is computed by dividing the loss by the weighted
average number of common shares outstanding during the period. Since September
7, 1999, the Company has had outstanding options and warrants to purchase its
common stock, $0.01 par value per share (the "Common Stock"); however, as of
March 31, 2004 and 2003, shares to be issued upon the exercise of options and
warrants aggregating 7,077,486 and 5,988,153, respectively, at an average
exercise price of $2.81 and $2.61, respectively, are not included in the
computation of diluted loss per share as the effect is anti-dilutive.
NOTE 3 - STOCK OPTIONS AND WARRANTS:
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan. Options to purchase Common Stock have been
granted at or above the fair market value of the stock as of the date of grant.
Accordingly, no compensation costs have been recognized for the stock option
plan. Had compensation cost been determined based on the fair value at the grant
dates for those awards consistent with the method of FASB No. 123, the Company's
net loss and net loss per share would have been increased to the pro forma
amounts indicated below:
-8-
THREE MONTH PERIODS ENDED MARCH 31, 2004 2003
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Net loss:
As reported $ (417,011) $ (515,683)
Stock-based employee compensation costs (170,239) (148,526)
- ------------------------------------------------------------------------------------------------------------------
Pro forma $ (587,250) $ (664,209)
==================================================================================================================
Loss per share:
As reported $ (0.03) $ (0.04)
==================================================================================================================
Pro forma $ (0.04) $ (0.06)
==================================================================================================================
NINE MONTH PERIODS ENDED MARCH 31, 2004 2003
- ------------------------------------------------------------------------------------------------------------------
Net loss:
As reported $(2,615,679) $(1,592,725)
Stock-based employee compensation costs (478,385) (578,816)
- ------------------------------------------------------------------------------------------------------------------
Pro forma $(3,094,064) $(2,171,541)
==================================================================================================================
Loss per share:
As reported $ (0.21) $ (0.13)
==================================================================================================================
Pro forma $ (0.25) $ (0.18)
==================================================================================================================
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 three and nine-month periods ended March 31, 2004 and 2003
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 3.80% to 4.24% and 3.00% to 4.22%,
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.
NOTE 4 - REVENUE RECOGNITION:
The Company receives certain nonrefundable upfront fees in exchange for the
transfer of its technology to licensees. Upon delivery of the technology, the
Company has no further obligations to the licensee with respect to the basic
technology transferred and, accordingly, recognizes revenue at that time. The
Company may, however, receive additional payments from its licensees in the
event such licensees achieve certain development or commercialization milestones
in their particular field of use. Other nonrefundable upfront fees and milestone
payments, where the milestone payments are a function of time as opposed to
achievement of specific achievement-based milestones, are deferred and amortized
ratably over the estimated research period of the license.
-9-
NOTE 5 - SIGNIFICANT EVENTS:
In February 2004, the Company completed a private placement to certain
accredited investors (the "Private Placement") for an aggregate amount of
1,536,922 shares of Common Stock and warrants to purchase 768,459 shares of
Common Stock for the aggregate cash consideration of $3,642,500. The Private
Placement offered units of one share of Common Stock and a five-year warrant to
purchase 0.50 shares of Common Stock at a price equal to $2.37 per unit. The
warrants were issued at an exercise price equal to $3.79 per share, with such
warrants vesting on the date of grant. The estimated costs associated with the
Private Placement totaled approximately $357,000. The Company did not engage a
placement agent for the sale of such securities. On March 17, 2004, the Company
filed a registration statement with the Securities and Exchange Commission on
Form S-3 to register all of the shares and warrants acquired by the purchasers
and finders in the Private Placement. The Securities and Exchange Commission
declared the registration statement effective on May 14, 2004.
Due to the Company's obligation to file a registration statement to
register for resale the shares underlying the warrants under the Securities Act
of 1933, as amended, in accordance with EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In a Company's Own
Common Stock", the value of the warrants was recorded as a liability until the
filing was made. The decrease in market value of the Common Stock from the
closing of its financing to March 17, 2004, the date of filing the registration
statement, resulted in non-cash other income to reflect the decrease in
Black-Scholes value of the warrants between those two dates. As a result, the
Company incurred a decrease in liability and other non-cash income of $185,627
as of March 17, 2004.
Sands Brothers and Stanford Group Company acted as co-managing finders of
the Private Placement, and certain consultants to the Company provided financial
advisory services in connection with the Private Placement. As consideration for
their services to the Company, such finders were issued warrants to purchase an
aggregate of 73,682 shares of Common Stock, on the same terms and conditions as
the warrants issued to the purchasers in the Private Placement.
On March 8, 2004, the Company entered into a Development and License
Agreement with The Scotts Company (the "Agreement"), which will enable the two
companies to incorporate the Company's proprietary Factor 5A and DHS technology
into a variety of garden plants, bedding plants and turfgrasses. The Agreement
provides for an upfront payment upon execution of the Agreement, milestone
payments over the next three years and a one-time fee, as well as royalty
payments, upon commercial introduction. Pursuant to the terms of the Agreement
and in conjunction with SAB 101, the Company is amortizing the upfront and
milestone payments over the term of the estimated development period of the
Agreement. As of March 31, 2003, the amount of deferred revenue is $45,833.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
our condensed consolidated financial statements and the related notes thereto
included in the Quarterly Report on Form 10-QSB. The discussion and analysis may
contain forward-looking statements that are based upon current expectations and
entail various risks and uncertainties. Our actual results and the timing of
events could differ materially from those anticipated in the forward-looking
statements as a result of various factors, including those set forth under
"Factors That May Affect Our Business, Future Operating Results and Financial
Condition" and elsewhere in this report.
OVERVIEW
OUR BUSINESS
We are a development stage biotechnology company whose mission is to
utilize its patent-pending genes (primarily DHS and Factor 5A) to: (i) enhance
the quality and productivity of fruits, flowers, vegetables and agronomic crops
through the control of cell death in plants (senescence); and (ii) develop novel
approaches to treat (A) programmed cell death diseases in humans (apoptosis)
(e.g., rheumatoid arthritis, macular degeneration, glaucoma, or heart disease),
which are the result of premature cell death, and (B) cancer, a group of
diseases in which apoptosis is blocked. Agricultural results to date include
longer shelf life of perishable produce, increased seed and biomass yield and
greater tolerance to environmental stress. Human health results to date include:
determining the expression of our patent-pending genes in both ischemic and
non-ischemic heart tissue; correlating such genes to certain key immune
regulators known as cytokines that have been found to be involved in apoptosis;
reducing cytokine induced apoptosis in human optic nerve cell lines and in
epithelial cells of the intestine and reducing cytokine expression in human
liver cell lines; and inducing apoptosis, while retarding cell proliferation, in
human cancer cell lines derived from tumors.
Our preliminary research reveals that DHS and Factor 5A genes regulate
apoptosis in human cells. We have shown that Factor 5A encodes for proteins with
similar structures but that serve different functions (isoforms). In humans,
there are two different isoforms of Factor 5A: the apoptosis isoform, which
causes cell death and the growth isoform, which causes cell proliferation.
We believe that our technology downregulating the apoptosis isoforms of
Factor 5A may have potential application as a means for controlling a broad
range of diseases that are attributable to premature apoptosis. Apoptotic
diseases include neurodegenerative diseases, retinal diseases, such as glaucoma
and macular degeneration, heart disease, stroke, Crohn's disease and rheumatoid
arthritis, among others. We have commenced preclinical research on diseased
heart tissue as well as cell-line studies to determine Factor 5A's ability to
regulate key inflammatory cytokines, including interferon gamma, Interleukin-1,
Interleukin-18 and TNF-a, which are implicated in numerous apoptotic diseases.
In addition, we have initiated cell-line studies with optic nerve, intestine and
liver cell-lines. These preclinical tests have shown that Factor 5A appears to
control expression of the suite of proteins required for apoptosis. Such
proteins include interleukins, caspases, TNF-alpha and interferon gamma.
Expression of these cell death proteins is required for the execution of
apoptosis.
-11-
Conversely, we have also established in preclinical studies that
upregulation of the apoptosis Factor 5A gene is able to kill cancer cells
through both the p53 and death cell receptor immune pathways. Tumors arise when
cells that have been targeted by the immune system to undergo apoptosis are
unable to do so because of an inability to activate the apoptotic pathways.
Because the Factor 5A gene appears to function at the initiation point of the
apoptotic pathways, we believe that our gene technology may have potential
application as a means of combating a broad range of cancers and have initiated
studies with in vivo cancer models to determine Factor 5A's ability to shrink
human tumors grafted onto mice. In addition, we have also shown that suppression
of the growth isoform of Factor 5A in cancer cells reduces proliferation of
cancer cells. This will allow us to pursue research of cancer treatments which
simultaneously cause cancer cells to die and not allow them to divide further.
HUMAN HEALTH APPLICATIONS
Most recently, a preclinical study has shown that Factor 5A induced cell
death in lung cancer tumors of mice, while healthy tissue remained unaffected.
We conducted this study using mice with the same genetic defect that causes lung
cancer in humans. The mice spontaneously develop lung tumors due to this defect.
Factor 5A was injected into the blood stream of the mice, and the lung tissue
was subsequently analyzed for apoptosis. The data reveal that the lung tumor
cells were specifically targeted to undergo cell death, while the surrounding
healthy tissue was unaffected. There was no evidence of systemic toxicity in the
mice as evidenced by no weight loss, mortality or any signs of abnormal
apoptosis in any of the vital organs.
