Table of Contents

** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q / A**

** **

**(Amendment No. 1)**

 

**(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, 2008** |
|------------|--------------------------------------------------------------|
| ** ** | ** **                                                   |
| **OR**     |

 
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES** |
|------------|------------------------------------------------------------------------------------|
| ** ** | **EXCHANGE ACT OF 1934**                                                           |

 
| ** ** | **For  the transition period  from                                    to                                    ** |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission File No. 001-31326**

 

**SENESCO TECHNOLOGIES, INC.**

(exact name of registrant as specified in itscharter)

 

| **Delaware**                                                   | **84-1368850**                    |
|----------------------------------------------------------------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |

** **

**303George Street, Suite 420**

**NewBrunswick, New Jersey 08901**

(Address ofprincipal executive offices)

** **

**(732)296-8400**

(Registrant’s telephone number, includingarea code)

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 
| Yes: x | No: o |
|--------|-------|

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 
| Large accelerated filer o                                               | Accelerated filer o         |
|-------------------------------------------------------------------------|-----------------------------|
| Non-accelerated filer (Do not check if a  smaller reporting  company) x | Smaller reporting company o |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

 
| Yes: o | No: x |
|--------|-------|

 

As of April 30, 2008, 18,283,870 shares of the issuer’s common stock,par value $0.01 per share, were outstanding.

 

 

 

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

 

TABLE OF CONTENTS

 
|          |                                                                                                                                                                                                                                     |   | **Page** |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
| PART I.  | FINANCIAL INFORMATION.                                                                                                                                                                                                                   |   |     |
|          |                                                                                                                                                                                                                                     |   |     |
| Item 1.       | Financial Statements (Unaudited)                                                                                                                                                                                                         |   | 2        |
|          |                                                                                                                                                                                                                                     |   |     |
|          | CONDENSED  CONSOLIDATED BALANCE SHEETS as of March 31, 2008 and June 30, 2007                                                                                                                                                  |   | 3        |
|          |                                                                                                                                                                                                                                     |   |     |
|          | CONDENSED CONSOLIDATED STATEMENTS OF  OPERATIONS  For the Three Months Ended March 31, 2008 and 2007,  For the Nine Months Ended March 31, 2008 and 2007,  and From Inception on July 1, 1998 through March 31, 2008 |   | 4        |
|          |                                                                                                                                                                                                                                     |   |     |
|          | CONDENSED CONSOLIDATED STATEMENT OF  STOCKHOLDERS’EQUITY  From Inception on July 1, 1998 through March 31, 2008                                                                                                           |   | 5        |
|          |                                                                                                                                                                                                                                     |   |     |
|          | CONDENSED CONSOLIDATED STATEMENTS OF CASH  FLOWS  For the Nine Months Ended March 31, 2008 and 2007,  and From Inception on July 1, 1998 through March 31, 2008                                                           |   | 9        |
|          |                                                                                                                                                                                                                                     |   |     |
|          | NOTES TO CONDENSED CONSOLIDATED FINANCIAL  STATEMENTS                                                                                                                                                                                    |   | 10       |
|          |                                                                                                                                                                                                                                     |   |     |
| Item 2.       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                                                                                              |   | 22       |
|          |                                                                                                                                                                                                                                     |   |     |
|          | Overview                                                                                                                                                                                                                                 |   | 22       |
|          |                                                                                                                                                                                                                                     |   |     |
|          | Liquidity and Capital Resources                                                                                                                                                                                                          |   | 31       |
|          |                                                                                                                                                                                                                                     |   |     |
|          | Changes to Critical Accounting Policies and  Estimates                                                                                                                                                                                   |   | 35       |
|          |                                                                                                                                                                                                                                     |   |     |
|          | Results of Operations                                                                                                                                                                                                                    |   | 36       |
|          |                                                                                                                                                                                                                                     |   |     |
| Item 3.       | Quantitative and Qualitative Disclosures  about Market Risk                                                                                                                                                                              |   | 44       |
|          |                                                                                                                                                                                                                                     |   |     |
| Item 4.       | Controls and Procedures                                                                                                                                                                                                                  |   | 44       |
|          |                                                                                                                                                                                                                                     |   |     |
| PART II. | OTHER INFORMATION.                                                                                                                                                                                                                       |   |     |
|          |                                                                                                                                                                                                                                     |   |     |
| Item 1A.      | Risk Factors                                                                                                                                                                                                                             |   | 45       |
|          |                                                                                                                                                                                                                                     |   |     |
| Item 6.       | Exhibits                                                                                                                                                                                                                                 |   | 58       |
|          |                                                                                                                                                                                                                                     |   |     |
| SIGNATURES    | 59                                                                                                                                                                                                                                       |

 

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**EXPLANATORY NOTE**

 

This Amendment No. 1 onForm 10-Q/A amends financial statements and the footnotes of the QuarterlyReport on Form 10-Q of Senesco Technologies, Inc. (the “Company”) forthe third quarter ended March 31, 2008, as filed with the Securities andExchange Commission on May 15, 2008 (the “Quarterly Report”) as theCompany’s financial statements for the quarterly period ended March 31,2008 should be restated and should no longer be relied upon.  

 

During the year ended June 30,2008, the Company issued convertible notes and warrants.  The proceeds ofthe convertible notes were allocated to the warrants and the beneficialconversion feature of the notes and the discount was being amortized over theterm of the notes.  According to EITF 98-5, paragraph 9, for convertibledebt securities, any recorded discount resulting from the allocation ofproceeds to the beneficial conversion feature should be recognized as interestexpense using the effective yield method.  The Company was providing forthe amortization of the convertible debt discount on a straight-line methodover the term of the convertible debt securities.  The Company hasreviewed its calculations of amortization of debt discount, a non-cash expense,under both the straight-line and effective yield methods and has determinedthat there is a material difference between the two calculations because of thechange from the straight-line method to the effective yield method.  Thecondensed consolidated financial statements have been restated for all periodspresented.  

 

For convenience and ease ofreference, the Company is filing the Quarterly Report in its entirety with theapplicable changes. Unless otherwise stated, all information contained in thisamendment and restated 10-Q is as of May 15, 2008, the filing date of theQuarterly Report. This Form 10-Q/A does not reflect events or transactionsoccurring after such filing date or modify or update those disclosures in theQuarterly Report that may have been affected by events or transactionsoccurring subsequent to such filing date. No information in the QuarterlyReport other than as set forth above is amended hereby. Currently-datedcertifications from our President and Chief Executive Officer and our ChiefFinancial Officer have been included as exhibits to this amendment.  

 

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** **

**PART I. FINANCIAL INFORMATION.**

 

**Item 1.****                                                           Financial Statements.**

 

Certain information and footnote disclosures required under UnitedStates generally accepted accounting principles have been condensed or omittedfrom the following consolidated financial statements pursuant to the rules andregulations of the Securities and Exchange Commission.  However, Senesco Technologies, Inc., aDelaware corporation, and its wholly owned subsidiary, Senesco, Inc., aNew Jersey corporation (collectively, “Senesco” or the “Company”), believe thatthe disclosures are adequate to assure that the information presented is notmisleading in any material respect.

 

The results of operations for the interim periods presented herein arenot necessarily indicative of the results to be expected for the entire fiscalyear.

 

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SENESCO TECHNOLOGIES, INC. ANDSUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                     | ** ** | **March 31,**          | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------|------------|
| ** **                                                                                                                     | ** ** | **2008**                    | ** ** | **2007**          | ** ** |
| ** **                                                                                                                     | ** ** | **(unaudited)  (restated)** | ** ** | ** **        | ** ** |
| ASSETS                                                                                                                         |       |                        |       |              |       |
|                                                                                                                           |       |                        |       |              |       |
| CURRENT ASSETS:                                                                                                                |       |                        |       |              |       |
| Cash and cash equivalents                                                                                                      |       | $                           | 4,049,233  |              | $          | 408,061 |   |
| Short-term investments                                                                                                         |       | 500,000                     |       | 250,000           |       |
| Prepaid expenses and other current assets                                                                                      |       | 57,695                      |       | 104,526           |       |
| Total Current Assets                                                                                                           |       | 4,606,928                   |       | 762,587           |       |
|                                                                                                                           |       |                        |       |              |       |
| Property and equipment, net                                                                                                    |       | 6,880                       |       | 7,526             |       |
| Intangibles, net                                                                                                               |       | 3,032,449                   |       | 2,544,447         |       |
| Deferred financing costs                                                                                                       |       | 729,029                     |       | —            |       |
| Security deposit                                                                                                               |       | 7,187                       |       | 7,187             |       |
| TOTAL ASSETS                                                                                                                   |       | $                           | 8,382,473  |              | $          | 3,321,747 |   |
|                                                                                                                           |       |                        |       |              |       |
| LIABILITIES AND STOCKHOLDERS’  EQUITY                                                                                     |       |                        |       |              |       |
|                                                                                                                           |       |                        |       |              |       |
| CURRENT LIABILITIES:                                                                                                           |       |                        |       |              |       |
| Accounts payable                                                                                                               |       | $                           | 168,525    |              | $          | 109,258 |   |
| Accrued expenses                                                                                                               |       | 509,619                     |       | 377,359           |       |
| Deferred revenue                                                                                                               |       | —                      |       | 16,667            |       |
| Total Current Liabilities                                                                                                      |       | 678,144                     |       | 503,284           |       |
|                                                                                                                           |       |                        |       |              |       |
| Convertible note, net of discount                                                                                              |       | 12,742                      |       | —            |       |
| Grant payable                                                                                                                  |       | 99,728                      |       | 99,728            |       |
| Other liability                                                                                                                |       | 24,595                      |       | 29,196            |       |
| TOTAL LIABILITIES                                                                                                              |       | 815,209                     |       | 632,208           |       |
|                                                                                                                           |       |                        |       |              |       |
| STOCKHOLDERS’ EQUITY:                                                                                                     |       |                        |       |              |       |
|                                                                                                                           |       |                        |       |              |       |
| Preferred stock, $0.01 par value; authorized 5,000,000 shares, no  shares issued                                               |       | —                      |       | —            |       |
| Common stock, $0.01 par value; authorized  100,000,000 shares, issued and outstanding 17,728,314 and 17,473,694,  respectively |       | 177,283                     |       | 174,737           |       |
| Capital in excess of par                                                                                                       |       | 35,925,622                  |       | 28,136,342        |       |
| Deficit accumulated during the development  stage                                                                              |       | (28,535,641                 | )          | (25,621,540       | )          |
|                                                                                                                           |       |                        |       |              |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                |       | 7,567,264                   |       | 2,689,539         |       |
|                                                                                                                           |       |                        |       |              |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                |       | $                           | 8,382,473  |              | $          | 3,321,747 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS

(unaudited)

 
| ** **                                                              | ** ** | **For the Three Months Ended  March 31,** | ** ** | **For the Three  Months Ended March 31,** | ** ** | **For the Nine  Months Ended  March 31,** | ** ** | **For the Nine  Months Ended  March 31,** | ** ** | **From  Inception on July 1, 1998 through   March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                       | ** ** | **2007**                                       | ** ** | **2008**                                       | ** ** | **2007**                                       | ** ** | **2008**                                                          | ** ** |
|                                                                    |       | **(restated)**                                 | ** ** | ** **                                     | ** ** | **(restated)**                                 | ** ** | ** **                                     | ** ** | **(restated)**                                                    |       |
| Revenue                                                                 |       | $                                              | 79,167     |                                           | $          | 6,250                                          |       | $                                              | 456,667    |                                                              | $          | 268,750 |   | $ | 1,175,000 |   |
|                                                                    |       |                                           |       |                                           |       |                                           |       |                                           |       |                                                              |       |
| Operating Expenses:                                                     |       |                                           |       |                                           |       |                                           |       |                                           |       |                                                              |       |
| General and administrative                                              |       | 876,966                                        |       | 514,189                                        |       | 1,851,876                                      |       | 2,001,068                                      |       | 21,286,069                                                        |       |
| Research and development                                                |       | 474,176                                        |       | 314,294                                        |       | 1,219,325                                      |       | 863,037                                        |       | 9,412,494                                                         |       |
| Total Operating Expenses                                                |       | 1,351,142                                      |       | 828,483                                        |       | 3,071,201                                      |       | 2,864,105                                      |       | 30,698,563                                                        |       |
|                                                                    |       |                                           |       |                                           |       |                                           |       |                                           |       |                                                              |       |
| Loss From Operations                                                    |       | (1,271,975                                     | )          | (822,233                                       | )          | (2,614,534                                     | )          | (2,595,355                                     | )          | (29,523,563                                                       | )          |
|                                                                    |       |                                           |       |                                           |       |                                           |       |                                           |       |                                                              |       |
| Sale of state income tax loss, net                                      |       | —                                         |       | —                                         |       | —                                         |       | —                                         |       | 586,442                                                           |       |
| Other noncash income                                               |       | —                                         |       | —                                         |       | —                                         |       | —                                         |       | 321,259                                                           |       |
| Interest income, net                                                    |       | 43,907                                         |       | 20,916                                         |       | 76,013                                         |       | 57,936                                         |       | 455,801                                                           |       |
| Amortization of debt discount and financing  costs                      |       |  (66,676                                  | )          | —                                         |       | (120,271                                       | )          | —                                         |       | (120,271                                                          | )          |
| Interest expense on convertible notes                                   |       | (187,473                                       | )          | —                                         |       | (255,309                                       | )          | —                                         |       | (255,309                                                          | )          |
| Net Loss                                                                |       | $                                              | (1,482,217 | )                                              | $          | (801,317                                       | )          | $                                              | (2,914,101 | )                                                                 | $          | (2,537,419 | ) | $ | (28,535,641 | ) |
|                                                                    |       |                                           |       |                                           |       |                                           |       |                                           |       |                                                              |       |
| Basic and Diluted Net Loss Per Common Share                             |       | $                                              | (0.08      | )                                              | $          | (0.05                                          | )          | $                                              | (0.17      | )                                                                 | $          | (0.15 | ) |   |   |
|                                                                    |       |                                           |       |                                           |       |                                           |       |                                           |       |                                                              |       |
| Basic and Diluted Weighted Average Number of Common Shares  Outstanding |       | 17,583,461                                     |       | 17,473,694                                     |       | 17,510,410                                     |       | 16,732,003                                     |       |                                                              |       |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2008

(unaudited)

 
| ** **                                                                              | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** **     | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|--------------------------------------------------------|------------|----------------|------------|
| ** **                                                                              | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Par Value**                                     | ** ** | **Stage**      | ** ** | **Total** | ** ** |
|                                                                                    |       |                  |       |                                |       |                                                   |       | **(restated)** |       | **(restated)** |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| 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 Notesto Condensed Consolidated Financial Statements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2008

(unaudited)

 
| ** **                                                                                                                | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** **     | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|---------------------------------------------------|------------|----------------|------------|
| ** **                                                                                                                | ** ** | **Shares**       | ** ** | **Amount**                | ** ** | **Par Value**                                     | ** ** | **Stage**      | ** ** | **Total** | ** ** |
|                                                                                                                      |       |             |       |                      |       |                                              |       | **(restated)** |       | **(restated)** |   |
|                                                                                                                      |       |             |       |                      |       |                                              |       |           |       |   |   |   |
| 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                                |       | —           |       | —                    |       | 1,475,927                                         |       | —         |       | 1,475,927 |   |
|                                                                                                                      |       |             |       |                      |       |                                              |       |           |       |   |   |
| Fair market value of options and warrants  vesting during the year ended June 30, 2001                               |       | —           |       | —                    |       | 308,619                                           |       | —         |       | 308,619 |   |
|                                                                                                                      |       |             |       |                      |       |                                              |       |           |       |   |   |
| 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                                |       | —           |       | —                    |       | 1,848,726                                         |       | —         |       | 1,848,726 |   |
|                                                                                                                      |       |             |       |                      |       |                                              |       |           |       |   |   |
| Fair market value of options and warrants vested during the year  ended June 30, 2003                                |       | —      |       | —               |       | 848,842                                      |       | —         |       | 848,842  |   |
|                                                                                                                      |       |             |       |                      |       |                                              |       |           |       |   |   |
| 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 |   |
|                                                                                                                      |       |             |       |                      |       |                                              |       |           |       |   |   |
| Allocation of proceeds to warrants                                                                                        |       | —           |       | —                    |       | (2,099,090                                        | )          | —         |       | (2,099,090 | ) |
|                                                                                                                           |            |                  |            |                           |            |                                                   |            |                |            |  |  |  |  |  |

 

(continued)

 

See Notesto Condensed Consolidated Financial Statements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2008

(unaudited)

 
| ** **                                                                                                              | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated During the Development** | ** ** | ** **     | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|-------------------------------------------------|------------|----------------|------------|
| ** **                                                                                                              | ** ** | **Shares**       | ** ** | **Amount**                | ** ** | **Par Value**                                   | ** ** | **Stage**      | ** ** | **Total** | ** ** |
| ** **                                                                                                              | ** ** | ** **       | ** ** | ** **                | ** ** | ** **                                      | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |   |   |
| Reclassification of warrants                                                                                            |       | —           |       | —                    |       | $                                               | 1,913,463  |           | —     |   | $ |  (378,624 | ) |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |   |
| Commissions, legal and bank fees associated with issuances for the  year ended June 30, 2004                       |       | —           |       | —                    |       | (378,624                                        | )          | —         |       | 1,913,463 |   |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |   |
| Fair market value of options and warrants vested during the year  ended June 30, 2004                              |       | —           |       | —                    |       | 1,826,514                                       |       | —         |       | 1,826,514 |   |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |
| Options and warrants exercised during the year ended June 30,  2004 at exercise prices ranging from $1.00 - $3.25  |       | 370,283          |       | $                         | 3,704      |                                            | 692,945    |           | —     |   | 696,649 |   |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |   |
| Issuance of common stock and warrants for cash on May 9, 2005 at  $2.11 per unit                                   |       | 1,595,651        |       | 15,957                    |       | 3,350,872                                       |       | —         |       | 3,366,829 |   |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |
| Allocation of proceeds to warrants                                                                                      |       | —           |       | —                    |       | (1,715,347                                      | )          | —         |       | (1,715,347 | ) |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |
| Reclassification of warrants                                                                                            |       | —           |       | —                    |       | 1,579,715                                       |       | —         |       | 1,579,715 |   |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |
| Commissions, legal and bank fees associated with issuance on  May 9, 2005                                          |       | —           |       | —                    |       | (428,863                                        | )          | —         |       | (428,863 | ) |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |
| Options and warrants exercised during the year ended June 30,  2005 at exercise prices ranging from $1.50 to $3.25 |       | 84,487           |       | 844                       |       | 60,281                                          |       | —         |       | 61,125 |   |
|                                                                                                                    |       |             |       |                      |       |                                            |       |           |       |   |   |
| Fair market value of options and warrants vested during the year  ended June 30, 2005                              |       | —           |       | —                    |       | 974,235                                         |       | —         |       | 974,235 |   |
|                                                                                                                         |            |                  |            |                           |            |                                                 |            |                |            |  |  |  |  |  |  |

 

(continued)

 

See Notes to Condensed Consolidated Financial Statements

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH MARCH 31, 2008

(unaudited)

 
| ** **                                                                                                                          | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated During the Development** | ** ** | ** ** | ** **     |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|-------------------------------------------------|------------|------------|----------------|
| ** **                                                                                                                          | ** ** | **Shares**       | ** ** | **Amount**                | ** ** | **Par Value**                                   | ** ** | **Stage**  | ** **     | **Total** | ** ** |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       | **(restated)** | ** ** | **(restated)** |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |   |   |
| Fair market value of options and warrants granted and vested during  the year ended June 30, 2006                              |       | —           |       | —                    |       | $                                               | 677,000    |       | —         |   | $ | 677,000 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Warrants exercised during the year ended June 30, 2006 at an  exercise price of $0.01                                          |       | 10,000           |       | $                         | 100        |                                            | —     |       | —         |   | 100 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Issuance of common stock and warrants for cash on October 11,  2006 at $1.135 per unit                                         |       | 1,986,306        |       | 19,863                    |       | 2,229,628                                       |       | —     |           | 2,249,491 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Commissions, legal and bank fees associated with issuance on  October 11, 2006                                                 |       | —           |       | —                    |       | (230,483                                        | )          | —     |           | (230,483 | ) |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Fair market value of options and warrants vested during the year  ended June 30, 2007                                          |       | —           |       | —                    |       | 970,162                                         |       | —     |           | 970,162 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Warrants exercised during the year ended June 30, 2007 at an  exercise price of $0.01                                          |       | 10,000           |       | 100                       | ** ** | **—**                                      |       | —     |           | 100 |   |
|                                                                                                                                |       |             |       |                      | ** ** | ** **                                      |       |       |           |   |   |
| Fair market value of options and warrants vested during the nine  months ended March 31, 2008                                  |       | —           |       | —                    |       | 986,517                                         |       | —     |           | 986,517 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Allocation of proceeds from issuance of convertible notes and  warrants from September 21, 2007 through December 20, 2007 |       | —           |       | —                    |       | 6,550,000                                       |       | —     |           | 6,550,000 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Issuance of common stock in lieu of cash payment for interest during  the nine months ended March 31, 2008                     |       | 254,620          |       | 2,546                     |       | 252,763                                         |       | —     |           | 255,309 |   |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Net loss                                                                                                                            |       | —           |       | —                    |       | —                                          |       | $          | (28,535,641    | ) | (28,535,641 | ) |
|                                                                                                                                |       |             |       |                      |       |                                            |       |       |           |   |   |
| Balance at March 31, 2008                                                                                                      |       | 17,728,314       |       | $                         | 177,283    |                                            | $          | 35,925,622 |           | $ | (28,535,641 | ) | $ | 7,567,264 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS

(unaudited)

 
| ** **                                                                               | ** ** | **For the Nine Months Ended  March 31,** | ** ** | **From Inception on  July 1, 1998 through  March 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2008**                                      | ** ** | **2007**                                                         | ** ** | **2008** | ** ** |
| ** **                                                                               | ** ** | **(restated)**                                | ** ** | ** **                                                       | ** ** | **(restated)** | ** ** |
| **Cash flows from operating  activities:**                                               | ** ** | ** **                                    | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Net loss                                                                                 |       | $                                             | (2,914,101 | )                                                                | $          | (2,537,419 | ) | $ | (28,535,641 | ) |
| 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 change in fair  value of warrant liablility                    |       | —                                        |       | —                                                           |       | (321,259 | ) |
| Issuance of common stock and warrants for  interest                                      |       | 255,309                                       |       | —                                                           |       | 264,625 |   |
| Issuance of stock options and warrants for  services                                     |       | 708,537                                       |       | 908,000                                                          |       | 9,507,312 |   |
| Depreciation and amortization                                                            |       | 67,179                                        |       | 117,094                                                          |       | 431,020 |   |
| Amortization of convertible note discount  and deferred financing costs                  |       | 120,271                                       |       | —                                                           |       | 120,271 |   |
| (Increase) decrease in operating assets:                                                 |       |                                          |       |                                                             |       |   |   |
| Prepaid expense and other current assets                                                 |       | 46,831                                        |       | 36,585                                                           |       | (57,695 | ) |
| Security deposit                                                                         |       | —                                        |       | —                                                           |       | (7,187 | ) |
| Increase (decrease) in operating  liabilities:                                           |       |                                          |       |                                                             |       |   |   |
| Accounts payable                                                                         |       | 59,267                                        |       | 9,846                                                            |       | 168,525 |   |
| Accrued expenses                                                                         |       | 132,260                                       |       | (92,870                                                          | )          | 509,619 |   |
| Deferred revenue                                                                         |       | (16,667                                       | )          | (18,750                                                          | )          | — |   |
| Other liability                                                                          |       | (4,601                                        | )          | (3,917                                                           | )          | 24,595 |   |
| Net cash used in operating activities                                                    |       | (1,545,715                                    | )          | (1,581,431                                                       | )          | (17,679,386 | ) |
|                                                                                     |       |                                          |       |                                                             |       |   |   |
| Cash flows from investing activities:                                                    |       |                                          |       |                                                             |       |   |   |
| Patent costs                                                                             |       | (551,752                                      | )          | (390,381                                                         | )          | (3,297,459 | ) |
| Purchase of investments, net                                                             |       | (250,000                                      | )          | (100,000                                                         | )          | (500,000 | ) |
| Purchase of property and equipment                                                       |       | (2,783                                        | )          | (1,482                                                           | )          | (172,890 | ) |
| Net cash used in investing activities                                                    |       | (804,535                                      | )          | (291,863                                                         | )          | (3,970,349 | ) |
|                                                                                     |       |                                          |       |                                                             |       |   |   |
| Cash flows from financing activities:                                                    |       |                                          |       |                                                             |       |   |   |
| Proceeds from grant                                                                      |       | —                                        |       | —                                                           |       | 99,728 |   |
| Proceeds from issuance of bridge notes                                                   |       | —                                        |       | —                                                           |       | 525,000 |   |
| Proceeds from issuance and exercises of  common stock and warrants                       |       | —                                        |       | 2,019,108                                                        |       | 19,082,818 |   |
| Proceeds from issuance of convertible note  and warrants, net of $450,000 paid to holder |       | 6,550,000                                     |       | —                                                           |       | 6,550,000 |   |
| Deferred financing costs                                                                 |       | (558,578                                      | )          | —                                                           |       | (558,578 | ) |
| Net cash provided by financing activities                                                |       | 5,991,422                                     |       | 2,019,108                                                        |       | 25,698,968 |   |
|                                                                                     |       |                                          |       |                                                             |       |   |   |
| Net increase in cash and cash equivalents                                                |       | 3,641,172                                     |       | 145,814                                                          |       | 4,049,233 |   |
|                                                                                     |       |                                          |       |                                                             |       |   |   |
| Cash and cash equivalents at beginning of period                                         |       | 408,061                                       |       | 318,473                                                          |       | — |   |
|                                                                                     |       |                                          |       |                                                             |       |   |   |
| Cash and cash equivalents at end of period                                               |       | $                                             | 4,049,233  |                                                             | $          | 464,287 |   | $ | 4,049,233 |   |
|                                                                                     |       |                                          |       |                                                             |       |   |   |
| 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 |   |
| Allocation of convertible debt proceeds to  warrants and beneficial conversion feature   |       | $                                             | 6,550,000  |                                                             | $          | — |   | $ | 6,550,000 |   |
| Warrants issued for financing costs                                                      |       | $                                             | 277,979    |                                                             | $          | — |   | $ | 277,979 |   |

 

See Notesto Condensed Consolidated Financial Statements

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

 

**Note 1 –Restatement**

** **

During theyear ended June 30, 2008, the Company issued convertible notes andwarrants.  The proceeds of the convertible notes were allocated to thewarrants and the beneficial conversion feature of the notes and the discountwas being amortized over the term of the notes.  According to EITF 98-5,paragraph 9, for convertible debt securities, any recorded discount resultingfrom the allocation of proceeds to the beneficial conversion feature should berecognized as interest expense using the effective yield method.  TheCompany was providing for the amortization of the convertible debt discount ona straight-line method over the term of the convertible debt securities. The Company has reviewed its calculations of amortization of debt discount, a non-cashexpense, under both the straight-line and effective yield methods and hasdetermined that there is a material difference between the two calculationsbecause of the change from the straight-line method to the effective yieldmethod.  The condensed consolidated financial statements have beenrecasted for all periods presented.  Theeffect of the change is as follows: 

 
| ** **                                                       | ** ** | **As Originally** | ** ** | ** ** | ** ** | **As**       | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|------------|------------|--------------|------------|
|                                                             |       | **Reported**      |       | **Change** |       | **Restated** |       |
| ** **                                                       | ** ** | ** **        | ** ** | ** ** | ** ** | ** **   | ** ** |
| **Statements  of Operations**                                    | ** ** | ** **        | ** ** | ** ** | ** ** | ** **   | ** ** |
| Three months  ended March 31, 2008                          |       |              |       |       |       |         |       |
|                                                             |       |              |       |       |       |         |       |
| Amortization of debt discount and financing costs                |       | (628,626          | )          | 561,950    |       | (66,676      | )          |
| Net loss                                                         |       | (2,044,167        | )          | 561,950    |       | (1,482,217   | )          |
| Loss per  share                                                  |       | (.12              | )          | .04        |       | (.08         | )          |
|                                                             |       |              |       |       |       |         |       |
| Nine months ended March 31, 2008                            |       |              |       |       |       |         |       |
|                                                             |       |              |       |       |       |         |       |
| Amortization of debt discount and financing costs                |       | (927,054          | )          | 806,783    |       | (120,271     | )          |
| Net loss                                                         |       | (3,720,884        | )          | 806,783    |       | (2,914,101   | )          |
| Loss per  share                                                  |       | (.21              | )          | .04        |       | (.17         | )          |
|                                                             |       |              |       |       |       |         |       |
| From inception on July 1, 1998 through  March 31, 2008 |       |              |       |       |       |         |       |
|                                                             |       |              |       |       |       |         |       |
| Amortization of debt discount and financing  costs               |       | (927,054          | )          | 806,783    |       | (120,271     | )          |
|                                                             |       |              |       |       |       |         |       |
| Net loss                                                         |       | (29,342,424       | )          | 806,783    |       | (28,535,641  | )          |

 

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**BalanceSheet as of March 31, 2008**

 
| Convertible  notes                                |   | 819,525     |   | (806,783 | )      | 12,742      |   |
|---------------------------------------------------|--------|-------------|--------|----------|--------|-------------|--------|
| Total  liabilities                                |   | 1,621,992   |   | (806,783 | )      | 815,209     |   |
| Deficit  accumulated during the development stage |   | (29,342,424 | )      | 806,783  |   | (28,535,641 | )      |
| Stockholders  equity                              |   | 6,760,481   |   | 806,783  |   | 7,567,264   |   |

 

**Note 2 – Basis of Presentation:  **

** **

The financial statements included herein have been prepared by SenescoTechnologies, Inc. (the “Company”), without audit, pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with UnitedStates generally accepted accounting principles have been condensed or omittedpursuant to such rules and regulations. These unaudited condensed consolidated financial statements should beread in conjunction with the audited consolidated financial statements andnotes thereto included in the Company’s Annual Report on Form 10-K for thefiscal year ended June 30, 2007.