AGRICULTURAL APPLICATIONS
We are currently working with lettuce, melon, tomato, canola, Arabidopsis
(a model plant that is similar to canola), banana, alfalfa, bedding plants 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 completed a first
round of field trials of lettuce and bananas with our respective partners and
are currently in a second round of field trials in banana and in lettuce. The
first round of field trials have shown that our technology effectively reduces
browning in cut lettuce and extends the shelf life of banana fruit by 100%.
Near-term research and development initiatives include (i) silencing or reducing
the expression of DHS and Factor 5A genes in these plants and (ii) propagation
and testing of plants with our silenced genes.
RESEARCH PROGRAM
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 expect to spend significant amounts on the
research and development of our technology. We also expect our research and
development costs to increase as we continue to develop and ultimately
commercialize our technology. However, the successful development and
commercialization of our technology is highly uncertain. We cannot reasonably
estimate or know the nature, timing and expenses of the efforts necessary to
complete the development of our technology, or the period in which material net
cash inflows may commence from the commercialization of our technology,
including the uncertainty of:
o the scope, rate of progress and expense of our research activities;
o the interim results of our research;
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o the expense of additional research that may be required after review of
the interim results;
o the terms and timing of any collaborative, licensing and other
arrangements that we may establish;
o the expense and timing of regulatory approvals;
o the effect of competing technological and market developments; and
o the expense of filing, prosecuting, defending and enforcing any patent
claims or other intellectual property rights.
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. In addition to this patent, we have a wide variety of patent applications,
including divisional applications and continuations-in-part, in process with the
PTO and internationally. We intend to continue our strategy of enhancing these
new patent applications through the addition of data as it is collected.
COMMERCIALIZATION STRATEGY
In November 2002, we entered into a letter of intent with the Academy of
Agricultural Sciences in Tianjin, China in connection with a potential license
for the use of our technology in numerous crops. The Academy is a governmental
research center, and a commercial enterprise is needed to secure the significant
financing necessary to effect the license from Senesco, as well as to market the
seeds resulting from our potential collaboration. Since the signing of the
letter of intent, we have had contact with the Academy, representatives of the
city and central government and potential marketing companies regarding the
terms and scope of the proposed agreement. It is not known if we will be
successful in bringing all of the elements together to consummate the proposed
license. However, we are continuing to pursue the opportunity. Additionally, we
are in discussions with other potential licensees in China and Taiwan that would
be direct licensees for certain crops without the need for government research
institutions and that would also provide for the financing of the proposed
license.
On March 8, 2004, we entered into a Development and License Agreement with
The Scotts Company, pursuant to which we will work with The Scotts Company to
incorporate our proprietary Factor 5A and DHS technology into a variety of
garden plants, bedding plants and turfgrasses. The agreement provides for an
upfront payment upon execution of the agreement, milestone payments over the
next three years and a one-time fee, as well as royalty payments, upon
commercial introduction.
Consistent with our commercialization strategy, we intend to attract other
companies interested in strategic partnerships or licensing our technology,
which 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.
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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.
RISKS RELATED TO OUR BUSINESS
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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 $12,112,338 at March 31, 2004. 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 AND, IF OUR TECHNOLOGY IS NOT
COMMERCIALLY SUCCESSFUL, WE WILL HAVE NO ALTERNATIVE SOURCE OF REVENUE.
Our primary business is the development and commercial exploitation of
technology to identify, isolate, characterize, and silence genes that control
the aging and death of cells in plants and humans. Our future revenue and
profitability critically depend upon our ability to successfully develop
senescence and apoptosis gene technology and later market and license this
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 human health
applications.
In addition, we cannot assure you that adverse consequences might not
result from the use of our technology such as the development of negative
effects on plants or humans or reduced benefits in terms of crop yield or
protection. If we fail to obtain market acceptance of our technology or to
successfully commercialize our technology or develop a commercially viable
product, we will have no alternative source of revenue.
WE OUTSOURCE ALL OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES AND, IF WE ARE
UNSUCCESSFUL IN MAINTAINING OUR ALLIANCES WITH THESE THIRD PARTIES, OUR RESEARCH
AND DEVELOPMENT EFFORTS MAY BE DELAYED OR CURTAILED.
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 two research hospitals in Canada, 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
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into with us, or our failure to renew important research agreements with these
third parties, may delay or curtail our research and development efforts.
WE HAVE SIGNIFICANT FUTURE CAPITAL NEEDS AND MAY BE UNABLE TO RAISE CAPITAL WHEN
NEEDED, WHICH COULD FORCE US TO DELAY OR REDUCE OUR RESEARCH AND DEVELOPMENT
EFFORTS.
As of March 31, 2004, we had cash and highly-liquid investments valued at
$4,556,939 and working capital of $4,089,668. Using our available reserves as of
March 31, 2004, we believe that we can operate according to our current business
plan for at least the next twelve months. 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 may be required to raise
additional capital in the future in order to operate according to our current
business plan, and this funding may not be available on favorable terms, if at
all. In addition, in connection with any 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 March 31, 2004, we had
9,320,664 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 our 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 UPON OUR PATENTS AND PROPRIETARY RIGHTS AND THE ENFORCEMENT
OF THESE RIGHTS. OUR FAILURE TO OBTAIN AND MAINTAIN PATENT PROTECTION MAY
INCREASE COMPETITION AND REDUCE DEMAND FOR OUR TECHNOLOGY.
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 our technologies and
processes;
o our ability to preserve our trade secrets; and
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o our ability to operate without infringing the proprietary rights of
other parties both in the United States and in foreign countries.
We have been issued one patent by the U.S. Patent and Trademark Office, or
PTO. We have also filed patent applications for our technology in the United
States and in several foreign countries, 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 grant of patents from our
pending patent applications.
Although we believe that our technology is unique and will not violate or
infringe upon the proprietary rights of any third party, we cannot assure you
that these 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 assure you 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.
OUR COMPETITORS MAY ALLEGE THAT WE ARE INFRINGING UPON THEIR INTELLECTUAL
PROPERTY RIGHTS, FORCING US TO INCUR SUBSTANTIAL COSTS AND EXPENSES IN RESULTING
LITIGATION, THE OUTCOME OF WHICH WOULD BE UNCERTAIN.
Patent law is still evolving relative to the scope and enforceability of
claims in the fields in which we operate. We are like most biotechnology
companies in that our patent protection is highly uncertain and involves complex
legal and technical questions for which legal principles are not yet firmly
established. In addition, if issued, our patents may not contain claims
sufficiently broad to protect us against third parties with similar technologies
or products, or provide us with any competitive advantage.
The PTO and the courts have not established a consistent policy regarding
the breadth of claims allowed in biotechnology patents. The allowance of broader
claims may increase the incidence and cost of patent interference proceedings
and the risk of infringement litigation. On the other hand, the allowance of
narrower claims may limit the value of our proprietary rights.
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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.
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. Some of our
competitors may be able to sustain the costs of complex patent litigation more
effectively that we could because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of any patent
litigation could limit our ability to continue our operations.
IF OUR TECHNOLOGY INFRINGES THE INTELLECTUAL PROPERTY OF OUR COMPETITORS OR
OTHER THIRD PARTIES, WE MAY BE REQUIRED TO PAY LICENSE FEES OR DAMAGES.
If any relevant claims of third-party patents that 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 assure you that such licenses would be available or, if
available, would be on acceptable terms. Some licenses may be non-exclusive and,
therefore, our competitors may have access to the same technology licensed to
us. In addition, if any parties successfully claim that the creation or use of
our technology infringes upon their intellectual property rights, we may be
forced to pay damages, including treble damages.
OUR SECURITY MEASURES MAY NOT ADEQUATELY PROTECT OUR UNPATENTED TECHNOLOGY AND,
IF WE ARE UNABLE TO PROTECT THE CONFIDENTIALITY OF OUR PROPRIETARY INFORMATION
AND KNOW-HOW, THE VALUE OF OUR TECHNOLOGY MAY BE ADVERSELY AFFECTED.
Our success 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 assure you
that adequate protection for our trade secrets, know-how or other proprietary
information against unauthorized use or disclosure will be available.
We occasionally provide information to research collaborators in academic
institutions and request the collaborators to conduct certain tests. We cannot
assure you 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 limit our ability to commercialize our technology.
AS WE EVOLVE FROM A COMPANY PRIMARILY INVOLVED IN THE RESEARCH AND DEVELOPMENT
OF OUR TECHNOLOGY INTO ONE THAT IS ALSO INVOLVED IN THE COMMERCIALIZATION OF OUR
TECHNOLOGY, WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH AND EXPANDING OUR
OPERATIONS.
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
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operations of our marketing partners, manufacturers, distributors and suppliers
to produce and market commercially viable products. We may also need to manage
additional relationships with various collaborative partners, suppliers and
other organizations. 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. We may not be able to implement improvements to our management
information and control systems in an efficient and timely manner and we may
discover deficiencies in our existing systems and controls. Our failure to
effectively respond to changes may make it difficult for us to manage our growth
and expand our operations.
WE HAVE NO MARKETING OR SALES HISTORY AND DEPEND ON THIRD-PARTY MARKETING
PARTNERS. ANY FAILURE OF THESE PARTIES TO PERFORM WOULD DELAY OR LIMIT OUR
COMMERCIALIZATION EFFORTS.