 

In the opinion of the Company’s management, the accompanying unauditedcondensed consolidated financial statements contain all adjustments, consistingsolely of those which are of a normal recurring nature, necessary to presentfairly its financial position as of March 31, 2008, the results of itsoperations for the three-month and nine-month periods ended March 31, 2008and 2007, cash flows for the nine-month periods ended March 31, 2008 and2007, and the results of its operations and cash flows for the period from inceptionon July 1, 1998 through March 31, 2008.

 

Interim results are not necessarily indicative of results for the fullfiscal year.

 

**Note 3 – Liquidity:  **

** **

       Theoperations of the Company to date have required significant cash expenditures.  Asshown in the accompanying financial statements, the Company has a history oflosses with a deficit accumulated during the development stage from inceptionthrough March 31, 2008 of $28,535,641. The future capital requirements of the Company will depend on theresults of its research and development activities, preclinical studies andcompetitive and technological advances.  

 

As of March 31, 2008, the Company had cash and investments in theamount of $4,549,233, which the Company estimates will cover its expenses for approximatelythe next twelve months.

 

In connection with agreements entered into on August 29, 2007, theCompany will issue convertible notes and warrants and will receive $1,500,000on the date the Company enters into a supply agreement with a third partymanufacturer for sufficient quantity and quality of nano-particle forencapsulation of Factor 5A gene to be used in toxicology and proof of concepthuman

 

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studies under a United States Food and Drug Administration, (the “FDA”),accepted Investigational New Drug application, (an “IND Application), and$1,500,000 on the date the Company enters into a supply agreement with a thirdparty manufacturer to provide sufficient quantity and quality of Factor 5A DNAto carry out toxicology and proof of concept human studies under a FDA acceptedIND Application (see Note 8).   If theCompany receives the additional gross proceeds from the issuance of $3,000,000of convertible notes and warrants, then the Company estimates that it will haveenough cash and investments to cover its expenses for approximately the next 18months.

 

The AmericanStock Exchange (the “AMEX”) requires the Company to meet minimum financialrequirements in order to maintain its listing. Specifically, the Company is required to maintain a minimum net worth of$6,000,000 under the continued listing requirements of the AMEX. The Companyhad previously received a notice of noncompliance from the AMEX.  The Company submitted a plan to the AMEXdiscussing how it intends to regain compliance with the continued listingrequirements.  The American StockExchange had accepted the Company’s plan and had given the Company until March 1,2008 to effectuate the plan and regain compliance with the continued listingrequirements.  On March 12, 2008,the American Stock Exchange notified the Company that it has regainedcompliance with the continued listing requirements. As of March 31, 2008,the Company believes that it continues to be in compliance with the AmericanStock Exchange’s continued listing requirements.

 

**Note 4 – Intangible Assets:  **

** **

The Company conducts research and developmentactivities, the cost of which is expensed as incurred, in order to generatepatents that can be licensed to third parties in exchange for license fees androyalties.  Because the patents are thebasis of the Company’s future revenue, certain patent costs arecapitalized.   The capitalized patentcosts represent the outside legal fees incurred by the Company to submit andundertake all necessary efforts to have such patent applications issued aspatents.

 

The length of time that it takes for aninitial patent application to be approved is generally between four to sixyears, however, due to the unique nature of each patent application, the actuallength of time may vary.  If a patentapplication is denied, the associated cost of that application would be writtenoff.  However, the Company has not hadany patent applications denied as of the date of this Report on Form 10-Q.  Additionally, should a patent applicationbecome impaired during the application process, the Company would write down orwrite off the associated cost of that patent application.

 

Issued patents and agricultural patentspending are being amortized over a period of 17 years, the expected economiclife of the patent.

 

The Company assesses the impairment in valueof intangible assets whenever events or circumstances indicate that theircarrying value may not be recoverable. Factors the Company considers important which could trigger animpairment review include the following:

 

·                  significant negative industry trends;

·                  significant underutilization of the assets;

·                  significant changes in how the Company uses the assets or its plans fortheir use; and

·                  changes in technology and the emergence of competing technology.

 

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If the Company’s review determines that the futurediscounted cash flows related to these assets will not be sufficient to recovertheir carrying value, the Company will reduce the carrying values of theseassets down to its estimate of fair value and continue amortizing them overtheir remaining useful lives.  To date,the Company has not recorded any impairment of intangible assets.

 

**Note 5 – Loss Per Share:  **

** **

Net loss per common share is computed bydividing the net loss by the weighted average number of common sharesoutstanding during the period.  As of March 31,2008, shares to be issued upon the exercise of options and warrants aggregating19,955,861 at an average exercise price of $1.47, and as of March 31, 2007, sharesto be issued upon the exercise of options and warrants aggregating 9,007,877 atan average price of $2.47 are not included in the computation of diluted lossper share as the effect is anti-dilutive. Additionally, at March 31, 2008, 7,777,777 shares to be issued uponthe conversion of convertible notes at a fixed conversion rate of $0.90 are notincluded in the computation of diluted loss per share as the effect isanti-dilutive.

 

**Note 6****–****Share-Based Transactions:  **

** **

The terms and vesting schedules for share-based awards varyby type of grant and the employment status of the grantee.  Generally, the awards vest based upontime-based conditions.

 

The fair value of eachstock option and warrant granted has been determined using the Black-Scholesmodel.  The material factors incorporatedin the Black-Scholes model in estimating the value of the options and warrantsinclude the following:

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **March 31,**     | ** ** | **March 31,**    | ** ** |
|                        |       | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** |   |
| Estimated life in years     |       | 4-6                    |       | 6-10                  |       | 4-6 |   | 6-10 |   |
| Risk-free interest rate (1) |       | 1.9%-4.1%              |       | 4.2%-4.7%             |       | 1.9%-4.1% |   | 4.2%-4.7% |   |
| Volatility                  |       | 100%                   |       | 70%-148%              |       | 100% |   | 70%-148% |   |
| Dividend paid               |       | None                   |       | None                  |       | None |   | None |   |

 

----

(1) Representsthe interest rate on a U.S. Treasury security with a maturity datecorresponding to that of the option term.

 

The economic values of the options will depend on thefuture price of the Company’s common stock, par value $0.01 ( the “Common Stock”),which cannot be forecast with reasonable accuracy.

 

A summary of changes in the stock option plan for thenine month period ended March 31, 2008 is as follows:

 
| ** **                          | ** ** | **Number of** | ** ** | **Weighted-Average** | ** ** |
|-------------------------------------|------------|---------------|------------|----------------------|------------|
|                                |       | **Options.**  | ** ** | **Exercise Price.**  |       |
| Outstanding at July 1, 2007    |       | 2,646,000     |       | $                    | 2.33       |   |
| Granted                             |       | 1,069,600     |       | $                    | 0.99       |   |
| Exercised                           |       | —        |       | —               |       |
| Canceled                            |       | —        |       | —               |       |
| Outstanding at March 31,  2008 |       | 3,715,600     |       | $                    | 1.95       |   |
| Exercisable at March 31,  2008 |       | 2,778,336     |       | $                    | 2.25       |   |

 

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A summary of changes to the non-vested stock optionsfor the nine month period ended March 31, 2008 is as follows:

 
| ** **                                       | ** ** | **Weighted-Average** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **Number of**        |       | **Grant-Date** |   |
| ** **                                       | ** ** | **Options.**         |       | **Fair Value.** |   |
| Non-vested stock options at  July 1, 2007   |       | 249,666              |       | $ | 1.07 |   |
| Granted                                          |       | 1,069,600            |       | $ | 0.76 |   |
| Vested                                           |       | (382,002             | )          | $ | (0.82 | ) |
| Forfeited                                        |       | —               |       | — |   |
|                                             |       |                 |       |   |   |   |
| Non-vested stock options at  March 31, 2008 |       | 937,264              |       | $ | 0.77 |   |

 

As of March 31, 2008, the aggregate intrinsicvalue of stock options outstanding was $372,084, with a weighted-averageremaining term of 6.2 years.  Theaggregate intrinsic value of stock options exercisable at that same date was$107,967, with a weighted-average remaining term of 5.1 years.  As of March 31, 2008, the Company has1,856,700 shares available for future stock option grants.

 

As of March 31, 2008, total compensation expensenot yet recognized related to stock option grants and restricted stock unitsamounted to approximately $357,000**,**which will be recognized over the next 21 months and an additional $640,000which may be recognized  as achievementof certain target goals under the Company’s Long-Term Incentive Program becomeprobable over the next 33 months.

 

*Short-Term Incentive Program*

* *

On December 13, 2007, upon recommendation of theCompany’s Compensation Committee, the Board adopted a Short-Term EquityIncentive Program for the members of the executive management team.  The Programs are intended to ensure theachievement of certain goals of the Company, continuity of the Company’sexecutive management, and to align the interests of the executive managementwith those of the shareholders.

 

Pursuant to and as defined in the Short-Term EquityIncentive Program, each executive would be awarded shares of the Company’sCommon Stock, or options to acquire shares of the Company’s Common Stock, ifthe Company achieves certain target goals relating to research, financing,licensing, investor relations and other administrative items during the fiscalyear ending June 30, 2008.

 

The number of eligible shares and options to beawarded to the executive is based upon the following weightings:

 

1.               45% of eligible shares andoptions for contributions relating to the Company’s Multiple Myeloma project;

2.               25% of eligible shares andoptions for contributions relating to the Company’s current financing;

3.               15% of eligible shares andoptions for contributions relating to the Company’s licensing and licensingsupport activities;

4.               5% of eligible shares andoption for contributions relating to the Company’s audits and Securities andExchange filings;

 

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5.     4% of the eligible shares and options for contributions relating to theadministration of the Company’s intellectual property;

6.     3% of the eligible shares and options for contributions relating to theCompany’s investor relations program;

7.     1% of the eligible shares and options for contributions relating to theadministration of the Company’s website;

8.     1% of the eligible shares and options for contributions relating to theadministration and monitoring of the requirements of the American StockExchange; and

9.     1% of the eligible shares and options for contributions relating to planningfor future financing requirements.

 

If the target goals are achieved by the Company, theexecutive officers would be awarded the following number of shares and optionsfor the Fiscal year ended June 30, 2008:

 
| ** **              | ** ** | **Number of Shares** | ** ** | **Number of Options (1)** | ** ** |
|-------------------------|------------|----------------------|------------|---------------------------|------------|
| Bruce C. Galton         |       | 50,225               |       | —                    |       |
| John E. Thompson, Ph.D. |       | —               |       | 52,676                    |       |
| Joel Brooks             |       | 37,275               |       | —                    |       |
| Richard Dondero         |       | —               |       | 71,924                    |       |
| Sascha P. Fedyszyn      |       | 25,200               |       | —                    |       |
|                    |       |                 |       |                      |       |
| Total                   |       | 112,700              |       | 124,600                   |       |

 

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(1)            Such options areexercisable at a strike price of $0.99, which represents the closing price ofthe common stock on December 12, 2007.

 

As of March 31, 2008, the Company has determinedthat the achievement of the target goals is probable.  The total amount of  compensation expense in connection with theshort-term incentive program in the amount of $206,269 is being recordedratably over the six and one-half month period from December 13, 2007through June 30, 2008.  Suchcompensation expense was determined under a black-scholes model on the date ofadoption of the Short-Term Equity Incentive Program.  For the nine month period ended March 31,2008, the Company recorded $111,068 of such expense.

 

*Long-Term Incentive Program*

* *

On December 13, 2007, upon recommendation of theCompany’s Compensation Committee, the Board adopted a Long-Term EquityIncentive Program for the members of the executive management team.  The Programs are intended to ensure theachievement of certain goals of the Company, continuity of the Company’sexecutive management, and to align the interests of the executive managementwith those of the shareholders.

 

Pursuant to and as defined in the Long-Term EquityIncentive Program, each executive would be awarded shares of the Company’sCommon Stock and options to acquire shares of the Company’s Common Stock if theCompany achieves certain target goals relating to its Multiple Myeloma researchproject over the next three fiscal years.

 

The number of eligible shares and options to beawarded to the executive is based upon the following weightings:

 

1.                 20% of the eligible sharesupon the execution of a research agreement to conduct a phase I/II clinicaltrial at a research facility;

 

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2.                 20% of the eligible sharesupon the filing and acceptance by the FDA of an investigational new drugapplication; and

3.                 60% of the eligible sharesupon the successful completion of a FDA approved phase I/II clinical trial.

 

If the target goals are achieved by the Company, theexecutive officers would be awarded the following number of shares and options:

 
| ** **              | ** ** | **Goal 1** | ** ** | **Goal 2** | ** ** | **Goal 3** | ** ** |
|-------------------------|------------|------------|------------|------------|------------|------------|------------|
| Number of Shares        |       |       |       |       |       |       |       |
| Bruce C. Galton         |       | 25,000     |       | 25,000     |       | 75,000     |       |
| Joel Brooks             |       | 10,000     |       | 10,000     |       | 30,000     |       |
| Sascha P. Fedyszyn      |       | 10,000     |       | 10,000     |       | 30,000     |       |
|                    |       |       |       |       |       |       |       |
| Total number of shares  |       | 45,000     |       | 45,000     |       | 135,000    |       |
|                    |       |       |       |       |       |       |       |
| Number of Options (1)   |       |       |       |       |       |       |       |
|                    |       |       |       |       |       |       |       |
| John E. Thompson, Ph.D. |       | 50,000     |       | 50,000     |       | 150,000    |       |
| Richard Dondero         |       | 60,000     |       | 60,000     |       | 180,000    |       |
|                    |       |       |       |       |       |       |       |
| Total number of options |       | 110,000    |       | 110,000    |       | 330,000    |       |

 

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(1)            Such options areexercisable at a strike price of $0.99, which represents the closing price ofthe common stock on December 12, 2007.