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, these 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, our commercialization efforts will be delayed or
limited and we will not be able to generate revenue.
WE WILL DEPEND ON JOINT VENTURES AND STRATEGIC ALLIANCES TO DEVELOP AND MARKET
OUR TECHNOLOGY AND, IF THESE ARRANGEMENTS ARE NOT SUCCESSFUL, OUR TECHNOLOGY MAY
NOT BE DEVELOPED AND THE EXPENSES TO COMMERCIALIZE OUR TECHNOLOGY WILL INCREASE.
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 HUMAN HEALTH BIOTECHNOLOGY INDUSTRIES IS
INTENSE AND TECHNOLOGY IS CHANGING RAPIDLY. IF OUR COMPETITORS MARKET THEIR
TECHNOLOGY FASTER THAN WE DO, WE MAY NOT BE ABLE TO GENERATE REVENUES FROM THE
COMMERCIALIZATION OF OUR TECHNOLOGY.
Many agricultural and human health 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,
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research and academic institutions and, potentially, our joint venture and
strategic alliance partners. These companies include: Paradigm Genetics; Aventis
Crop Science; Mendel Biotechnology; Renessen LLC; Exelixis Plant Sciences, Inc.;
PlantGenix, Inc.; and Eden Bioscience, among others. Some of the companies
involved in apoptosis research include: Cell Pathways, Inc.; Trevigen, Inc.;
Idun Pharmaceuticals; Novartis; Introgen Therapeutics, Inc.; Genta, Inc.; and
Oncogene, Inc. Many of these competitors have substantially greater financial,
marketing, sales, distribution and technical resources than us and have more
experience in research and development, clinical trials, regulatory matters,
manufacturing and marketing. We anticipate increased competition in the future
as new companies enter the market and new technologies become available. Our
technology may be rendered obsolete or uneconomical by technological advances or
entirely different approaches developed by one or more of our competitors, which
will prevent or limit our ability to generate revenues from the
commercialization of our technology.
OUR BUSINESS IS SUBJECT TO VARIOUS GOVERNMENT REGULATIONS AND, IF WE ARE UNABLE
TO OBTAIN REGULATORY APPROVAL, WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS.
At present, the U.S. federal government regulation of biotechnology is
divided among three agencies:
o 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;
o the EPA regulates activity related to the invention of plant pesticides
and herbicides, which may include certain kinds of transgenic plants;
and
o the FDA regulates foods derived from new plant varieties.
The FDA requires that transgenic plants meet the same standards for safety
that are required for all other plants and foods in general. Except in the case
of additives that significantly alter a food's structure, the FDA does not
require any additional standards or specific approval for genetically engineered
foods, but expects transgenic plant developers to consult the FDA before
introducing a new food into the marketplace.
Use of our technology, if developed for human health applications, will
also be subject to FDA regulation. 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 human health 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 clinical trials,
and prior to beginning any clinical trial, we need to perform extensive
preclinical testing which could take several years and may require substantial
expenditures.
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 human health technology. In addition, our
marketing partners
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who utilize our technology or sell products grown with our technology may be
subject to government regulations. If unfavorable governmental regulations are
imposed on our technology or if we fail to obtain licenses or approvals in a
timely manner, we may not be able to continue our operations.
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 human health 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 preclinical, clinical and
manufacturing data to assess the efficacy and safety of potential products.
Furthermore, the success of preliminary studies does not ensure commercial
success, and later-stage clinical trials may fail to confirm the results of the
preliminary studies.
EVEN IF WE RECEIVE REGULATORY APPROVAL, CONSUMERS MAY NOT ACCEPT OUR TECHNOLOGY,
WHICH WILL PREVENT US FROM BEING PROFITABLE SINCE WE HAVE NO OTHER SOURCE OF
REVENUE.
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.
WE DEPEND ON OUR KEY PERSONNEL AND, IF WE ARE NOT ABLE TO ATTRACT AND RETAIN
QUALIFIED SCIENTIFIC AND BUSINESS PERSONNEL, WE MAY NOT BE ABLE TO GROW OUR
BUSINESS OR DEVELOP AND COMMERCIALIZE OUR TECHNOLOGY.
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. Although we have employment agreements with several of our
key employees and a research agreement with Dr. Thompson, these agreements may
be terminated upon no or short notice. 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.
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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.
INCREASING POLITICAL AND SOCIAL TURMOIL, SUCH AS TERRORIST AND MILITARY ACTIONS,
INCREASE THE DIFFICULTY FOR US AND OUR STRATEGIC PARTNERS TO FORECAST ACCURATELY
AND PLAN FUTURE BUSINESS ACTIVITIES.
Recent political and social turmoil, including the terrorist attacks of
September 11, 2001, the conflict in Iraq and the current crisis in the Middle
East, can be expected to put further pressure on economic conditions in the
United States and worldwide. These political, social and economic conditions may
make it difficult for us to plan future business activities. Specifically, if
the current crisis in Israel continues to escalate, our joint venture with Rahan
Meristem Ltd. could be adversely affected.
RISKS RELATED TO OUR COMMON STOCK
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OUR MANAGEMENT AND OTHER AFFILIATES HAVE SIGNIFICANT CONTROL OF OUR COMMON STOCK
AND COULD SIGNIFICANTLY INFLUENCE OUR ACTIONS IN A MANNER THAT CONFLICTS WITH
OUR INTERESTS AND THE INTERESTS OF OTHER STOCKHOLDERS.
As of March 31, 2004, our executive officers, directors and affiliated
entities together beneficially own approximately 34.3% 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 significant 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.
OUR STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION AS A RESULT OF THE EXERCISE
OF OUTSTANDING OPTIONS AND WARRANTS TO PURCHASE OUR COMMON STOCK.
As of March 31, 2004, we have granted options outside of our stock option
plan to purchase 10,000 shares of our common stock and outstanding warrants to
purchase 5,127,586 shares of our common stock. In addition, as of March 31,
2004, 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, 1,946,000 of
which have been granted and 1,054,000 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.
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A SIGNIFICANT PORTION OF OUR TOTAL OUTSTANDING SHARES OF COMMON STOCK MAY BE
SOLD IN THE MARKET IN THE NEAR FUTURE, WHICH COULD CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO DROP SIGNIFICANTLY.
As of March 31, 2004, we had 13,601,850 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 declared 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. Pursuant to the terms of our
equity offering that was consummated on February 12, 2004, on March 18, 2004, we
filed a registration statement on Form S-3 to register 1,536,922 shares of
common stock and warrants to purchase 877,141 shares of common stock.
Consequently, sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, may have a material
adverse effect on our stock price.
OUR COMMON STOCK HAS A LIMITED TRADING MARKET, WHICH COULD LIMIT YOUR ABILITY TO
RESELL YOUR SHARES OF COMMON STOCK AT OR ABOVE YOUR PURCHASE PRICE.
Our common stock is quoted on the American Stock Exchange and currently has
a limited trading market. We cannot assure you 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.
THE MARKET PRICE OF OUR COMMON STOCK MAY FLUCTUATE AFTER THIS OFFERING AND MAY
DROP BELOW THE PRICE YOU PAID.
We cannot assure you that you will be able to resell the shares of our
common stock at or above your purchase price. 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.
BECAUSE WE DO NOT INTEND TO PAY, AND HAVE NOT PAID, ANY CASH DIVIDENDS ON OUR
SHARES OF COMMON STOCK, OUR STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON
THEIR SHARES UNLESS THE VALUE OF OUR COMMON STOCK APPRECIATES AND THEY SELL
THEIR SHARES.
We have never paid or declared any cash dividends on our common stock and
we intend to retain any future earnings to finance the development and expansion
of our business. We do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Therefore, our stockholders will not be able to
receive a return on their investment unless the value of our common stock
appreciates and they sell their shares.
-22-
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 the NASDAQ
Stock Market and that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. If
the American Stock Exchange delists our common stock, it could be deemed a penny
stock, which imposes additional sales practice requirements on broker-dealers
that sell 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.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
As of March 31, 2004, our cash balance and investments totaled $4,556,939,
and we had working capital of $4,089,668. As of March 31, 2004, we had a federal
tax loss carry-forward of approximately $9,000,000 and a state tax loss
carry-forward of approximately $3,771,000 to offset future taxable income. There
can be no assurance, however, that we will be able to take advantage of any or
all of such tax loss carry-forwards, if at all, in future fiscal years.
CONTRACTUAL OBLIGATIONS
The following table lists our cash contractual obligations as of March 31,
2004:
- -------------------------------------------------------------------------------------------------------------------
Payments Due by Period
--------------------------------------------------------------------------------
Contractual Obligations Less than More than
Total 1 year 1 - 3 years 4 - 5 years 5 years
- -------------------------------------------------------------------------------------------------------------------
Research and Development
Agreements (1) $ 271,784 $ 271,784 $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
Facility, Rent and
Operating Leases (2) $ 70,950 $ 34,056 $ 36,894 $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
Employment, Consulting
and Scientific Advisory Board
Agreements (3) $ 704,979 $ 410,604 $ 279,375 $ 15,000 $ --
===================================================================================================================
Total Contractual
Cash Obligations $ 1,047,713 $ 716,444 $ 316,269 $ 15,000 $ --
===================================================================================================================
-23-
(1) Certain of our research and development agreements disclosed herein provide
that payment is to be made in Canadian dollars and, therefore, the
contractual obligations are subject to fluctuations in the exchange rate.
(2) The lease for our office space in New Brunswick, New Jersey is subject to
certain escalations for our proportionate share of increases in the
building's operating costs.
(3) Certain of our employment and consulting agreements provide for automatic
renewal (which is not reflected in the table), unless terminated earlier by
the parties to the respective agreements.
We expect our capital requirements to increase significantly over the next
several years as we commence new research and development efforts, increase our
business and administrative infrastructure and embark on developing in-house
business capabilities and facilities. Our future liquidity and capital funding
requirements will depend on numerous factors, including, but not limited to, the
levels and costs of our research and development initiatives and the cost and
timing of the expansion of our business development and administrative staff.
CAPITAL RESOURCES
Since inception, we have generated revenues of $214,167 in connection with
the initial fees received under our license and development agreements. We have
not been profitable since inception, we will continue to incur additional
operating losses in the future, and we will require additional financing to
continue the development and subsequent commercialization of our technology.
While we do not expect to generate significant revenues from the licensing of
our technology in the near future, we may enter into additional licensing or
other agreements with marketing and distribution partners that may result in
additional license fees. We may also receive revenues from contract research, or
other related revenue.
In February 2004, we completed a private placement to certain accredited
investors for an aggregate amount of 1,536,922 shares of common stock and
warrants to purchase 768,459 shares of common stock for the aggregate cash
consideration of $3,642,500. The private placement offered units of one share of
common stock and a five-year warrant to purchase 0.50 shares of common stock at
a price equal to $2.37 per unit. The warrant was offered with an exercise price
equal to $3.79 per share, with such warrant vesting on the date of grant. The
estimated costs associated with the private placement totaled approximately
$357,000.
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 (i) utilizing our current cash balance and
investments, (ii) achieving some of the milestones set forth in our current
licensing agreements, and (iii) through the execution of additional licensing
agreements for our technology.
CHANGES TO CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates are set forth in our Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2003. There have been
the following changes to such critical accounting policies and estimates.
-24-
REVENUE RECOGNITION
We record revenue under technology license and development agreements
related to the following. Actual license fees received may vary from the
recorded estimated revenues.
o Nonrefundable upfront license fees that are received in exchange for
the transfer of our technology to licensees, for which no further
obligations to the licensee exist with respect to the basic technology
transferred, are recognized as revenue on the earlier of when payments
are received or collection is assured.
o Nonrefundable upfront license fees that are received in connection
with agreements that include time-based payments are, together with
the time-based payments, deferred and amortized ratably over the
estimated research period of the license.
o Milestone payments, which are contingent upon the achievement of
certain research goals, are recognized as revenue when the milestones,
as defined in the particular agreement, are achieved.
The effect of any change in revenues from technology license and
development agreements would be reflected in revenues in the period such
determination was made. Historically, no such adjustments have been made.
ESTIMATES OF EXPENSES
Our research and development agreements with third parties provide for an
estimate of our expenses and costs, which are variable and are based on the
actual services performed by the third party. We estimate the aggregate amount
of the expenses based upon the projected amounts that are set forth in the
agreements, and accrue the expenses for which we have not yet been invoiced. In
estimating the expenses, we consider, among other things, the following factors:
o the existence of any prior relationship between us and the third party
provider;
o the past results of prior research and development services performed
by the third party provider; and
o the scope and timing of the research and development services set
forth in the agreement with the third party provider.
After the research services are performed and we are invoiced, we make any
adjustments that are necessary to accurately report research and development
expense for the period.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 and Three Months Ended March 31, 2003
- -----------------------------------------------------------------------
The net loss for the three-month periods ended March 31, 2004 and March 31,
2003 was $417,011 and $515,683, respectively, a decrease of $98,672, or 19.1%.
This decrease was primarily the result of an increase in other noncash income,
which was partially offset by an increase in other research and development
expenses.
We had revenue of $4,167 during the three-month period ended March 31, 2004
from the amortized portion of the initial fee on a development and license
agreement. We had no revenue during the three-month period ended March 31, 2003.
-25-
Operating expenses consist of general and administrative expenses, research
and development expenses and stock-based compensation. Operating expenses for
the three-month periods ended March 31, 2004 and March 31, 2003 were $614,684
and $532,090, respectively, an increase of $82,594, or 15.5%. This increase in
operating expenses was primarily the result of an increase in stock-based
compensation and research and development expenses, which was partially offset
by a decrease in other general and administrative expenses. We expect operating
expenses to increase over the next twelve months as we continue to expand our
research and development activities.
General and administrative expenses consist primarily of stock-based
compensation and other general and administrative costs, which include payroll
and benefits, professional services, investor relations, office rent and
corporate insurance. General and administrative expenses for the three-month
periods ended March 31, 2004 and March 31, 2003 were $294,125 and $294,403,
respectively, a decrease of $278, or 0.1%.
Three months ended March 31,
2004 2003
---- ----
Stock-based compensation $ 50,700 $ --
Other general and administrative expenses 243,425 294,403
----------- -----------
Total general and administrative expenses $ 294,125 $ 294,403
=========== ===========
The increase in stock-based compensation was primarily the result of previously
issued options and warrants that became exercisable during the three-month
period ended March 31, 2004. The decrease in other general and administrative
expenses was primarily the result of a decrease in investor relations expenses
and professional fees, which were partially offset by an increase in payroll and
benefits. The decrease in investor relations expenses during the three-month
period ended March 31, 2004 was primarily the result of decreases in financial
consulting costs and listing fees for the American Stock Exchange. Professional
fees decreased during the three-month period ended March 31, 2004, primarily as
a result of fees incurred during the three-month period ended March 31, 2003 in
connection with filing a registration statement for our incentive stock option
plan, which were not incurred during the three month period ended March 31,
2004, as well as decreases in legal fees related to general corporate and
securities matters. Payroll and benefits increased during the three-month period
ended March 31, 2004, primarily as a result of an adjustment during the three
month period ended March 31, 2003 to reduce the amount of accrued wages due to a
terminated employee as well as salary increases. We expect general and
administrative expenses to modestly increase over the next twelve months as
several of the above mentioned costs will probably increase primarily due to
inflation.
Research and development expenses are incurred in connection with our
agricultural and human health research programs and consist primarily of fees
associated with a research and development agreement with the University of
Waterloo, costs associated with the research being performed at the University
of Colorado and other institutions, amortization of the initial fee in
connection with a research agreement with Anawah, Inc., consulting fees to the
Scientific Advisory Board and other consultants and stock-based compensation.
Research and development expenses for the three-month periods ended March 31,
2004 and March 31, 2003 were $320,559 and $237,687, respectively, an increase of
$82,872, or 34.9%. This increase was primarily the result of an increase in
stock-based compensation, which was due to previously issued options and
warrants becoming exercisable during the three-month period ended March 31,
2004, as well as an increase in the research and development costs incurred in
connection with the expanded
-26-
research undertaken by the University of Waterloo and other institutions as well
as the expansion of our mammalian cell research programs.
Three months ended March 31,
2004 2003
---- ----
Stock-based compensation $ 42,257 $ --
Other research and development expenses 278,302 237,687
----------- -----------
Total research and development expenses $ 320,559 $ 237,687
=========== ===========
The breakdown of our research and development expenses between our agricultural
and human research programs are as follows:
Three months ended March 31,
2004 2003
---- ----
Agricultural research programs $ 199,354 $ 109,088
Human health research programs 121,205 128,599
----------- -----------
Total research and development expenses $ 320,559 $ 237,687
=========== ===========
Nine Months Ended March 31, 2004 and Nine Months Ended March 31, 2003
- ---------------------------------------------------------------------
The net loss for the nine-month periods ended March 31, 2004 and March 31,
2003 was $2,615,679 and $1,592,725, respectively, an increase of $1,022,954 or
64.2%. This increase was primarily the result of an increase in stock-based
compensation and research and development expenses, which was partially offset
by a decrease in other general and administrative expenses and an increase in
other noncash income.
We had revenue of $4,167 during the nine-month period ended March 31, 2004
from the amortized portion of the initial fee on a development and license
agreement. We had no revenue during the nine-month period ended March 31, 2003.
Operating expenses for the nine-month periods ended March 31, 2004 and
March 31, 2003 were $2,924,748 and $1,791,367, respectively, an increase of
$1,133,381, or 63.3%. This increase in operating expenses was primarily the
result of an increase in stock-based compensation and research and development
expenses, which was partially offset by a decrease in other general and
administrative expenses. We expect operating expenses to decrease over the next
twelve months as we anticipate that stock-based compensation will significantly
decrease. We expect that the decrease in stock-based compensation will be
partially offset by an increase in research and development expenses as we
continue to expand our research and development activities.
General and administrative expenses for the nine-month periods ended March
31, 2004 and March 31, 2003 were $2,031,044 and $1,178,714, respectively, an
increase of $852,330, or 72.3%.
Nine months ended March 31,
2004 2003
---- ----
Stock-based compensation $1,083,920 $ 122,297
Other general and administrative expenses 947,124 1,056,417
---------- -----------
Total general and administrative expenses $2,031,044 $ 1,178,714
========== ===========
-27-
The increase in stock-based compensation was primarily the result of a
warrant being granted, in connection with a financial advisory agreement, to a
financial advisor during the nine-month period ended March 31, 2004. The
decrease in other general and administrative expenses was primarily from a
decrease in investor relations expenses and professional fees, which was
partially offset by an increase in payroll and benefits and corporate insurance.