 

As of March 31,2008, the Company is not able to determine if the achievement of the targetgoals under the Long-Term Equity Incentive Program are probable and, therefore,has not yet begun to recognize any of the $640,000 compensation expense thatwas computed on the date of adoption of the program.  The Company will begin recognizing suchcompensation expense ratably over the remaining term of the plan at such timethat the Company is able to determine that the achievement of the target goalsare probable.

 

**Note 7** – **RevenueRecognition:  **

** **

The Company receives certain nonrefundableupfront fees in exchange for the transfer of its technology to licensees.  Upon delivery of the technology, the Companyhas no further obligations to the licensee with respect to the basic technologytransferred and, accordingly, recognizes revenue at that time.  The Company may, however, receive additionalpayments from its licensees in the event such licensees achieve certaindevelopment or commercialization milestones in their particular field ofuse.  Other nonrefundable upfront feesand milestone payments, where the milestone payments are a function of time asopposed to achievement of specific achievement-based milestones, are deferredand amortized ratably over the estimated research period of the license.

 

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** **

**Note 8 –ConvertibleNote and Stockholders Equity:  **

** **

On August 1, 2007 and August 29,2007, the Company entered into binding Securities Purchase Agreements with YAGlobal Investments L.P. (“YA Global”) and Stanford Venture Capital Holdings, Inc.(“Stanford”), respectively, to sell to each of YA Global and Stanford up to$5,000,000 of secured convertible notes and accompanying warrants for anaggregate gross proceeds of $10,000,000. The convertible notes convert into the Company’s common stock at a fixedprice of $0.90 per share subject to certain adjustments (the “Fixed ConversionPrice”), for a period of two years immediately following the signing date,provided that the Company has achieved the following milestones by January 31,2008: (i) successful completion of animal studies, other than toxicologystudies, necessary for the advancement of Factor 5A1 in human clinical trials, (ii) theengagement of a contract research organization for human clinical studies ofFactor 5A1, and (iii) the signing of at least one (1) corporatepartnership or license agreement after August 1, 2007 with an agriculturalcompany utilizing the Company’s proprietary platform. As of January 31,2008, the Company has completed all of the three required milestones.  After the second anniversary of the signingdate, the convertible notes may convert into shares of the Company’s commonstock at the lower of the fixed conversion price or 80% of the lowest dailyvolume-weighted average price (the “VWAP”), of the common stock during the fivetrading days prior to the conversion date. The maturity date of each of theconvertible notes for YA Global and Stanford is December 30, 2010 and December 31,2010, respectively.  Currently, at thefixed conversion price, the number of shares of common stock issuable uponconversion of the $7,000,000 of convertible notes outstanding and shares ofcommon stock to be issued upon exercise of the warrants outstanding at March 31,2008 represents, in the aggregate, 18,327,777 shares, plus an estimatedadditional 1,400,000 shares for the payment of interest in stock under theconvertible notes.

 

The convertible notes accrue interest ontheir outstanding principal balances at an annual rate of 8%.  The Company has the option to pay interest incash or, upon certain conditions, common stock. If the Company pays interest in common stock, the stock will be valuedat a 10% discount to the average daily VWAP for the five day trading periodprior to the interest payment date (the “Interest Shares”)

 

At the Company’s option, it can redeem aportion of, or all of, the principal owed under the convertible notes byproviding the investors with at least 30 business days’ written notice,provided that, at the time of receipt of the notice, either: (A)(i) theVWAP of the common stock exceeds 130% of the Fixed Conversion Price for atleast 20 of 30 prior trading days and (ii) there is an effectiveregistration statement for the resale of the common stock that will be issuedunder the redemption or (B) it redeems a portion, or all, of the principalowed at a 20% premium above the principal then outstanding and any accruedinterest thereupon.  If the Company redeemsall or any of the principal outstanding under the convertible notes, it willpay an amount equal to the principal being redeemed plus accrued interest.

 

If there is an effective registrationstatement for the resale of the shares underlying the convertible notes or ifsuch shares become 144(k) eligible, the Company will have the option toforce the investors to convert 50% and 100% of its then-outstanding convertiblenotes if its common stock price exceeds 150% and 175% of the Fixed ConversionPrice, respectively, for any 20 out of 30 trading days; provided that suchforced conversion meets certain conditions (the 

 

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“Call Option”).  If the Company exercises its Call Optionprior to the third anniversary of the signing date, it will issue additionalwarrants to the investor equal to 50% of the number of shares underlying theconvertible note subject to the forced conversion.  These warrants will be exercisable at thefixed conversion price and will have the same maturity as the other warrantsissued under the YA Global financing.

 

The Company’s obligations under theconvertible notes are secured by all of its and its subsidiary’s assets andintellectual property, as evidenced by certain Security Agreements and certainPatent Security Agreements by and between the Company and each of YA Global andStanford.  Pursuant to a subordinationagreement, YA Global is the senior secured creditor.

 

The agreements with YA Global and Stanfordprovides for the issuance of warrants to purchase an aggregate of 5,550,000 and8,333,333, respectively, of the Company’s Common Stock, exercisable six monthsand one day from the date of issuance until their expiration on the date thatis five years from the date of issuance. The warrants will be issued in two series. Generally, the Series Awarrants may be issued prior to stockholder approval, while the Series Bwarrants are only issued after stockholder approval, which has beenreceived.  The exercise price of the Series Awarrants is $1.01 per share, and the exercise price of the Series Bwarrants is $0.90 per share, subject to certain adjustments.  The warrants provide a right of cashlessexercise if, at the time of exercise, there is no effective registrationstatement registering the resale of the shares underlying the warrants.

 

The conversion rate of each convertible noteand the exercise price of the Series B warrants are subject to adjustmentfor certain events, including dividends, stock splits, combinations and thesale of the Company’s Common Stock or securities convertible into orexercisable for the Company’s Common Stock at a price less than the thenapplicable conversion or exercise price.

 

The investors have a right of first refusalon any future funding that involves the issuance of the Company’s capital stockfor so long as a portion of the convertible notes is outstanding.

 

Pursuant to the Registration RightsAgreement, the Company filed an initial registration statement on October 12,2007 to register 3,333,333 shares of common stock, underlying the convertiblenotes, issuable to YA Global, and such registration statement became effectiveon November 1, 2007.  The Company isrequired to register an additional 891,667 shares of common stock issuable toYA Global. However, YA Global has amended its Registration Rights Agreementdeferring its right to have such additional shares registered.  If the shares issuable to YA Global remainoutstanding after all shares under the registration statements have been sold,the Company may be required to file additional registration statements forthose shares.  These registration rightswill cease once the shares issuable to YA Global on January 22, 2008 areeligible for sale by the investor without restriction under Rule 144(k).  Upon certain events, the Company has agreedto pay as partial liquidated damages an amount equal to 1.0% of the aggregatepurchase price paid by the investors for any convertible debentures then heldby the investors, but these payments may not exceed 12% of the aggregatepurchase price paid by the investors. The maximum liquidated damages payable under the Registration RightsAgreement is $600,000.  The Company hasnot recorded an estimated registration rights liability as the Companyanticipates that it will fulfill its obligations under the Registration RightsAgreement.

 

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The total gross proceeds from the issuance ofthe convertible notes and warrants will be $10,000,000 before payment of 3.25%of the purchase price in commissions to Wainwright & Co., Inc.(the “Placement Agent”).  The Companywill issue to the Placement Agent warrants to purchase 7% of the purchaseprice, or 777,777 shares, of the Company’s Common Stock with similar terms tothe warrants that will be issued to the investors.  The Company paid YA Global and Stanford anon-refundable structuring/due diligence fee of $30,000 each.  The Company has also agreed to pay YA Globaland Stanford a commitment fee of 5% and 7%, respectively, of its purchaseprice, which is paid proportionately at each closing.

 

*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities PurchaseAgreement, the Company has issued three convertible notes in the aggregateamount of $5,000,000 and two Series A warrants in the amount of 1,387,500shares each on September 21, 2007 and October 16, 2007 and a Series Bwarrant in the amount of 2,775,000 shares on December 20, 2007.

 

The gross proceeds, less $280,000 paid to YA Global, of $4,720,000 fromthe issuance of convertible notes and warrants have been allocated between theconvertible notes and warrants based upon their fair values using theBlack-Scholes model.  Additional amountswere allocated to the beneficial conversion feature based upon the effectiveconversion price compared to the fair value of the common stock on the date ofissuance of the convertible notes and warrants.Thematerial factors incorporated in the Black-Scholes model in estimating thevalue of the warrants include the following:

 
| Estimated life in years |   | 5          |   |
|-------------------------|--------|------------|--------|
| Risk-free interest rate |   | 3.5% - 4.4 | %      |
| Volatility              |   | 100        | %      |
| Dividend paid           |   | None       |   |

 

As of March 31, 2008, netproceeds of $4,720,000 were allocated to the warrants and beneficial conversionfeature and recorded as equity.

 

The convertible notes and warrants issued toYA Global are subject to a maximum cap of 30,500,000 on the number of shares ofcommon stock that can be issued upon the conversion of the convertible notesand the exercise of the warrants.

 

*Specifics of Stanford Financing*

* *

On December 20, 2007, the Company issueda convertible note in the amount of $2,000,000 and Series A warrants inthe amount of 2,500,000 shares and Series B warrants in the amount of2,500,000 shares.

 

The gross proceeds, less $170,000 paid toStanford, of $1,830,000 from the issuance of the convertible note and warrantshave been allocated between the convertible note and warrants based upon theirfair values using the Black-Scholes model. Additional amounts were allocated to the beneficial conversion featurebased upon the effective conversion price compared to the fair value of thecommon stock on the date of issuance of the convertible notes and warrants.The 

 

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material factors incorporated in the Black-Scholesmodel in estimating the value of the warrants include the following:

 
| Estimated life in years |   | 5    |   |
|-------------------------|--------|------|--------|
| Risk-free interest rate |   | 3.5  | %      |
| Volatility              |   | 100  | %      |
| Dividend paid           |   | None |   |

 

As of March 31, 2008, netproceeds of $1,830,000 were allocated to the warrants and beneficial conversionfeature and recorded as equity.

 

Pursuant to the Stanford Securities PurchaseAgreement, the Company will issue and sell to Stanford:

 

1.                     a convertiblenote and warrants in the amount of $1,500,000 on the date the Company entersinto a supply agreement with a third party manufacturer for sufficient quantityand quality of nano-particle for encapsulation of Factor 5A gene to be used intoxicology and proof of concept human studies under an FDA accepted INDApplication;  and

 

2.                     a convertiblenote and warrants in the amount of $1,500,000 on the date the Company entersinto a supply agreement with a third party manufacturer to provide sufficientquantity and quality of Factor 5A DNA to carry out toxicology and proof ofconcept human studies under a FDA accepted IND Application.

 

The convertible notes and warrants issuableto Stanford will be subject to a maximum cap of 31,888,888 on the number ofshares of common stock that can be issued upon the conversion of theconvertible notes and the exercise of the warrants.

 

As of March 31,2008, the outstanding balance of the Convertible Notes were $12,742, which iscomprised of notes with an aggregate face amount of $7,000,000 less unamortizeddebt discount of $6,987,258.  On April 29,2008, YA Global converted $500,000 of the Convertible Notes into 555,556 sharesof the Company’s common stock.  

 

Debt discountassociated with the Convertible Notes is amortized to interest expense, usingthe effective yield method, over the remaining life of the ConvertibleNotes.  Upon conversion of theConvertible Notes into Common Stock, any unamortized debt discount relating tothe portion converted will be charged to equity.  Total charges to interest for amortization ofdebt discount were $15 and $12,742 for the three month and nine month periodsended March 31, 2008.  

 

The costs associated with theissuances in the amount of $836,558 have been recorded as deferred financingcosts and are being amortized ratably over the term of the convertiblenotes.  The balance of deferred financingcosts as of March 31, 2008 amounted to $729,029.

 

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**Note 9 – IncomeTaxes:  **

** **

No provisionfor income taxes has been made in the three months and nine month periods endedMarch 31, 2008 and 2007 given the Company’s losses in 2008 and 2007 andavailable net operating loss carryforwards. A benefit has not been recorded as the realization of the net operatinglosses is not assured and the timing in which the Company can utilize its netoperating loss carryforwards in any year or in total may be limited byprovisions of the Internal Revenue Code regarding changes in ownership ofcorporations.

 

In July 2006,the Financial Accounting Standards Board issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes – an interpretation of FASBStatement No. 109” (“FIN 48”).  FIN48 clarifies the accounting for uncertainty in income taxes recognized in anentity’s financial statements in accordance with FASB Statement No. 109, “Accountingfor Income Taxes”.  FIN 48 prescribes arecognition threshold and measurement attribute for financial statementdisclosure of tax positions taken or expected to be taken on a tax return.  Additionally, FIN 48 provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  TheCompany adopted FIN 48 effective July 1, 2007 and there was no materialeffect on our results of operations or financial position.

 

**Note 10 – Effectsof New Accounting Pronouncements Applicable to the Company  **

** **

*EITF Issue No. 07-3 –Accounting for Nonrefundable Advance Payments for Goods or Services Receivedfor Use in Future Research and Development Activities.*

* *

Thispronouncement states that nonrefundable advance payments for future researchand development activities should be deferred and capitalized.  This pronouncement is effective for financialstatements issued for fiscal years beginning after December 15, 2007, andinterim periods within those fiscal years. Early application is not permitted. The Company does not believe that this pronouncement will have anymaterial effect on its financial statements.

 

**Note 11 – Financial AdvisoryAgreement:  **

** **

OnFebruary 14**,** 2008, the Company amended itsnon-exclusive financial advisory agreement with Stanford Group Company, whichwas originally entered into on October 11, 2006.  The amendment extended the term of theagreement through June 30, 2012 and expanded the services to be providedto the Company.  As compensation for theterm extension and expansion of services, previously issued warrants wereamended.  The exercise prices of the1,500,000 shares of Common Stock underlying the warrants, 750,000 of which hadan exercise price of $2.00 and 750,000 of which had an exercise price of $1.50,were reduced to $1.01.  Additionally, theexpiration dates of December 2009 and January 2010 were each extendedthrough June 30**,** 2012.  A compensation charge in the amount of$384,500 was recorded during the three month period ended March 31, 2008in connection with extension and repricing of the warrants.  The agreement may be terminated by eitherparty upon sixty days written notice.