Investor relations expenses were higher during the nine-month period ended March
31, 2003, primarily as a result of the listing fees in connection with listing
on the American Stock Exchange additional shares of our common stock underlying
stock options. Professional fees decreased during the nine-month period ended
March 31, 2004, primarily as a result of a decrease in legal fees. During the
nine-month period ended March 31, 2003, we had incurred additional professional
fees related to our filing of registration statements with the Securities and
Exchange Commission on Forms S-3 and S-8, as well as a decrease in professional
fees associated with our Form 10-KSB, Forms 10-QSB and proxy statement. Payroll
and benefits increased during the nine-month period ended March 31, 2004,
primarily as a result of salary increases. Insurance costs increased during the
nine-month period ended March 31, 2004 primarily because we increased the policy
limit on our directors' and officers' liability insurance policy. We expect
general and administrative expenses to decrease over the next twelve months as
we anticipate that stock-based compensation will significantly decrease. We
expect that the decrease in stock-based compensation will be partially offset by
a modest increase in other general and administrative expenses primarily due to
inflation.
Research and development expenses for the nine-month periods ended March
31, 2004 and March 31, 2003 were $893,704 and $612,654, respectively, an
increase of $281,050, or 45.9%. This increase was primarily the result of an
increase in stock-based compensation, which was due to options and warrants
being issued or becoming exercisable during the nine-month period ended March
31, 2004, as well as an increase in the research and development costs incurred
in connection with the expanded research undertaken by the University of
Waterloo and other institutions as well as the expansion of our mammalian cell
research programs.
Nine months ended March 31,
2004 2003
---- ----
Stock-based compensation $ 93,925 $ 14,880
Other research and development expenses 799,779 597,774
----------- -----------
Total research and development expenses $ 893,704 $ 612,654
=========== ===========
The breakdown of our research and development expenses between our agricultural
and human research programs are as follows:
Nine months ended March 31,
2004 2003
---- ----
Agricultural research programs $ 471,358 $ 286,130
Human health research programs 422,346 326,524
----------- -----------
Total research and development expenses $ 893,704 $ 612,654
=========== ===========
-28-
Period From Inception on July 1, 1998 through March 31, 2004
- ------------------------------------------------------------
From inception of operations on July 1, 1998 through March 31, 2004, we had
revenues of $214,167, which consisted of the initial license fees in connection
with our various development and license agreements.
We have incurred losses each year since inception and have an accumulated
deficit of $12,112,338 at March 31, 2004. We expect to continue to incur losses
as a result of expenditures on research, product development and administrative
activities.
ITEM 3. CONTROLS AND PROCEDURES.
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of March 31, 2004. Based on this evaluation, our chief executive officer
and chief financial officer concluded that as of March 31, 2004, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to us, including our consolidated subsidiaries, is made known to our
chief executive officer and chief financial officer by others within those
entities, particularly during the period in which this report was being prepared
and (2) effective, in that they provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
No change in our internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three
months ended March 31, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.
-29-
PART II. OTHER INFORMATION.
--------------------------
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.
In February 2004, we completed a private placement to certain accredited
investors for an aggregate amount of 1,536,922 shares of common stock and
warrants to purchase 768,459 shares of common stock for the aggregate cash
consideration of $3,642,500. The private placement offered units of one share of
common stock and a five-year warrant to purchase 0.50 shares of common stock at
a price equal to $2.37 per unit. The warrants were issued at an exercise price
equal to $3.79 per share, with such warrants vesting on the date of grant. The
estimated costs associated with the private placement totaled approximately
$357,000. We did not engage a placement agent for the sale of such securities.
In addition, we entered into a registration rights agreement with these
purchasers, which required us to file a registration statement on Form S-3 by
March 18, 2004, to register the securities acquired by the purchasers in the
private placement. On March 17, 2004, we filed a registration statement with the
Securities and Exchange Commission on Form S-3 to register all of the shares and
warrants acquired by the purchasers and finders in the private placement. The
Securities and Exchange Commission declared the registration statement effective
on May 14, 2004.
Sands Brothers and Stanford Group Company acted as co-managing finders of
such private placement and certain consultants provided financial advisory
services in connection with such private placement. As consideration for their
services, we issued warrants to such finders to purchase an aggregate of 73,682
shares of our common stock, on the same terms and conditions as the warrants
issued to the purchasers in the private placement.
We did not employ an underwriter in connection with the issuance of the
securities described above. We believe that the issuance of the foregoing
securities was exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended, as transactions not involving a public offering. Each of
the recipients was an accredited investor, acquired the securities for
investment purposes only and not with a view to distribution and had adequate
information about our company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4.1 Form of Warrant issued to certain accredited investors (with
attached schedule of parties and terms thereto).
Incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K, filed on February 3, 2004.
10.1*+ Development and License Agreement dated as of March 8, 2004,
by and between Senesco Technologies, Inc. and The Scotts
Company.
10.2* Amendment dated March 11, 2004, to the Research Agreement by
and among Senesco, Inc., Dr. John E. Thompson and the
University of Waterloo effective September 1, 1998.
-30-
10.3 Form of Securities Purchase Agreement by and between the
Company and certain accredited investors (with attached
schedule of parties and terms thereto). Incorporated by
reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K, filed on February 3, 2004.
10.4 Form of Registration Rights Agreement by and between the
Company and certain accredited investors (with attached
schedule of parties and terms thereto). Incorporated by
reference to Exhibit 10.2 of the Company's Current Report on
Form 8-K, filed on February 3, 2004.
10.5 Amendment No. 1 to the Securities Purchase Agreement by and
between the Company and Crestview Capital Master, L.L.C.
Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K, filed on February 13, 2004.
10.6 Amendment No. 1 to the Registration Rights Agreement by and
between the Company and Crestview Capital Master, L.L.C.
Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K, filed on February 13, 2004.
31.1* Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of principal financial and accounting officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of principal executive officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
1350.
32.2* Certification of principal financial and accounting officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. 1350.
(b) Reports on Form 8-K.
On February 3, 2004, we filed a Current Report on Form 8-K under Items
5 and 7, reporting the closing of the private placement to accredited
investors.
On February 13, 2004, we filed a Current Report on Form 8-K under Item
5, reporting the additional closing of the private placement to accredited
investors.
* Filed herewith.
+ Confidential Treatment has been requested for portions of this exhibit.
-31-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SENESCO TECHNOLOGIES, INC.
DATE: May 17, 2004 By: /s/ Bruce C. Galton
--------------------------------------------
Bruce C. Galton, President
and Chief Executive Officer
(Principal Executive Officer)
DATE: May 17, 2004 By: /s/ Joel Brooks
--------------------------------------------
Joel Brooks, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
-32-
- --------------------------------------------------------------------------------
Senesco Technologies, Inc.
has requested that the marked portions of this agreement be granted confidential
treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934
- --------------------------------------------------------------------------------
DEVELOPMENT AND LICENSE AGREEMENT
This Development and License Agreement ("Agreement") dated as of March 8,
2004 (the "Effective Date") is entered into by and between Senesco Technologies,
Inc., a Delaware corporation with principal offices at 303 George Street, Suite
420, New Brunswick, NJ 08901 ("STI") and The Scotts Company, an Ohio corporation
with offices at 14111 Scottslawn Road, Marysville, OH 43041 ("Scotts").
RECITALS
WHEREAS, STI owns and controls technology, know-how, and United States and
foreign patent applications concerning methods for controlling plant senescence,
cell division, reactions to biotic or abiotic stress, and/or plant growth by
altering the expression of plant genes and their cognate expressed proteins that
are induced during or coincident with the onset of senescence and/or growth;
WHEREAS, Scotts is in the business of developing and distributing
specialized turfgrasses, ornamental plants, seeds, and other lawn care and
garden products for consumers and lawn care professionals;
WHEREAS, STI desires to provide to Scotts access and rights to certain STI
Technology, STI Developments, and Confidential Information so that STI and
Scotts may develop and commercialize Licensed Products in the Field; and
WHEREAS, Scotts desires to obtain from STI access and rights to certain STI
Technology, STI Developments, and Confidential Information so that Scotts and
STI may develop and commercialize Licensed Products in the Field;
NOW THEREFORE, in consideration of the premises and the faithful
performance of the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following defined terms shall have the
respective meanings set forth below:
1.1 "Affiliate" means any entity that controls, is controlled by, or is
under common control with another entity. An entity is deemed to be in
control of another entity (controlled entity) if such company directly
or indirectly owns more than 50% in nominal value of the issued equity
share capital of such other company, or more than 50% of the shares
entitled to vote upon the election of:
(i) the directors;
(ii) persons performing functions similar to those performed by
directors; or
(iii) persons otherwise having the right to elect or appoint (a)
directors having the majority vote of the Board of Directors,
or (b) other persons having the majority vote of the highest
and most authoritative directive body of such other company.
1.2 "Confidential Information" means all nonpublic technical or commercial
information, including but not necessarily limited to, inventions,
discoveries, know-how, data, materials, plans, procedures,
descriptions and documents relating to development activities,
commercial activities, STI Technology, and STI Developments, including
the terms and conditions of this Agreement (considered the
Confidential Information of the other party, as to each party), and
shall include, without limitation: research, intellectual property,
field trials, manufacturing, marketing, financial, personnel and other
business or technical information, activities, plans, and results,
that are disclosed hereunder by the "Disclosing Party" in writing,
marked "Confidential", or if disclosed orally or in some other form
and identified as confidential or which reasonably should be
considered as confidential, is then summarized in reasonable detail in
a writing, marked "Confidential", and provided to the "Receiving
Party" within thirty (30) days of initial disclosure. Confidential
Information does not include information which:
(i) is known to the Receiving Party prior to the time of disclosure,
as evidenced by contemporaneous dated written records,
(ii) is received by the Receiving Party from independent sources
having the right to such information without an obligation of
confidence or non-disclosure, and without the information having
been solicited or obtained by any use of the Confidential
Information;
(iii) is, or through no fault of the Receiving Party, becomes part of
public knowledge or literature; or
(iv) is, independently developed by the Receiving Party employee,
agent, or consultant, who had no access to the Confidential
Information, as evidenced by contemporaneous dated written
records.
The obligations of the Receiving Party with regard to Confidential
Information shall terminate ten (10) years from the date of receipt of
any Confidential Information or upon the termination of this
Agreement, whichever is later.
1.3 "Direct Market Approach" means a scenario in which Scotts sells a
Licensed Product together with other Scotts products or services,
directly to the end-user.
1.4 "Field" means the market categories set forth in Appendix A.
1.5 "Indirect Market Approach" means a scenario in which Scotts sells a
Licensed Product to a seed company or grower, but not directly to an
end-user. The Indirect Market Approach will involve only the transfer
of the Licensed Product (including the trait technology).
1.6 "Integrated Market Approach" means a scenario in which Scotts delivers
the Licensed Product to one or more Third Parties (including, but not
limited to, seed companies and growers) before the Licensed Product is
sold to the end-user. In the Integrated Market Approach, Scotts will
be actively involved with more than one other level of trade for the
preparation and promotion of Licensed Products for sale.
1.7 "Licensed Product" means any product developed pursuant to this
Agreement which: (i) contains or is derived from an STI Patent and/or
STI Technology and (ii) would infringe upon the rights granted or to
be granted under the STI Patents.
1.8 "Net Sales" means the sum total of the sale price of the License
Products, including Third Party royalties and license fees, actually
sold less standard deductions of such qualifying cost to be limited to
the following:
(i) discounts, in amounts customary in the trade, for quantity
purchases, for prompt payments, and for wholesalers and
distributors;
(ii) credits or refunds, not exceeding the original invoice amount,
for claims or returns;
(iii) government fees, sales and use of taxes, or other price
reductions imposed by government agencies.
1.9 "STI Development" means any modification or improvement on any STI
Technology made by Scotts or anyone acting on behalf of Scotts
pursuant to and during the term of this Agreement. STI Development
shall not include Scotts' inventions resulting from transformation,
line selection, screening, breeding, or product or commercial
development activities that do not modify STI Technology. STI
Developments shall remain the property of STI.
1.10 "STI Patents" means all STI patents pertaining to senescence, cell
division, reactions to biotic or abiotic stress, and/or growth in
plants, including (i) pending (as of the Effective Date of this
Agreement) U.S. and foreign patent applications owned or controlled by
STI or its Affiliates pertaining to senescence, cell division,
reactions to biotic or abiotic stress, and/or growth in plants,
including original applications, provisionals, divisions,
continuations, continuations-in-part, extensions, PCT applications,
renewals, reissues, or reexamination applications or supplemental
prosecution certificates, including, but not limited to, all
applications listed in Appendix B; (ii) U.S. and foreign patents that
have
issued or will issue from any application identified in Section (i) of
this paragraph; and (iii) U.S. and foreign applications pertaining to
controlling senescence, cell division, reactions to biotic or abiotic
stress, and/or growth in plants that claim priority in any way from
any application or patent identified in subparagraphs (i) or (ii) of
this paragraph.
1.11 "STI Technology" means the STI Patents, STI's Confidential
Information, and all of STI's know-how, materials, information and
methods (whether developed by STI or acquired from a Third Party),
including but not limited to, methods for controlling plant senescence
cell division, biotic stress, abiotic stress and/or plant growth
involving altering the expression of plant genes and their cognate
expressed proteins that are induced during or coincident with the
onset of senescence and/or plant growth.
1.12 "Territory" means North America, South America, Europe, Australia, and
New Zealand.
1.13 "Third Party" means all persons and entities other than STI and
Scotts, and their respective Affiliates.
1.14 "Timeline" means the product development timetable for STI's and
Scotts' development of technology relating to Licensed Products in the
Field, as set forth in Appendix C.
2. LICENSE GRANT
2.1 STI hereby grants to Scotts and its Affiliates an exclusive license in
the Field under the STI Technology and the STI Developments to
develop, make, have made, use, sell, offer to sell, and import
Licensed Products in the Territory. Scotts shall have no other rights
under the STI Technology and the STI Developments except as set forth
herein.
2.2 Scotts grants to STI a non-exclusive license in the Field to any
Scotts technology necessary for research and development of Licensed
Products under this Agreement. The granting of these non-exclusive
license rights does not include rights for commercialization.
3. TERM
This Agreement is effective as of the Effective Date, and shall
continue in effect until the expiration of the last to expire patent
among the STI Patents, a claim of which covers a Licensed Product or
the method of making or method of using said Licensed Product, unless
sooner terminated as provided herein. As used in this Agreement, the
"expiration" of a patent in a country includes (i) expiration of the
patent's statutory term; (ii) irrevocable lapse for failure to pay
maintenance fees or the like, (iii) final revocation of the applicable
claims by a national patent office and the exhaustion or expiration of
all appeals of such revocation, and (iv) final adjudication by a court
of competent jurisdiction that the applicable claims of the patent are
invalid or unenforceable and the exhaustion or expiration of all
appeals from said adjudication.
4. PRODUCT DEVELOPMENT
4.1 STI agrees to carry out its development obligations in each of the
phases as set forth in the Timeline attached hereto as Appendix C.
4.2 Scotts agrees to carry out its development obligations in each of the
phases as set forth in the Timeline attached hereto as Appendix C.
4.3 STI agrees during the term of this Agreement to provide Scotts access
to the STI Technology, pursuant to the terms set forth herein.
4.4 STI shall provide technical support to Scotts, as necessary to enable
Scotts to meet its development obligations as set forth in the
Timeline. STI technical support shall be provided at no cost to
Scotts, except however, travel expenses for any Scotts or STI
technical personnel and any disbursements necessary for such technical
support shall be paid by Scotts, any unusually large disbursements
subject to Scotts' approval. All STI expenses to be reimbursed by
Scotts must be pre-approved by Scotts.
4.5 Scotts shall be responsible and STI shall fully cooperate with Scotts
to obtain any required state, federal, national or international legal
and/or regulatory approval necessary to carry out the terms of this
Agreement.
5. PATENTS, PATENT APPLICATIONS AND PATENT ENFORCEMENT
5.1 Scotts acknowledges that all the STI Technology is and shall remain
the property of STI, and except as provided herein, all right, title,
and interest in the STI Technology is and shall remain with STI.
5.2 Scotts and STI agree that all STI Developments are and shall remain
the property of STI, and except as provided herein, all right, title,
and interest in the STI Developments is and shall remain with STI.
Scotts hereby assigns all patentable inventions relating to any STI
Development to STI and agrees to execute all documents, provide all
information and materials (including any biological materials
necessary for deposit), and do all acts, at STI's sole expense,
necessary to perfect and maintain STI's rights to all patentable STI
Developments.
5.3 Each party shall promptly and fully report to the other any and all
STI Developments which are conceived, made, and/or reduced to practice
by one or more of its employees, agents, consultants, and/or
sublicensees, or jointly by one or more of its employees, agents,
consultants, and/or sublicensees and by one or more employees, agents,
consultants, and/or sublicensees of the other party. STI shall retain
the sole right to prosecute and maintain any and all patents and
patent applications relating to STI Technology and STI Developments in
its sole and absolute discretion. In the event that STI decides not to
prosecute or maintain any patent or patent application, continuation,
renewal, provisional, or extension relating to any STI Technology
and/or any STI Developments, then STI shall promptly, (and in no event
less than thirty (30) days prior to the expiration of such patent,
patent application, continuation, renewal, provisional, or
extension in any country in the Field), offer Scotts a first right of
refusal to pay for prosecution or maintenance of said patent or patent
application, continuation, renewal, provisional, or extension. Scotts
has the right, but not the obligation, to pay for such prosecution or
maintenance. In the event that STI decides not to defend any patent or
patent application, continuation, renewal, provisional, or extension
relating to any STI Technology and/or any STI Developments from a
Third Party's claim of infringement or misuse, then STI shall promptly
(and in no case less more than thirty (30) after the filing of such
claim) offer Scotts the right, but not the obligation, to assume the
defense and cost of defense against such claim of infringement. STI
will use its reasonable efforts to assist Scotts as requested.
5.4 STI shall have sole and absolute discretion over whether to bring any
claims for patent infringement under the STI Patents and have complete
control of any suits, claims or counterclaims it asserts and, except
as provided below, has the right to and shall retain 100% of any
monies received, including all damage awards and settlement payments.