 

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** **

**Item 2.****                                                           Management’s Discussion and Analysis of FinancialCondition and Results of Operations.**

 

The following discussion and analysis should be read in conjunctionwith our condensed consolidated financial statements and the related notesthereto included in this Quarterly Report on Form 10-Q.  The discussion and analysis may containforward-looking statements that are based upon current expectations and entailvarious risks and uncertainties.  Ouractual results and the timing of events could differ materially from thoseanticipated 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 primary businessis to develop and license our patented and patent-pending genes, primarilyeucartyotic translation initiation Factor 5A, or Factor 5A, and deoxyhypusinesynthase, or DHS, and related technologies for inhibition, i.g. siRNA, in humanhealth applications, to:

 

·                  develop novel approaches to treat inflammatory and/orapoptotic related diseases in humans; and

 

·                  develop novel approaches to treat cancer, a group ofdiseases in which apoptosis does not occur normally;

 

In agricultural applications we are developing and licensing Factor 5A,DHS and Lipase to enhance the quality and productivity of fruits, flowers,vegetables and agronomic crops through the control of cell death, referred toas senescence, and growth in plants.

 

*Human Health Applications*

* *

We believe that our gene technology could have broad applicability inthe human health field, by either inhibiting or accelerating apoptosis.  Inhibiting apoptosis may be useful inpreventing or treating a wide range of inflammatory and ischemic diseasesattributed to premature apoptosis. Accelerating apoptosis may be useful in treating certain forms of cancerbecause the body’s immune system is not able to force cancerous cells toundergo apoptosis via normal mechanisms.

 

We have commenced preclinical *in-vivo* and *in-vitro* research to determine the ability of Factor 5A toregulate key execution genes, pro-inflammatory cytokines, receptors, andtranscription factors, which are implicated in numerous apoptotic diseases.

 

Certainpreclinical human health results to date include:

 

·                  demonstrated significant tumor regression anddiminished rate of tumor growth of multiple myeloma tumors in SCID mice treatedwith Factor 5A technology encapsulated in nanoparticles.

·                  increasing the median survival by approximately 250%in a tumor model of mice injected with melanoma cancer cells;

 

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·                  inducing apoptosis in both human cancer cell linesderived from tumors and in lung tumors in mice;

·                  inducing apoptosis of cancer cells in a humanmultiple myeloma cell line;

·                  measuring VEGF reduction in mouse lung tumors as aresult of treatment with our genes;

·                  reducing the amounts of p24 and IL-8 by approximately50 percent in a HIV-1 infected human cell line;

·                  increased the survival, while maintainingfunctionality, of mouse pancreatic islet cells isolated for transplantation,using intraperitaneal administration of eIF-5A siRNA.  Initial animal studies have shown that siRNAto Factor 5A administered prior to harvesting beta islet cells from a mouse hasa significant impact not only on the survival of the beta islet cells, but alsoon the retention of the cells functionality when compared to the untreated betaislet cells.  Additional studies haveshown that the treated beta islet cells survive a pro-inflammatory cytokinechallenge, while maintaining their functionality with respect to insulinproduction.  These further studies alsorevealed eIF-5A’s modulation of inducible nitric oxide synthase (iNOS), animportant indicator of inflammation;

·                  demonstrating that the efficacy of our technology iscomparable to that of existing approved anti-inflammatory prescription drugs inreducing certain inflammatory cytokines in mice; and

·                  increasing the survival rate of mice in a lethalchallenge sepsis model.  Additionally, abroad spectrum of systemic pro-inflammatory cytokines were down-regulated,while not effecting the anti-inflammatory cytokine IL-10.

 

Inhibiting Apoptosis

 

We believe that down-regulation of ourproprietary Factor 5A gene may have potential application as a means forcontrolling the effect of a broad range of diseases that are attributable topremature apoptosis, ischemia, or inflammation. Apoptotic diseases includeglaucoma, heart disease, and certain inflammatory diseases such as Crohn’sdisease, sepsis and diabetic retinopathy, among many others.  We are engaged in preclinical research oncertain inflammatory diseases. Using small inhibitory RNA’s, or siRNA’s,against Factor 5A to inhibit its expression, we have reduced pro-inflammatorycytokine formation and formation of receptors for liposolysaccharide, or LPS,interferon-gamma and TNF-alpha.  We havealso determined that by inhibiting Factor 5A iNOS, MAPK, NFkB and JAK1 aredownregulated, which decreases the inflammatory cytokines formed through thesepathways. Additionally, we have shown in a mouse study that our siRNA iscomparable to a steroid and to a prescription anti-TNF drug in its ability toreduce cytokine response to LPS.  *In-vivo* mouse studies have shown that thesiRNA against Factor 5A (i) protects thymocyte cells from apoptosis anddecreases formation of myeloperoxidase, or MPO, TNF-a, MIP-1alpha, and IL-1 inthe lungs of mice challenged with LPS; and (ii) increases the survivalrate in which sepsis was induced by a lethal injection of LPS and reduced bloodserum levels of inflammatory proteins, such as IL-1, IL-2, IL-6, IL-12, TNF-a,IFNg and MIP-1alpha, while not effecting IL-10, an anti-inflammatorycytokine.  The siRNA’s against Factor 5Aare currently being tested in several preclinical *in-vivo* inflammatory disease models. Other experimentsutilizing siRNA to Factor 5A include inhibition of cell death, or 

 

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apoptosis, during the processing of mousepancreatic beta islet cells for transplantation; the inhibition of earlyinflammatory changes associated with type-2 diabetes in an in-vivo rat model;and the inhibition of viral replication in a human cell line infected withHIV-1.

 

Proteins required for cell deathinclude p53, interleukins, TNF-a and other cytokines, and caspases.  Expression of these cell death proteins isrequired for the execution of apoptosis. We have found that downregulating Factor 5A by treatment with siRNA,inhibits the expression of p53, a major cell death transcription factor that inturn controls the formation of a suite of other cell death proteins.  In addition, down-regulation of Factor 5Aup-regulates Bcl-2, a major suppressor of apoptosis.

 

Accelerating Apoptosis

 

In pre-clinical studies, we have also established that up-regulation ofFactor 5A isoform induces cell death in cancer cells through both the p53(intrinsic) and cell death receptor (extrinsic) apoptotic pathways. Tumorsarise when cells that have been targeted by the immune system to undergoapoptosis are unable to do so because of an inability to activate the apoptoticpathways. Just as the Factor 5A gene appears to facilitate expression of theentire suite of genes required for programmed cell death in plants, the Factor5A gene appears to regulate expression of a suite of genes required for programmedcell death in human cells. Because the Factor 5A gene appears to function atthe initiation point of the apoptotic pathways, both intrinsic and extrinsic,we believe that our gene technology has potential application as a means ofcombating a broad range of cancers. Through in-vitro studies, we have found that up-regulating Factor 5Aresults in: (i) the up-regulation of p53; (ii)  increasesinflammatory cytokine production; (iii) increases cell death receptorformation; and (iv) increases caspase activity.  These features, coupled with a simultaneousdown-regulation Bcl-2, result in apoptosis of cancer cells.  In addition, in-vitro studies have shown thatup-regulation of Factor 5A also down-regulates VEGF, a growth factor whichallows tumors to develop additional vascularization needed for growth beyond asmall mass of cells.

** **

*Human Health Research Program*

* *

Our human health research program, which hasconsisted of pre-clinical in-vitro and in-vivo experiments designed to assessthe role and method of action of the Factor 5A genes in human diseases, isperformed by approximately 17 third party researchers at our direction, at theUniversity of Waterloo, Mayo Clinic, the University of Colorado, and theUniversity of Virginia.

 

Our preclinical research has yielded datathat we have presented to various biopharmaceutical companies that may beprospective licensees for the development and marketing of potentialapplications for our technology.

 

Our planned future pre-clinical research anddevelopment initiatives for human health include:

 

·                  Multiple Myeloma. Advance our technology for thepotential treatment of multiple myeloma with the goal of initiating a clinicaltrial.  In connection with the potentialclinical trial, we have engaged a clinical research organization, or CRO, toassist us

 

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through the  process. Together with the CRO, we will also be finalizing our evaluation ofpotential delivery systems for our technology in the animal model, contractingfor the supply of pharmaceutical grade materials to be used in toxicology andhuman studies, and ultimately filing an investigational new drug application,or IND application, with the U.S. Food and Drug Administration, or FDA, fortheir review and consideration in order to initiate a clinical trial.  We estimate that it will take less thantwentyfour months to complete these objectives.

 

·                  HIV-1.  We willcontinue in-vitro studies utilizing different siRNA delivery systems in orderto increase the transfection efficiency of the siRNA to Factor 5A to determinefurther decreases in HIV replication and may seek animal models to testdelivery systems.  A nanoparticle hasbeen identified for the delivery of Factor 5A.

 

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·                  Lung Inflammation. Optimization of the delivery and dose of the siRNA against Factor 5A tothe lungs may be the direction of future lung inflammation experiments.  Mouse model systems may be used to illustratethe siRNA to Factor 5A’s ability to reduce morbidity and mortality in lunginflammation, caused by the up-regulation of pro-inflammatory cytokines inducedby flu.

 

·                  Diabetic Retinopathy. We have received encouraging results from our initial studies, whichhave shown a decrease in key proteins related to retinopathy, such as TNF,VEGF, and iNOS.

 

·                  Other.  We maylook at other disease states in order to determine the role of Factor 5A.

 

In order to pursue the above researchinitiatives, as well as other research initiatives that may arise, we have recentlycompleted private placements of $10 million of convertible notes and commonstock warrants.  We have already issuedand received the net proceeds from $7 million of the convertible notes andcommon stock warrants.  The remaining $3million from the private placements will be received upon the occurrence of thefollowing development milestones:

 

·                  $1.5 million on the date that we enter into a supplyagreement with a third party manufacturer for sufficient quantity and qualityof nano-particle for encapsulation of Factor 5A gene to be used in toxicologyand proof of concept human studies; and

 

·                  $1.5 million on the date that we enter into a supplyagreement with a third party manufacturer to provide sufficient quantity andquality of Factor 5A DNA to carry out toxicology and proof of concept humanstudies under an FDA accepted IND application.

 

However, it may be necessary for us to raisea significant amount of additional working capital in the future to continue topursue some of the above and new initiatives. If we are unable to raise the necessary funds or meet the corporate andscientific milestones provided for in the private placements, we may berequired to significantly curtail the future development of some of ourresearch initiative and we will be unable to pursue other possible researchinitiatives.

 

We may further expand our research anddevelopment program beyond the initiatives listed above to include otherresearch centers.

 

*Agricultural Applications*

* *

Our agricultural research focuses on the discovery and development ofcertain gene technologies, which are designed to confer positive traits onfruits, flowers, vegetables, forestry species and agronomic crops.  To date, we have isolated and characterizedthe senescence-induced lipase gene, DHS, and Factor 5A in certain species ofplants.  Our goal is to modulate theexpression of these genes in order to achieve such traits as extended shelflife, increased biomass, increased yield and increased resistance toenvironmental stress and disease, thereby demonstrating proof of concept ineach category of crop.

 

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Certain agricultural results to date include:

 

·                  longer shelf life of perishable produce;

·                  increased biomass and seed yield;

·                  greater tolerance to environmental stresses, such asdrought and soil salinity;

·                  greater tolerance to certain fungal and bacterialpathogens;

·                  more efficient plant utilization of fertilizer; and

·                  advancement to field trials in banana, lettuce, andtrees.

 

We have licensed this technology to various strategic partners and haveentered into a joint venture. We may continue to license this technology, asthe opportunities present themselves, to additional strategic partners and/orenter into additional joint ventures.  Togetherwith our commercial partners, we are currently working with lettuce, turfgrass,canola, corn, soybean, cotton, banana, alfalfa, rice and certain species oftrees and bedding plants, and we have obtained proof of concept for enhancedpost harvest shelf life, seed yield, biomass, and resistance to disease inseveral of these plant species.

 

We have ongoing field trials of certain trees and bananas with ourrespective partners.  The initial fieldtrials conducted with ArborGen over a three year period in certain species oftrees have concluded and the trees have been harvested for wood qualityassessment.  Preliminary data from ourjoint field trials show significantly enhanced growth rates in some of thetrees relative to controls.  Throughthese studies and further research and development, we have selected promisinggenetic lines which are now being prepared fro the field.

 

The first and second round of banana field trials have shown that ourtechnology extends the shelf life of banana fruit by 100%.  In addition to the post harvest shelf lifebenefits, an additional field trial generated encouraging disease tolerancedata, specific to Black Sigatoka (Black Leaf Streak Disease), for bananaplants. Additional field trials for banana plants are ongoing for BlackSigatoka.

 

Commercialization by our partners may require a combination of traitsin a crop, such as both post harvest shelf life and disease resistance, orother traits.  Our near-term research anddevelopment initiatives include modulating the expression of DHS and Factor 5Agenes in these plants and propagation and then propagation and phenotypetesting of such plants.

 

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Our ongoing research and developmentinitiatives for agriculture include assisting our license and joint venturepartners to:

 

·                  further develop and implement the DHS and Factor 5Agene technology in lettuce, melon, banana, canola, cotton, turfgrass, beddingplants, rice, alfalfa, corn, soybean and trees; and

 

·                  test the resultant crops for new beneficial traitssuch as increased yield, increased tolerance to environmental stress, diseaseresistance and more efficient use of fertilizer.

 

*CommercializationStrategy*

 

In order to address the complexitiesassociated with marketing and distribution in the worldwide market, we haveadopted a multi-faceted commercialization strategy, in which we have enteredinto and plan to enter into, as the opportunities present themselves,additional licensing agreements or other strategic relationships with a varietyof companies or other entities on a crop-by-crop basis.  We anticipate revenues from theserelationships in the form of licensing fees and royalties from our partners,usage fees in the case of the agreement with Poet, or sharing gross profits inthe case of the joint venture with Rahan Meristem.  In addition, we anticipate payments from ourpartners upon our achievement of certain research and developmentbenchmarks.  This commercializationstrategy allows us to generate revenue at various stages of productdevelopment, while ensuring that our technology is incorporated into a widevariety of crops.  Our optimal partnerscombine the technological expertise to incorporate our technology into theirproduct line along with the ability to successfully market the enhanced finalproduct, thereby eliminating the need for us to develop and maintain a salesforce.

 

Through April 30, 2008, we have entered into ninelicense agreements and one joint venture with established agriculturalbiotechnology companies or, in the case of Poet, an established ethanolcompany.

 

Because the agricultural market is dominatedby privately held companies or subsidiaries of foreign owned companies, marketsize and market share data for the crops under our license and developmentagreements is not readily available. Additionally, because we have entered into confidentiality agreementswith our license and development partners, we are unable to report the specificfinancial terms of the agreements as well as any market size and market sharedata that our partners may have disclosed to us regarding their companies.

 

Generally,projects with our license and joint venture partners begin by our partnerstransforming seed or germplasm to incorporate our technology.  Those seeds or germplasm are then grown inour partners’ greenhouse.  Aftersuccessful greenhouse trials, our partners will transfer the plants to thefield for field trials.  After completionof successful field trials, our partners may have to apply for and receiveregulatory approval prior to initiation of any commercialization activities.