If STI requests, and at STI's sole and absolute discretion, Scotts may
participate in a claim or counterclaim to jointly assert the STI
Patents in the Field. If STI and Scotts agree to jointly to assert the
STI Patents in the Field and to assert claims or counterclaims, STI
shall have complete control of any suits, claims or counterclaims
asserted. Each party agrees to bear its own legal costs. Any monies
received, including all damage awards and settlement payments shall be
shared between Scotts and STI in a fashion to be negotiated at the
time of such suit, claim or counterclaim. In the event that a Third
Party infringes on STI Patent right in the Field and STI decides not
to bring a claim for patent infringement or misuse against such Third
Party, then STI shall assign the right to file such claim to Scotts.
Scotts shall have the right, but not the obligation to file and pursue
such a claim of infringement. If Scotts chooses to pursue such a
claim, then Scotts will pay all reasonable fees associated with such
action. All monies received, including all damage awards and
settlement payments, shall first be applied to reimbursement of all
fees incurred by Scotts to pursue the claim of infringement. Scotts
will pay royalties to STI on such net damage awards and settlement
payments as would have been due from Scotts had Scotts made the
infringing sales. STI will use its reasonable efforts to assist Scotts
as requested.
6. PAYMENTS TO STI
6.1 Scotts shall make the following benchmark payments to STI:
(i) $[**] in U.S. dollars to STI upon [**] this Agreement;
(ii) $[**] in U.S. dollars to STI upon [**] of this Agreement;
(iii) $[**] in U.S. dollars to STI upon [**] this Agreement;
(iv) $[**] in U.S. dollars to STI upon [**] this Agreement; and
(v) $[**] in U.S. dollars to STI upon [**].
6.2 Timeline Commitments:
STI will deliver STI Technology for [**] within [**] of signing the
Agreement. [**], preferably [**], within [**] of receiving STI
Technology, then Scotts, [**], will decide to either: (i) have its
exclusive rights as granted in Section 2.1 of the Agreement converted
to non-exclusive rights or (ii) pay $[**]/year to maintain exclusive
rights.
[**] under field trial conditions or [**], then Scotts will have [**].
[**], then Scotts, [**], will decide to either have its exclusive
rights converted to non-exclusive rights or pay $[**]/year to maintain
exclusive rights.
The obligation to pay the $[**]/year or $[**]/year maintenance fees
will be [**].
7. ROYALTIES
7.1 Upon commercialization of any Licensed Products within the Field, then
Scotts shall make royalty payments to STI as provided herein.
7.2 Scotts shall pay a royalty of [**] percent ([**]%) of Net Sales [**].
Scotts shall pay a royalty of [**] ([**]%) of Net Sales [**]. The
royalty is deemed earned as of the earlier of the date the Licensed
Product is actually sold and paid for or the date an invoice is sent
by Scotts.
7.3 In the event that Scotts is required to pay a royalty to any Third
Party for rights to additional technologies incorporated in any
Licensed Products, the royalty payable to STI shall be [**] percent
([**]%) of Net Sales [**] percent ([**]%) of Net Sales through [**].
7.4 In the event that a Licensed Product sold [**] percent ([**]%) of the
total market sales for a given species (as determined by the
agricultural statistics submitted to and reported by the United States
Department of Agriculture), then the royalty due for such Licensed
Product will be [**] percent ([**]%) of Net Sales [**] percent ([**]%)
[**]. In the event that a Licensed Product sold [**] percent ([**]%)
of the total market sales for a given species and Scotts is required
to pay a royalty to a Third Party for rights to
additional technologies incorporated in such Licensed Product, then
the royalty due for such Licensed Product will be [**] percent ([**]%)
of Net Sales [**] percent ([**]%) of the total market sales.
7.5 Royalties shall be paid in U.S. dollars semi-annually, [**] days after
[**]. All royalties owing for Net Sales in countries trading in
currencies other than U.S. dollars shall be converted to U.S. dollars
at the rate shown in the Federal Reserve Noon Valuation - - value of
Foreign currencies on [**] for the respective payments.
7.6 Royalty payments shall be accompanied by a royalty report. Each
royalty report will contain a full accounting of how amounts owed to
STI have been calculated. Such accounting shall be on a per-country
and product line, model, or tradename basis. In the event no payment
is owed to STI, a statement setting forth that fact shall be supplied
to STI.
8. RECORDKEEPING
8.1 STI shall have a right to conduct an annual audit of Scotts' books and
records upon thirty (30) days' prior written notice.
8.2 Scotts shall keep books and records sufficient to verify the accuracy
and completeness of Scotts' accounting referred to above, including
without limitation inventory, purchase and invoice records relating to
the Licensed Products and their manufacture. Such books and records
shall be preserved for a period of not less than three (3) years after
they are created, during and after the term of this Agreement.
8.3 Scotts shall take all steps necessary so that STI may within thirty
(30) days of its request review and copy all books and records at
Scotts' relevant facilities to verify the accuracy of Scotts'
accounting. Such review may be performed by any employee of STI as
well as by an attorney or registered CPA designated by STI, upon
reasonable prior written notice and during regular business hours.
Such review shall be conducted at STI's expense.
8.4 If a royalty payment deficiency is determined, Scotts shall pay the
royalty deficiency outstanding within thirty (30) days of receiving
written notice thereof, plus prime plus 4% interest on outstanding
amounts.
8.5 If a royalty payment deficiency for a calendar year exceeds five
percent (5%) of the royalties paid for that year, then Scotts shall be
responsible for paying STI's reasonable out-of-pocket expense incurred
with respect to such review.
9. ASSIGNMENT
9.1 All rights granted under this Agreement are personal to Scotts. Except
as provided in Paragraph 9.2, Scotts may not assign this Agreement or
its rights or obligations hereunder without STI's written consent.
9.2 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their successors and permitted assigns.
10. CONFIDENTIALITY
10.1 Each party including its respective agents, contractors,
representatives, Affiliates, and employees agrees that it will respect
the other's Confidential Information and treat it in the same manner
as if it were its own Confidential Information. Each party shall limit
the dissemination of and access to the Confidential Information to
those who require access for the purpose of carrying out this
Agreement. Such Confidential Information shall not be disclosed to any
Third Party or entity or to the public except as provided herein. Each
party shall assume liability for unlawful disclosure of Confidential
Information by its respective agents, contractors, representatives,
Affiliates, and employees
10.2 Each party agrees to treat and hold as confidential and not disclose
to or provide access to any Third Party or entity or to the public all
Confidential Information received pursuant to this Agreement and will
cause its respective agents, representatives, Affiliates, and
employees to do likewise.
10.3 Each party shall use Confidential Information only for the uses as
agreed upon in this Agreement and only in connection with the
development of Licensed Products in the Field, the development of
processes for the production of such Licensed Products, and any other
purpose incidental or convenient to the foregoing or mutually
agreeable to the parties.
10.4 Each party may disclose Confidential Information received, to the
extent it is required to do so pursuant to a final court order;
provided, however, that the Receiving Party (i) promptly notifies the
Disclosing Party upon its receipt of any pleading, discovery request,
interrogatory, motion or other paper that requests or demands
disclosure of the Confidential Information, (ii) opposes any request
for disclosure, and that failing, seeks to have access and use limited
by a protective order, and (iii) provides the Disclosing Party a
reasonable opportunity to contest and assist in opposing any
requirement of disclosure, to seek judicial protection against the
disclosure and to have such disclosure as is required made under a
protective secrecy order.
10.5 Each party agrees that, at any time upon the request of the Disclosing
Party, it will return or destroy any materials containing Confidential
Information (and destroy its notes and copies related thereto). If
destroyed, the Receiving Party shall provide the Disclosing Party with
written certification of destruction of the materials containing said
Confidential Information, said certification to be signed by an
officer of Scotts.
10.6 Each party acknowledges that Confidential Information is of a unique
character, contains trade secrets and has other substantial
proprietary value such that, if a party does not uphold its
obligations with regard to Confidential Information, the other will be
irreparably harmed. The parties therefore agree that each party shall
have the right to
have the courts specifically enforce this Section and seek injunctive
relief to prevent unauthorized disclosure of the Confidential
Information.
10.7 STI and Scotts each agree not to disclose the terms of this Agreement
other than as required by law to any regulatory or judicial body, or
as necessary to potential investors or financiers (provided such
potential investors or financiers are subject to confidentiality
undertakings) without the prior written consent of the other party,
which consent shall not be unreasonably withheld. The parties,
however, shall be permitted to prepare press releases disclosing the
existence of the Agreement in accordance with the provisions of
Paragraph 10.8.
10.8 Prior to issuing any reports, statements, press releases or other
disclosures to third parties regarding this Agreement or the
transactions contemplated herein, STI and Scotts shall exchange copies
of such documents and shall consult with each other regarding their
content. Except as otherwise required by law, neither STI nor Scotts
shall issue any such disclosure without the prior approval of the
other.
11. REPRESENTATIONS AND WARRANTIES
STI represents to the best of its knowledge that it is legally
entitled to disclose the Confidential Information disclosed by it, and
that to the best of its knowledge the disclosure of the Confidential
Information under this Agreement does in no event violate any right of
any Third Party. No other warranties concerning the Confidential
Information are made, whether express or implied, and STI EXPRESSLY
DISCLAIMS ALL OTHER WARRANTIES CONCERNING, INCLUDING WITHOUT
LIMITATION, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT.