 

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Generally,the approximate time to complete each sequential development step is asfollows:

 
| Seed  Transformation | approximately  1 to 2 years |
|----------------------|-----------------------------|
| Greenhouse           | approximately  1 to 2 years |
| Field  Trials        | approximately  2 to 5 years |

 

The actualamount of time spent on each development phase depends on the crop, its growthcycle and the success of the transformation achieving the desired results.  As such, the amount of time for each phase ofdevelopment could vary, or the time frames may change.

 

Thedevelopment of our technology with Poet is different than our other licenses inthat we are modifying certain production inputs for ethanol.  That process involves modifying the inputs,testing such inputs in Poet’s production process and, if successful,implementing such inputs in Poet’s production process on a plant by plantbasis.

 

The current status of each of our projects with our partnersis as follows:

 
| **Project**             | ** ** | **Partner**        | ** ** | **Current Status**                | ** ** |
|-------------------------|------------|--------------------|------------|-----------------------------------|------------|
| Banana                  |       | Rahan Meristem     |       |                              |       |
|  – Shelf Life |       |               |       | Field trials                      |       |
|  – Disease    |       |               |       | Field trials                      |       |
| Lettuce                 |       | Harris Moran       |       | Field trial data under evaluation |       |
| Melon                   |       | Harris Moran       |       | Seed transformation               |       |
| Trees                   |       | ArborGen           |       |                              |       |
|  – Growth     |       |               |       | Field trials                      |       |
| Alfalfa                 |       | Cal / West         |       | Greenhouse                        |       |
| Corn                    |       | Monsanto           |       | Just initiated                    |       |
| Cotton                  |       | Bayer              |       | Just initiated                    |       |
| Canola                  |       | Bayer              |       | Seed transformation               |       |
| Rice                    |       | Bayer              |       | Just initiated                    |       |
| Soybean                 |       | Monsanto           |       | Just initiated                    |       |
| Turfgrass               |       | The Scotts Company |       | Greenhouse                        |       |
| Bedding Plants          |       | The Scotts Company |       | Greenhouse                        |       |
| Ethanol                 |       | Poet               |       | Modify inputs                     |       |

 

Commercialization by our partners may requirea combination of traits in a crop, such as both shelf life and diseaseresistance, or other traits.

 

Based upon our commercialization strategy, we anticipate that there maybe a significant period of time before plants enhanced using our technologyreach consumers and we begin to receive royalties.  Thus, we have not begun to actively marketour technology directly to consumers, but rather, we have sought to establishourselves within the industry through

 

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presentations at industry conferences, ourwebsite and direct communication with prospective licensees.

 

We plan to employ the same partnering strategy in both the human healthand agricultural target markets.  Ourpreclinical research has yielded data that we have presented to variousbiopharmaceutical companies that may be prospective licensees for thedevelopment and marketing of potential applications of our technology.  Consistent with our commercializationstrategy, we intend to attract other companies interested in strategicpartnerships or licensing our technology, which may result in additionallicense fees, revenues from contract research and other related revenues.  Additionally, we have selected multiplemyeloma as a target indication to develop and bring into clinical trials andmay select additional human health indications to bring into clinical trials onour own.  Successful future operationswill depend on our ability to transform our research and development activitiesinto commercially feasible technology.

 

*Patent and PatentApplications*

* *

To date, we have been granted seventeenpatents by the United States Patent and Trademark Office, or PTO, and nineteenpatents from foreign countries, twenty-eight of which are for use of ourtechnology in agricultural applications and eight of which relates to humanhealth applications.

 

In addition to our thirty-six patents, we have a wide variety of patentapplications, including divisional applications and continuations-in-part, inprocess with the PTO and internationally. We intend to continue our strategy of enhancing these new patentapplications through the addition of data as it is collected.

 

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**Liquidity andCapital Resources**

** **

*Overview*

* *

As of March 31, 2008, our cash balanceand investments totaled $4,549,233**,**and we had working capital of $3,928,784. As of March 31, 2008, we had a federal tax loss carryforward ofapproximately $19,911,000 and a state tax loss carry-forward of approximately$11,730,000 to offset future taxable income. We cannot assure you that we willbe able to take advantage of any or all of such tax loss carryforwards, if atall, in future fiscal years.

 

*ContractualObligations*

* *

The following table lists our cash contractual obligations as of March 31,2008:

 
| ** **                                                           | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**                                          | ** ** | **Total**                  | ** ** | **Less than 1 year** | ** ** | **1 - 3 years** | ** ** | **4 - 5 years** | ** ** | **More than  5 years** | ** ** |
| Research and Development  Agreements (1)                             |       | $                          | 464,080    |   | $ | 464,080 |   | $ | — |   | $ | — |   | $ | — |   |
| Facility, Rent and Operating  Leases (2)                             |       | $                          | 250,952    |   | $ | 78,280 |   | $ | 159,296 |   | $ | 13,376 |   | $ | — |   |
| Employment, Consulting and  Scientific Advisory Board Agreements (3) |       | $                          | 680,692    |   | $ | 587,059 |   | $ | 93,633 |   | $ | — |   | $ | — |   |
| Total Contractual Cash  Obligations                                  |       | $                          | 1,395,724  |   | $ | 1,129,419 |   | $ | 252,929 |   | $ | 13,376 |   | $ | — |   |

 

----

(1)          Certain of our research and development agreementsdisclosed herein provide that payment is to be made in Canadian dollars and,therefore, the contractual obligations are subject to fluctuations in theexchange rate.

 

(2)          The lease for our office space in New Brunswick, NewJersey is subject to certain escalations for our proportionate share ofincreases in the building’s operating costs.

 

(3)          Certain of our employment and consulting agreementsprovide for automatic renewal, which is not reflected in the table, unlessterminated earlier by the parties to the respective agreements.

** **

We expect our capital requirements to increase significantly over thenext several years as we commence new research and development efforts.  Our future liquidity and capital fundingrequirements will depend on numerous factors, including, but not limited to,the levels and costs of our research and development initiatives and the costand timing of the expansion of our business development and administrativestaff.

 

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Effective September 1, 2007, we extended our research anddevelopment agreement with the University of Waterloo for an additionalone-year period through August 31, 2008, in the amount of CAD $699,980 orapproximately USD $700,000. Research and development expenses under thisagreement for the three months ended March 31, 2008 aggregated USD$180,000.   Research and developmentexpenses under this agreement for the three months ended March 31, 2007aggregated USD, $137,530.  Research anddevelopment expenses under this agreement for the nine months ended March 31,2008 aggregated USD, $548,792. Research and development expenses under thisagreement for the nine months ended March 31, 2007 aggregated USD,    $433,872.  Research and development expenses under this agreement, were $4,445,096for the cumulative period from inception through March 31, 2008.

* *

*Capital Resources*

 

Since inception, we have generated revenues of $1,175,000 in connectionwith the initial fees and milestone payments received under our license anddevelopment agreements.  We have not beenprofitable since inception, we will continue to incur additional operatinglosses in the future, and we will require additional financing to continue thedevelopment and subsequent commercialization of our technology.  While we do not expect to generatesignificant revenues from the licensing of our technology for the next one tothree years, or longer, we may enter into additional licensing or otheragreements with marketing and distribution partners that may result inadditional license fees, receive revenues from contract research, or otherrelated revenue.

 

*Financings*

* *

On August 1, 2007 and August 29,2007, we entered into binding Securities Purchase Agreements with YA GlobalInvestments, referred to herein as YA Global, and Stanford Venture CapitalHoldings, Inc., referred to herein as Stanford, to sell to each of YAGlobal and Stanford up to $5,000,000 of secured convertible notes andaccompanying warrants for an aggregate gross proceeds of $10,000,000.  The convertible notes convert into our commonstock at a fixed price of $0.90 per share subject to certain adjustments,referred to herein as the Fixed Conversion Price, for a period of two yearsimmediately following the signing date. After the second anniversary of the signing date, the convertible notesmay convert into shares of our common stock at the lower of the fixedconversion price or 80% of the lowest daily volume-weighted average price,referred to herein as the VWAP, of our common stock during the five tradingdays prior to the conversion date. The maturity date of each of the convertiblenotes for YA Global is December 30, 2010. The maturity date of each of theconvertible notes for Stanford is December 31, 2010.  Currently, at the fixed conversion price, thenumber of shares of common stock issuable upon conversion of the $7,000,000 ofconvertible notes outstanding and shares of common stock to be issued uponexercise of the warrants outstanding at March 31, 2008 represents, in theaggregate, 18,327,777 shares, plus an estimated additional 1,400,000 shares forthe payment of interest in stock under the convertible notes.

 

The convertible notes accrue interest ontheir outstanding principal balances at an annual rate of 8%.  We have the option to pay interest in cashor, upon certain conditions, common stock. If we pay interest in our common stock, the stock will be valued at a10% discount to the

 

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average daily VWAP for the five day tradingperiod prior to the interest payment date, referred to herein as the InterestShares.

 

At our option, we can redeem a portion of, orall of, the principal owed under the convertible notes by providing theinvestors with at least 30 business days’ written notice, provided that, at thetime of receipt of the notice, either: (A)(i) the VWAP of our common stockexceeds 130% of the Fixed Conversion Price for at least 20 of 30 prior tradingdays and (ii) there is an effective registration statement for the resaleof our common stock that will be issued under the redemption or (B) weredeem a portion, or all, of the principal owed at a 20% premium above theprincipal then outstanding and any accrued interest thereupon.  If we redeem all or any of the principaloutstanding under the convertible notes, we will pay an amount equal to theprincipal being redeemed plus accrued interest.

 

If there is an effective registrationstatement for the resale of the shares underlying the convertible notes or ifsuch shares become 144(k) eligible, we will have the option to force theinvestors to convert 50% and 100% of our then-outstanding convertible notes ifour common stock price exceeds 150% and 175% of the Fixed Conversion Price,respectively, for any 20 out of 30 trading days; provided that such forcedconversion meets certain conditions, referred to herein as the Call Option.  If we exercise our Call Option prior to thethird anniversary of the signing date, we will issue additional warrants to theinvestors equal to 50% of the number of shares underlying the convertible notessubject to the forced conversion.  Thesewarrants will be exercisable at the fixed conversion price and will have thesame maturity as the other warrants issued under the YA Global Financing.

 

Our obligations under the convertible notesare secured by all of our and our subsidiary’s assets and intellectualproperty, as evidenced by the Security Agreements and the Patent SecurityAgreements.  Pursuant to a subordinationagreement, YA Global is the senior secured creditor.

 

We have issued warrants to purchase anaggregate of 5,550,000 shares of our common stock to YA Global and warrants topurchase an aggregate of 5,000,000 of our common stock to Stanford.  We will issue to Stanford an additional 3,333,333 warrants to purchaseshares of our common stock upon the subsequent closings.  Such warrants are exercisable six months andone day from the date of issuance until their expiration on the date that isfive years from the date of issuance. The warrants have been and will be issued in two series. The exerciseprice of the Series A warrants is $1.01 per share, and the exercise priceof the Series B warrants is $0.90 per share, subject to certainadjustments.  The warrants provide aright of cashless exercise if, at the time of exercise, there is no effectiveregistration statement registering the resale of the shares underlying thewarrants.

 

The conversion rate of each convertible noteand the exercise price of the Series B warrants are subject to adjustmentfor certain events, including dividends, stock splits, combinations and thesale of our common stock or securities convertible into or exercisable for ourcommon stock at a price less than the then applicable conversion or exerciseprice.

 

The investors have a right of first refusalon any future funding that involves the issuance of our capital stock for solong as a portion of the convertible notes are outstanding.

 

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The total gross proceeds from the issuance ofthe convertible notes and warrants will be $10,000,000 before payment of 3.25%of the purchase price in commissions to Wainwright & Co., Inc.,referred to herein as the Placement Agent. We will issue to the Placement Agent warrants to purchase 7% of thepurchase price, or 777,777 shares, of our common stock with similar terms tothe warrants that have been and will be issued to the investors.  We have paid YA Global and Stanford anon-refundable structuring/due diligence fee of $30,000 each.  We have also paid YA Global a commitment feeof 5% and Stanford a commitment fee of 7% of their respective purchase prices. Such fee is paid proportionately at each closing.

 

*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities PurchaseAgreement, we have issued three convertible notes in the aggregate amount of$5,000,000 and two Series A warrants in the amount of 1,387,500 shareseach on September 21, 2007 and October 16, 2007 and a Series Bwarrant in the amount of 2,775,000 shares on December 20, 2007.  On April 29, 2008, YA Global converted$500,000 of the convertible notes into 555,556 shares of our common stock.

 

The convertible notes and warrants issued toYA Global are subject to a maximum cap of 30,500,000 on the number of shares ofour common stock that can be issued upon the conversion of the convertiblenotes and the exercise of the warrants.

 

*Specifics of Stanford Financing*

* *

On December 20, 2007, we issued aconvertible note in the amount of $2,000,000 and Series A warrants in theamount of 2,500,000 shares and Series B warrants in the amount of2,500,000 shares.

 

Pursuant to the Stanford Securities PurchaseAgreement, we will issue and sell to Stanford:

 

1.               A convertible noteand warrants in the amount of $1,500,000 on the date we enter into a supply agreementwith a third party manufacturer for sufficient quantity and quality ofnano-particle for encapsulation of Factor 5A gene to be used in toxicology andproof of concept human studies under an FDA accepted IND Application;

 

2.               A convertible noteand warrants in the amount of $1,500,000 on the date we enter into a supplyagreement with a third party manufacturer to provide sufficient quantity andquality of Factor 5A DNA to carry out toxicology and proof of concept humanstudies under a FDA accepted IND Application.

 

The convertible notes and warrants issuableto Stanford will be subject to a maximum cap of 31,888,888 on the number ofshares of our common stock that can be issued upon the conversion of theconvertible notes and the exercise of the warrants.

 

The costs associated with theissuances to YA Global and Stanford in the amount of $836,558 have beenrecorded as deferred financing costs and are being amortized ratably over theterm of the convertible notes.

 

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We anticipate that, based upon our currentcash and investments and the additional $3,000,000 proceeds from the issuanceof convertible notes and warrants, we will be able to fund our operations forthe next eighteen months. If we are unable to issue the additional $3,000,000of convertible notes and warrants, we will be able to fund our operations forthe next twelve months.  Over the nexttwelve months, we plan to fund our research and development andcommercialization activities by:

 

·                  utilizing our current cash balance and investments;

·                  achieving some of the milestones set forth in ourcurrent licensing agreements;

·                  through the execution of additional licensingagreements for our technology; and

·                  through the issuance of convertible notes under therecently completed transaction with YA Global and Stanford Financial.

 

We cannot assure you that we will be able toraise money through any of the foregoing transactions, or on favorable terms,if at all.

 

**Changes toCritical Accounting Policies and Estimates**

** **

There have been no changes to our critical accountingpolicies and estimates as set forth in our Annual Report on Form 10-K forthe fiscal year ended June 30, 2007.

 

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** **

**Results of Operations**

** **

Three Months Ended March 31, 2008 and Three Months Ended March 31, 2007

 

The net loss for the three-month period ended March 31, 2008 was$1,482,217. The net loss for the three-month period ended March 31, 2007was $801,317.  Such a change representsan increase in net loss of $680,900**,**or85.0%.  This increase in net loss wasprimarily the result of an increase in expenses associated with the outstandingconvertible notes that were issued during the current fiscal year, and anincrease in operating expenses. 

** **

*Revenue*

* *

Totalrevenues consisted of milestone payments on our agricultural development andlicense agreements.  During thethree-month period ended March 31, 2008, revenue of $79,167 consisted ofmilestone payments and the amortized portion of previous milestone paymentsreceived in connection with certain license agreements.  During the three-month period ended March 31,2007, revenue of $6,250 consisted of the amortized portion of previousmilestone payments received in connection with certain development and licenseagreements.

 

We anticipatethat we will continue to receive milestone payments in connection with ourcurrent agricultural license agreements. Additionally, we anticipate that we will receive royalty payments fromour license agreements if our partners commercialize their crops containing ourtechnology.  However, it is difficult forus to determine our future revenue expectations because we are a developmentstage biotechnology company.  As such,the timing and outcome of our experiments, the timing of signing new partnersand the timing of our partners moving through the development process into commercializationis difficult to accurately predict.

 

*Operating Expenses*

* *
| ** **                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------|------------|----------------------------------------|------------|
| ** **                 | ** ** | **2008**                               | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
|                       |       | **(in thousands, except % values)**    |       |
| General and administrative |       | $                                      | 877        |   | $ | 514 |   | $ | 363 |   | 70.6 | % |
| Research and development   |       | 474                                    |       | 314 |   | 160 |   | 51.0 | % |
| Total operating expenses   |       | $                                      | 1,351      |   | $ | 828 |   | $ | 523 |   | 63.2 | % |

 

We expectoperating expenses to increase over the next twelve months as we anticipatethat research and development expenses will increase as we continue to expandour research and development activities.

 

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* *

*General andAdministrative Expenses*

* *
| ** **                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|
| ** **                       | ** ** | **2008**                               | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
|                             |       | **(in thousands, except% values)**     |       |
| Stock-based compensation         |       | $                                      | 505        |   | $ | 47 |   | $ | 458 |   | 974.5 | % |
| Payroll and benefits             |       | 176                                    |       | 157 |   | 19 |   | 12.1 | % |
| Investor relations               |       | 46                                     |       | 57 |   | (11 | ) | (19.3 | )% |
| Professional fees                |       | 76                                     |       | 87 |   | (11 | ) | (12.6 | )% |
| Depreciation and amortization    |       | 23                                     |       | 102 |   | (79 | ) | (77.5 | )% |
| Other general and administrative |       | 51                                     |       | 64 |   | (13 | ) | (20.3 | )% |
| Total general and administrative |       | $                                      | 877        |   | $ | 514 |   | $ | 363 |   | 70.6 | % |

 

·                  Stock-based compensation for the three months ended March 31,2008 consists of the Black-Scholes value of $384,000 of warrants extended andrepriced in connection with an amendment to a financial advisory agreemententered into February 14, 2008, the amortized portion of the compensationcharge in connection with our short-term stock incentive plan and  the amortized portion of the Black-Scholesvalue of options and warrants previously granted to directors, employees andconsultants.  During the three monthsended March 31, 2008, there were no option and warrant grants.

 

Stock-based compensation for the three monthsended March 31, 2007 consists of the amortized portion of theBlack-Scholes value of options and warrants previously granted to directors,employees and consultants.

 

·                  Payroll and benefits increased primarily as a resultof salary and health insurance rate increases.

 

·                  Investor relations decreased primarily as a result ofan one-time costs incurred during the three month period ended March 31,2007 in connection with the redesign of our corporate logo.

 

·                  Professional fees decreased primarily as a result ofa decrease in legal fees, which was partially offset by an increase inaccounting fees primarily due to an increase in the fees related to the reviewand filing of our securities filings and the implementation of SOX 404.

 

·                  Depreciation and amortization decreased primarily asa result of a decrease in amortization of patent costs.  During three month period ended March 31,2007, we began amortizing the cost of our pending patent applications.  During the three month period ended March 31,2007, we recognized an amortization charge for the nine month period from July 1,2006 through March 31, 2007.

 

We expectstock based general and administrative expenses to decrease over the nexttwelve months as we do not expect to amend the financial advisory agreement andtherefore do not expect to further amend the warrants associated with suchagreement.  We expect other general andadministrative expenses to modestly increase over the next twelve monthsprimarily 

 

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due to an increase in legal andaccounting fees related to the increased regulatory environment surrounding ourbusiness.

 

*Research and Development Expenses*

* *
| ** **                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|
| ** **                     | ** ** | **2008**                               | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)**    | ** ** |
| Stock-based compensation       |       | $                                      | 57         |   | $ | 14 |   | $ | 43 |   | 307.11 | % |
| Other research and development |       | 417                                    |       | 300 |   | 117 |   | 39.0 | % |
| Total research and development |       | $                                      | 474        |   | $ | 314 |   | $ | 160 |   | 51.0 | % |

 

·                  Stock-based compensation consists primarily of theamortized portion of Black-Scholes value of options and warrants granted toresearch and development consultants and employees.

 

·                  Other research and development costs increasedprimarily as a result of an expansion of our human health programs, includingour cancer research program, and the weakness of the United States currencyagainst the Canadian currency.

 

The breakdownof our research and development expenses between our agricultural and humanhealth research programs is as follows:

 
| ** **                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|
| ** **                     | ** ** | **2008**                               | ** ** | **%** | ** ** | **2007** | ** ** | **%** | ** ** |
|                           |       | **(in thousands, except % values)**    |       |
| Agricultural                   |       | $                                      | 181        |   | 38 | % | $ | 185 |   | 59 | % |
| Human health                   |       | 293                                    |       | 62 | % | 129 |   | 41 | % |
| Total research and development |       | $                                      | 474        |   | 100 | % | $ | 314 |   | 100 | % |

 

Our humanhealth expenses increased during the three-month period ended March 31,2008 as we have initiated certain research projects that were not in progressduring the three month period ended March 31, 2007.

 

We expect thepercentage of human health research programs to continue to increase as apercentage of the total research and development expenses as we continue ourcurrent research projects and begin new human health initiatives.

 

*Amortization of debt discount and financing costs and interest expenseon convertible notes*

* *

From September 2007 through December 2007, we issuedconvertible notes in the aggregate face amount of $7 million and warrants.  The net proceeds from the convertible notesand warrants were recorded as equity and the discount on such convertible notesis being amortized over the term of the convertible notes.

 

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** **

The convertible notes bear interest at a rate of 8% per annum, payablequarterly in cash or common stock.

 

Below is a summary of the convertible notes as of March 31, 2008:

 
| **Date Issued**    | ** ** | **Face Amount** | ** ** | **Maturity Date** |               |
|--------------------|------------|-----------------|------------|-------------------|--------------------|
| Sept. 21, 2007     |       | $               | 1,500,000  |              | Dec. 30, 2010 |   |
| Oct. 16, 2007 |       | $               | 1,500,000  |              | Dec. 30, 2010 |   |
| Dec. 20, 2007 |       | $               | 2,000,000  |              | Dec. 30, 2010 |   |
| Dec. 20, 2007 |       | $               | 2,000,000  |              | Dec. 31, 2010 |   |
| Total              |       | $               | 7,000,000  |              |               |   |

 

Costs related to the issuance of the convertible notes and warrants inthe amount of $836,558, which include $277,979 of non-cash charges for warrantsissued to the placement agent, have been recorded as deferred financing costsand are being amortized over the term of the convertible notes.  The expected future quarterly amortization ofthe deferred financing costs will be $66,273.

** **

Nine Months Ended March 31, 2008 and Nine Months Ended March 31, 2007

 

The net loss for the nine-month period ended March 31, 2008 was$2,914,101.   The net loss for thenine-month period ended March 31, 2007 was $2,537,419. Such a  change represents an increase in net loss of$376,682**,**or 14.8%.  This increase in net loss was primarily theresult of an increase in operating expenses, and expenses associated with theoutstanding convertible notes that were issued during the current fiscal year. 

** **

*Revenue*

* *

Totalrevenues consisted of initial fees and milestone payments on our agriculturaldevelopment and license agreements.  During the nine-month period ended March 31,2008, revenue of $456,667 consisted of initial payments and the amortizedportion of previous milestone payments received in connection with certainlicense agreements.  During thenine-month period ended March 31, 2007, revenue of $268,750 consisted ofinitial fees, milestone payments and the amortized portion of previousmilestone payments received in connection with certain development and licenseagreements.

 

We anticipatethat we will continue to receive milestone payments in connection with ourcurrent agricultural license agreements. Additionally, we anticipate that we will receive royalty payments fromour license agreements if our partners commercialize their crops containing ourtechnology.  However, it is difficult forus to determine our future revenue expectations because we are a developmentstage biotechnology company.  As such,the timing and outcome of our experiments, the timing of signing new partnersand the timing of our partners moving through the development process intocommercialization is difficult to accurately predict.

 

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                *Operating Expenses*

* *
| ** **                 | ** ** | **Nine Months Ended  March 31,** | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **2008**                              | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                 | ** ** | **(in thousands, except % values)**   | ** ** |
| General and administrative |       | $                                     | 1,852      |   | $ | 2,001 |   | $ | (149 | ) | (7.4 | )% |
| Research and development   |       | 1,219                                 |       | 863 |   | 356 |   | 41.3 | % |
| Total operating expenses   |       | $                                     | 3,071      |   | $ | 2,864 |   | $ | 207 |   | 7.2 | % |

 

We expectoperating expenses to increase over the next twelve months as we anticipatethat research and development expenses will increase as we continue to expandour research and development activities.

 

*General andAdministrative Expenses*

* *
| ** **                       | ** ** | **Nine Months Ended  March 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2008**                              | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                       | ** ** | **(in thousands, except % values)**   | ** ** |
| Stock-based compensation         |       | $                                     | 620        |   | $ | 860 |   | $ | (240 | ) | (27.8 | )% |
| Payroll and benefits             |       | 508                                   |       | 461 |   | 47 |   | 10.2 | % |
| Investor relations               |       | 257                                   |       | 218 |   | 39 |   | 17.9 | % |
| Professional fees                |       | 248                                   |       | 177 |   | 71 |   | 40.1 | % |
| Depreciation and amortization    |       | 67                                    |       | 117 |   | (50 | ) | (42.7 | )% |
| Other general and administrative |       | 152                                   |       | 168 |   | (16 | ) | (9.5 | )% |
| Total general and administrative |       | $                                     | 1,852      |   | $ | 2,001 |   | $ | (149 | ) | (7.4 | )% |

 

·                  Stock-based compensation for the nine months ended March 31,2008 consists primarily of the Black-Scholes value of $384,000 of warrantsextended and repriced in connection with an amendment to a financial advisoryagreement entered into February 14, 2008, the amortized portion of thecompensation charge in connection with our short-term stock incentive plan andthe amortized portion of the Black-Scholes value of options and warrantspreviously granted to directors, employees and consultants.  During the nine month period ended March 31,2008, there were 351,000 options and warrants granted to such directors,employees and consultants.

 

Stock-based compensation for the nine monthsended March 31, 2007 consists of the Black-Scholes value of $683,000 ofwarrants extended and repriced in connection with a financial advisoryagreement entered into on October 11, 2006 and the amortized portion ofthe Black-Scholes value of options and warrants granted to directors, employeesand consultants.  During the nine-monthperiod ended March 31, 2007, there were 242,500 options or warrantsgranted to such directors, employees and consultants.

 

·                  Payroll and benefits increased primarily as a resultof salary and health insurance rate increases and a payments to certainemployees for vacation time not used during the calendar year ended December 31,2007.

 

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·                  Investor relations increased as a result of anincrease in the cost of the annual report due to additional requireddisclosures.  Also, during the nine monthperiod ended March 31, 2008, a proxy solicitor was retained to assist withthe voting for our 2007 annual meeting.

 

·                  Professional fees increased primarily as a result ofan increase in legal and accounting fees primarily due to an increase in the feesrelated to the audit, review and filing of our securities filings and theimplementation of SOX 404.

 

Depreciationand amortization decreased primarily as a result of a decrease in amortizationof patent costs.  We expect stock basedgeneral and administrative expenses to decrease over the next twelve months aswe do not expect to amend the financial advisory agreement and therefore do notexpect to further amend the warrants associated with such agreement.  We expect other general and administrative expensesto modestly increase over the next twelve months primarily due to an increasein legal and accounting fees related to the increased regulatory environmentsurrounding our business.

 

*Research and Development Expenses*

* *
| ** **                     | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **2008**                              | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)**   | ** ** |
| Stock-based compensation       |       | $                                     | 88         |   | $ | 48 |   | $ | 40 |   | 83.3 | % |
| Other research and development |       | 1,131                                 |       | 815 |   | 316 |   | 38.8 | % |
| Total research and development |       | $                                     | 1,219      |   | $ | 863 |   | $ | 356 |   | 41.3 | % |

 

·                  Stock-based compensation consists primarily of theamortized portion of Black-Scholes value of options and warrants granted toresearch and development consultants and employees. During the nine-monthperiods ended March 31, 2008 and 2007 there were 45,000 and 88,000 optionsgranted to such consultants and employees.

 

·                  Other research and development costs increasedprimarily as a result of an expansion of our human health programs, includingour cancer research program, the banana field trials and the weakness of theUnited States. currency against the Canadian currency.

 

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The breakdownof our research and development expenses between our agricultural and humanhealth research programs is as follows:

 
| ** **                     | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **2008**                              | ** ** | **%** | ** ** | **2007** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)**   | ** ** |
| Agricultural                   |       | $                                     | 572        |   | 47 | % | $ | 526 |   | 61 | % |
| Human health                   |       | 647                                   |       | 53 | % | 337 |   | 39 | % |
| Total research and development |       | $                                     | 1,219      |   | 100 | % | $ | 863 |   | 100 | % |

 

Our humanhealth research expenses increased during the nine-month period ended March 31,2008 as we have initiated certain research projects that were not in progressduring the nine month period ended March 31, 2007.

 

We expect thepercentage of human health research programs to continue to increase as apercentage of the total research and development expenses as we continue ourcurrent research projects and begin new human health initiatives.

 

*Amortization of debt discount and financing costs and interest expenseon convertible notes*

* *

From September 2007through December 2007, we issued convertible notes in the aggregate faceamount of $7 million and warrants.  Theproceeds from the convertible notes and warrants were recorded as equity andthe discount on such convertible notes is being amortized over the term of theconvertible notes utilizing the effective yield method.  