12. DEFAULT AND TERMINATION
12.1 STI may terminate this Agreement at any time, without cause, upon
sixty (60) days' prior written notice
(i) if Scotts fails to materially fulfill or perform one or more of
its duties, obligations, or responsibilities pursuant to this
agreement and does not cure said failure within thirty (30) days
after receiving notice of said failure; or
(ii) if Scotts declares or petitions for bankruptcy, is the subject
of a bankruptcy petition filed against it, makes an assignment
for the benefit of creditors or seeks similar relief under state
law, or becomes insolvent.
12.2 Scotts may terminate the Agreement, at any time, without cause upon
sixty (60) days prior written notice to STI.
12.3 Upon termination of this Agreement pursuant to this Section 12, (i)
Scotts shall cease to be licensed under the STI Patents and will not
be authorized to distribute Licensed
Products in the Field; provided, however, that (contingent upon
compliance with this Agreement) Scotts may sell, within a reasonable
amount of time, all Licensed Product in its inventory at the time of
termination; (ii) all moneys owed by Scotts to STI through the date of
termination shall become immediately due and payable; (iii) all
Confidential Information disclosed pursuant to this Agreement shall be
returned immediately to STI; (iv) neither party to this Agreement
shall be responsible to the other for any damages arising from the
termination of this Agreement, including any claim for lost or
anticipated profits, expenditures, reliance, or other damages.
13. PATENT MARKING
Scotts shall insure that it and its distributors apply any patent
markings that meet all requirements of U.S. law, 35 U.S.C. 287, with
respect to all Licensed Products subject to this Agreement.
14. MERGER
STI's rights and obligations hereunder shall be transferred upon any
merger, acquisition or sale of all or substantially all of STI's
assets relating to the Field to a Third Party purchaser. Any such
transfer or sale shall be subject to the rights granted herein to
Scotts and the obligations of Scotts to STI.
15. PRODUCT LIABILITY
Scotts shall, at all times during the term of this Agreement and
thereafter, indemnify, defend and hold STI and the inventors of the
STI Patents harmless against all claims and expenses, including legal
expenses and reasonable attorney's fees, arising out of the death of
or injury to any person or persons or out of any damage to property
and against any other claim, proceeding, demand, expense and liability
of any kind (other than patent infringement claims and claims
resulting from STI's own negligence or the negligence of the inventors
of the licensed patents) resulting from the production, manufacture,
sale, use, lease, consumption or advertisement of Licensed Products
arising from any right or obligation of Scotts hereunder. STI at all
times reserves the right to select and retain counsel of its own to
defend STI's interests.
16. USE OF NAMES
Scotts shall not use STI's name, the name of any inventor of
inventions governed by this Agreement in sales promotion, advertising,
or any other form of publicity without the prior written approval of
the entity or person whose name is being used.
17. CHOICE OF LAW; CHOICE OF FORUM
This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York without reference to its choice of
law principles. The state and federal courts in Southern District of
New York shall have exclusive jurisdiction of any dispute arising
under this Agreement.
18. ENTIRE AGREEMENT; NO ORAL MODIFICATIONS; WAIVER
18.1 This Agreement contains the entire understanding and agreement between
STI and Scotts with respect to the subject matter hereof, and
supersedes all prior oral or written understandings and agreements
relating thereto. Neither party shall be bound by any conditions,
definitions, warranties, understandings, or representations concerning
the subject matter hereof except as are (i) provided in this
Agreement, (ii) contained in any prior existing written agreement
between the parties, or (iii) duly set forth on or after the Effective
Date of this Agreement in a written instrument subscribed by an
authorized representative of the party to be bound thereby.
18.2 No waiver by either party, whether express or implied, of any
provision of this Agreement, or of any breach or default thereof,
shall constitute a continuing waiver of such provision or of any other
provision of this Agreement. Either party's acceptance of payments by
the other under this Agreement shall not be deemed a waiver of any
violation of or default under any of the provisions of this Agreement.
19. RELATIONSHIP OF THE PARTIES
Nothing herein contained shall be construed to constitute the parties
hereto as partners or as joint venturers, or either as agent or
employee of the other. Neither party shall take any action that
purports to bind the other.
20. SEVERABILITY
If any provision or any portion of any provision of this Agreement
shall be held to be void or unenforceable, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
21. CONSTRUCTION
This Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party causing this
Agreement to be drafted. If any words or phrases in this Agreement
shall have been stricken out or otherwise eliminated, whether or not
any other words or phrases have been added, this Agreement shall be
construed as if those words or phrases were never included in this
Agreement, and no
implication or inference shall be drawn from the fact that the words
or phrases were so stricken out or otherwise eliminated.
22. HEADINGS
The captions and paragraph headings appearing in this Agreement are
inserted for convenience and reference only and in no way define,
limit or describe the scope or intent of this Agreement or any of the
provisions thereof.
23. NOTICES
All reports, approvals, requests, demands and notices required or
permitted by this Agreement to be given to a party (hereafter
"Notices") shall be in writing. Notices shall be hand delivered, sent
by certified or registered mail, return receipt requested, or sent via
a reputable private express service which requires the addressee to
acknowledge receipt thereof. Notices may also be transmitted by fax,
provided that a confirmation copy is also sent by one of the above
methods. Except as otherwise provided in this Agreement, Notices shall
be effective upon dispatch. Notices shall be sent to the party
concerned as follows (or at such other address as a party may specify
by notice to the other):
As to STI:
Senesco Technologies, Inc.
303 George Street, Suite 420
New Brunswick, NJ 08901
Facsimile: (732) 296-9292
Attn: Bruce C. Galton, President and Chief Executive Officer
As to Scotts:
The Scotts Company
14111 Scottslawn Road
Marysville, OH 43041
Facsimile: (937) 644-7597
Attn: Bob Harriman
Vice President, Biotechnology
24. SURVIVAL OF TERMS
The obligations set forth in Sections 8, 11, and Paragraph 13.2 shall
survive the termination of this Agreement.
25. APPENDICES
All Appendices referenced herein are hereby made a part of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by its duly authorized representative as of the day and year first above
written.
SENESCO TECHNOLOGIES, INC. THE SCOTTS COMPANY
By: /s/ Bruce C. Galton By: /s/ Michael P. Kelty
---------------------------- ---------------------------
Title: President and CEO Title: Vice Chairman, EVP
------------------------- ------------------------
APPENDIX A
FIELD OF LICENSE
GARDEN PLANTS
Bedding plants are flowering plants used in outdoor garden, container and
hanging basket settings. Some examples of bedding plants include, but are not
limited to, Petunia, Begonia, Impatiens, Marigold, Geranium, Vinca and Pansy.
POTTED PLANTS
Potted plants are herbaceous or woody flowering plants used in indoor pot
situations for aesthetic purposes. Some examples of potted plants include, but
are not limited to, Poinsettia, Lilly, potted Rose, Azalea, African Violet,
Chrysanthemum, Kalanchoe and Cyclamen.
TURF GRASS, EXCLUDING GRASSES USED FOR FORAGE
Fine Turf
Amenity turf grass
Recreational Turf
APPENDIX B
STI PATENTS
LIPASE FAMILY
Title: Plant lipase gene, senescence induced expression and a method for
controlling senescence
U.S. Cases
U.S. Application [**]
U.S. Application [**}
Foreign cases
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
EIF-5A FAMILY
Title: DNA encoding a plant DHS, transgenic plants and a method for controlling
programmed cell death in plants.
U.S. Cases
U.S. Patent 6,538,182
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
U.S. Application [**]
Foreign Cases
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
Other related cases
U.S. Provisional [**]
U.S. Provisional [**]
APPENDIX C
TIMELINE
ORNAMENTALS: [**]
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AMENDMENT TO BUDGET AND RESEARCH AGREEMENT
BETWEEN
SENESCO, INC. AND UNIVERSITY OF WATERLOO
March 11, 2004
Pursuant to the Research Agreement effective September 1, 1998 (the
"Agreement"), between the University of Waterloo (Waterloo), Dr. John E.
Thompson (Thompson), and Senesco, Inc. (Senesco), Waterloo, Thompson and Senesco
hereby agree to amend/increase the annual budget for Year 5 and Year 6 as
attached.
o Year 5 increases from $546,400.00 to $605,983.60
o Year 6 increases from $546,400.00 to $725,150.00
o Total increase of $238,333.60 over the period 1 May 2003 to August 31,
2004.
AGREED:
/s/ Paul Guild /s/ Bruce C. Galton
- ---------------------------------- --------------------------------
Paul Guild Bruce C. Galton
Vice President University Research President
University of Waterloo Senesco, Inc.
/s/ Barry Scott
- ----------------------------------
Barry Scott
Director - Contracts Research
and Industrial Grants
University of Waterloo
/s/ John Thompson
- ----------------------------------
John Thompson
Principal Investigator
University of Waterloo
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 Quarterly Report on Form 10-QSB 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: May 17, 2004
/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 Quarterly Report on Form 10-QSB 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: May 17, 2004
/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 Quarterly Report on Form 10-QSB of Senesco
Technologies, Inc. for the period ended March 31, 2004 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 Quarterly 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 Quarterly Report fairly presents, in
all material respects, the financial condition and results of operations of
Senesco Technologies, Inc.
Dated: May 17, 2004 /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 Quarterly Report on Form 10-QSB of Senesco
Technologies, Inc. for the period ended March 31, 2004 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 Quarterly 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 Quarterly Report fairly presents, in
all material respects, the financial condition and results of operations of
Senesco Technologies, Inc.
Dated: May 17, 2004 /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.