 

The convertible notes bear interest at a rate of 8% per annum, payablequarterly in cash or common stock.

 

On April 29, 2008, YA Global converted $500,000 of the aboveconvertible notes into 555,556 shares of our common stock.

 

Costs related to the issuance of the convertible notes and warrants inthe amount of $836,558, which include $277,979 of non-cash charges for warrantsissued to the placement agent, have been recorded as deferred financing costsand are being amortized over the term of the convertible notes.  The expected future quarterly amortization ofthe deferred financing costs will be $66,273.

 

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Period From Inception on July 1, 1998 through March 31, 2008

 

From inception of operations on July 1,1998 through March 31, 2008, we had revenues of $1,175,000, whichconsisted of the initial license fees and milestone payments in connection withour various development and license agreements. We do not expect to generate significant revenues for approximately thenext one to three years, during which time we will continue to engage insignificant research and development efforts.

 

We have incurred losses each yearsince inception and have an accumulated deficit of $28,535,641 at March 31,2008.  We expect to continue to incurlosses as a result of expenditures on research and development andadministrative activities.  

 

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**Item 3.****           ****Quantitative and Qualitative Disclosures about Market Risk.**

** **

*Foreign Currency Risk*

* *

Ourfinancial statements are denominated in United States dollars and, except forour agreement with the University of Waterloo, which is denominated in Canadiandollars, all of our contracts are denominated in United States dollars.  Therefore, we believe that fluctuations inforeign currency exchange rates will not result in any material adverse effecton our financial condition or results of operations.  In the event we derive a greater portion ofour revenues from international operations or in the event a greater portion ofour expenses are incurred internationally and denominated in a foreigncurrency, then changes in foreign currency exchange rates could effect ourresults of operations and financial condition.

 

*Interest RateRisk*

* *

We invest in high-quality financial instruments, primarily money market funds, federal agency notes, corporate debt securities and United States treasury notes, with an effective duration of the portfolio of less than twelve months, and no security with an effective duration in excess of one year, which we believe are subject to limited credit risk.  We currently do not hedge our interest rate exposure.  Due to the short-term nature of our investments, which we plan to hold until maturity, we do not believe that we have any material exposure to interest rate risk arising from our investments.

 

**Item 4.****           ****Controls and Procedures.**

 

Our management, with the participation of our chiefexecutive officer and chief financial officer, evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of March 31, 2008.  Based on this evaluation, our chief executiveofficer and chief financial officer concluded that as of March 31, 2008,our disclosure controls and procedures were (1) designed to ensure thatmaterial information relating to us, including our consolidated subsidiaries,is made known to our chief executive officer and chief financial officer byothers within those entities, particularly during the period in which thisreport was being prepared and (2) effective, in that they providereasonable assurance that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms; and (ii) accumulated and communicated to ourmanagement including our chief executive officer and chief financial officer,as appropriate, to allow timely decisions regarding disclosures.

 

No change in our internal controls over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the three-month ended March 31, 2008 thathas materially affected, or is reasonably likely to materially affect, ourinternal controls over financial reporting.

 

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**PART II. OTHER INFORMATION****.**

 

**Item 1A.  Risk Factors.**

** **

The more prominent risks and uncertainties inherent in ourbusiness are described below. However, additional risks and uncertainties mayalso impair our business operations.  Ifany of the following risks actually occur, our business, financial condition orresults of operations may suffer.

 

**Risks Related to Our Business**

 

***We have a limitedoperating history and have incurred substantial losses and expect future losses****.*

* *

We are adevelopment stage biotechnology company with a limited operating history andlimited assets and capital.  We haveincurred losses each year since inception and have an accumulated deficit of$28,535,641 at March 31, 2008. We have generated minimal revenues bylicensing our technology for certain crops to companies willing to share in ourdevelopment costs. However, our technology may not be ready forcommercialization for several years. We expect to continue to incur losses forthe next several years because we anticipate that our expenditures on researchand development, and administrative activities will significantly exceed ourrevenues during that period. We cannot predict when, if ever, we will becomeprofitable.  

 

***Our independent auditors haveexpressed substantial doubt about our ability to continue as a going concern.***

*** ***

In their audit opinion issued in connection with ourconsolidated balance sheets as of June 30, 2007 and 2006 and our relatedconsolidated statements of operations, stockholders’ equity, and cash flows forthe three year period ending June 30, 2007, our auditors have expressedsubstantial doubt about our ability to continue as a going concern given ourrecurring net losses, negative cash flows from operations, planned spendinglevels and the limited amount of funds on our balance sheet.  We have prepared our financial statements ona going concern basis, which contemplates the realization of assets and thesatisfaction of liabilities and commitments in the normal course ofbusiness.  The consolidated financialstatements do not include any adjustments that might be necessary should we beunable to continue in existence.

 

***We may need additional capital to fund ouroperations until we are able to generate a profit.***

*** ***

Our operations to date have required significant cashexpenditures.  Our future capitalrequirements will depend on the results of our research and developmentactivities, preclinical studies and competitive and technological advances.

 

We have entered into definitive agreements to issueconvertible notes and warrants for aggregate gross proceeds of $5,000,000 to YAGlobal, all of which have been issued. We have also entered into definitive agreements to issue $5,000,000 ofconvertible notes and warrants to Stanford, of which $2,000,000 have beenissued.

 

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The remaining $3,000,000 of convertible notes and warrantsto be issued pursuant to the Stanford financing will be issued as follows: (i) $1,500,000on the date we enter into a supply agreement with a third partymanufacturer for sufficient quantity and quality of nano-particle forencapsulation of Factor 5A gene to be used in toxicology and proof of concepthuman studies under a FDA accepted IND application; and (ii) $1,500,000 onthe date we enter into a supply agreement with a third party manufacturer toprovide sufficient quantity and quality of Factor 5A DNA to carry outtoxicology and proof of concept human studies under a FDA accepted INDapplication.   However, we can not assure you thatwe will meet the funding milestones.  Inaddition, the YA Global financing and the Stanford financing are secured by allof our assets.  If we default under theconvertible debentures, the investors may foreclose on our assets and ourbusiness.  As a result, we may need toobtain more funding in the future through collaborations or other arrangementswith research institutions and corporate partners or public and privateofferings of our securities, including debt or equity financing.  We may not be able to obtain adequate fundsfor our operations from these sources when needed or on acceptable terms.  Future collaborations or similar arrangementsmay require us to license valuable intellectual property to, or to sharesubstantial economic benefits with, our collaborators.  If we raise additional capital by issuingadditional equity or securities convertible into equity, our stockholders mayexperience dilution and our share price may decline.  Any debt financing may result in restrictionson our spending.

 

If we are unable to raise additional funds, we will need todo one or more of the following:

 

·      delay, scale-back or eliminate some or all of our research and productdevelopment programs;

·      license third parties to develop and commercialize products or technologiesthat we would otherwise seek to develop and commercialize ourselves;

·      attempt to sell our company;

·      cease operations; or

·      declare bankruptcy.

 

We believe that at the projected rate of spending and theadditional $3,000,000 proceeds from the issuance of the convertible notes, weshould have sufficient cash and investments to maintain our present operationsfor the next 18 months.  However, if wedo not receive the additional $3,000,000 proceeds from the issuance of theconvertible notes and warrants, we should have sufficient cash and investments tomaintain our present operations for the next 12 months.

 

***We depend on a singleprincipal technology and, if our technology is not commercially successful, wewill have no alternative source of revenue****.*

* *

Our primary business is the development and licensing oftechnology to identify, isolate, characterize and promote or silence geneswhich control the death of cells in humans and plants.  Our future revenue and profitabilitycritically depend upon our ability to successfully develop apoptosis andsenescence gene technology and later license or market such technology.  We have conducted experiments on certaincrops with favorable results and have conducted certain

 

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preliminarycell-line and animal experiments, which have provided us with data upon whichwe have designed additional research programs. However, we cannot give anyassurance that our technology will be commercially successful or economically viablefor any crops or human health applications.

 

In addition, no assurance can be given that adverseconsequences might not result from the use of our technology such as thedevelopment of negative effects on humans or plants or reduced benefits interms of crop yield or protection.  Ourfailure to obtain market acceptance of our technology or of our current orpotential licensees to successfully commercialize such technology would have amaterial adverse effect on our business.

 

***We outsource all of our researchand development activities and, if we are unsuccessful in maintaining ouralliances with these third parties, our research and development efforts may bedelayed or curtailed.***

*** ***

We rely on third parties to perform all of our research anddevelopment activities.  Our research anddevelopment efforts take place at the University of Waterloo in Ontario,Canada, where our technology was discovered, the University of Colorado, MayoClinic, the University of Virginia, and with our commercial partners.  At this time, we do not have the internalcapabilities to perform our research and development activities. Accordingly,the failure of third-party research partners to perform under agreementsentered into with us, or our failure to renew important research agreementswith these third parties, may delay or curtail our research and developmentefforts.

 

***We have significant future capital needs and may beunable to raise capital when needed, which could force us to delay or reduceour research and development efforts.***

* *

As of March 31, 2008, we had cash andhighly-liquid investments valued at $4,549,233 and working capital of$3,928,784. Using our available reserves as of March 31, 2008, we believethat we can operate according to our current business plan for the next 12months.  However, with the potentialadditional gross proceeds of $3,000,000 from the issuance of additionalconvertible notes and warrants, we believe that we can operate according to ourcurrent business plan for the next 18 months. To date, we have generated minimal revenues and anticipate that ouroperating costs will exceed any revenues generated over the next several years.Therefore, we will be required to raise additional capital in the future inorder to operate according to our current business plan, and this funding maynot be available on favorable terms, if at all. If we are unable to raise additional funds, we will need to do one ormore of the following:

 

·      delay, scale back or eliminatesome or all of our research and development programs;

·      license third parties to developand commercialize our technology that we would otherwise seek to develop andcommercialize ourselves;

·      seek strategic alliances orbusiness combinations, or attempt to sell our company; or

·      cease operations.

 

In addition, in connection with any funding, if we need toissue more equity securities than our certificate of incorporation currentlyauthorizes, or more than 20% of the shares of our common stock outstanding, wemay need stockholder approval.  Ifstockholder approval is not

 

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obtainedor if adequate funds are not available, we may be required to curtailoperations significantly or to obtain funds through arrangements withcollaborative partners or others that may require us to relinquish rights tocertain of our technologies, product candidates, products or potential markets.Investors may experience dilution in their investment from future offerings ofour common stock. For example, if we raise additional capital by issuing equitysecurities, such an issuance would reduce the percentage ownership of existingstockholders.  In addition, assuming theexercise of all options and warrants outstanding and the conversion of thenotes into common stock, as of March 31, 2008, we had 8,282,537 shares ofcommon stock authorized but unissued and unreserved, which may be issued fromtime to time by our board of directors without stockholder approval.  The total number of shares that may be issuedunder the financing is subject to certain caps as more fully described in this Form 10-Q.  Furthermore, we may need to issue securitiesthat have rights, preferences and privileges senior to our common stock.  Failure to obtain financing on acceptableterms would have a material adverse effect on our liquidity.

 

Since our inception, we have financed all of our operationsthrough private equity and debt financings. Our future capital requirementsdepend on numerous factors, including:

 

·      the scope of our research anddevelopment;

·      our ability to attract businesspartners willing to share in our development costs;

·      our ability to successfullycommercialize our technology;

·      competing technological and marketdevelopments;

·      our ability to enter intocollaborative arrangements for the development, regulatory approval andcommercialization of other products; and

·      the costof filing, prosecuting, defending and enforcing patent claims and otherintellectual property rights.

 

***Our business depends uponour patents and proprietary rights and the enforcement of these rights.  Our failure to obtain and maintain patentprotection may increase competition and reduce demand for our technology.***

*** ***

As a result of the substantial length of time and expenseassociated with developing products and bringing them to the marketplace in thebiotechnology and agricultural industries, obtaining and maintaining patent andtrade secret protection for technologies, products and processes is of vitalimportance.  Our success will depend inpart on several factors, including, without limitation:

 

·      our ability to obtain patentprotection for our technologies and processes;

·      our ability to preserve our tradesecrets; and

·      our ability to operate withoutinfringing the proprietary rights of other parties both in the United Statesand in foreign countries.

 

As of March 31, 2008, we have been issued seventeenpatents by the PTO and nineteen patents from foreign countries.  We have also filed numerous patentapplications for our technology in the United States and in several foreigncountries, which technology is vital to our primary business, as well asseveral Continuations in Part on these patent applications.  Our success depends in part upon the grant ofpatents from our pending patent applications.

 

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Although we believe that our technology is unique and willnot violate or infringe upon the proprietary rights of any third party, wecannot assure you that these claims will not be made or if made, could besuccessfully defended against.  If we donot obtain and maintain patent protection, we may face increased competition inthe United States and internationally, which would have a material adverseeffect on our business.

 

Since patent applications in the United States aremaintained in secrecy until patents are issued, and since publication ofdiscoveries in the scientific and patent literature tend to lag behind actualdiscoveries by several months, we cannot be certain that we were the firstcreator of the inventions covered by our pending patent applications or that wewere the first to file patent applications for these inventions.

 

In addition, among other things, we cannot assure you that:

 

·      our patentapplications will result in the issuance of patents;

·      any patents issued or licensed tous will be free from challenge and that if challenged, would be held to bevalid;

·      any patents issued or licensed tous will provide commercially significant protection for our technology,products and processes;

·      other companies will notindependently develop substantially equivalent proprietary information which isnot covered by our patent rights;

·      other companies will not obtainaccess to our know-how;

·      other companies will not begranted patents that may prevent the commercialization of our technology; or

·      we will not require licensing andthe payment of significant fees or royalties to third parties for the use oftheir intellectual property in order to enable us to conduct our business.

 

***Our competitors mayallege that we are infringing upon their intellectual property rights, forcingus to incur substantial costs and expenses in resulting litigation, the outcomeof which would be uncertain.***

*** ***

Patent law is still evolving relative to the scope andenforceability of claims in the fields in which we operate.  We are like most biotechnology companies inthat our patent protection is highly uncertain and involves complex legal andtechnical questions for which legal principles are not yet firmlyestablished.  In addition, if issued, ourpatents may not contain claims sufficiently broad to protect us against thirdparties with similar technologies or products, or provide us with anycompetitive advantage.

 

The PTO and the courts have not established a consistentpolicy regarding the breadth of claims allowed in biotechnology patents.  The allowance of broader claims may increasethe incidence and cost of patent interference proceedings and the risk ofinfringement litigation.  On the otherhand, the allowance of narrower claims may limit the value of our proprietaryrights.

 

The laws of some foreign countries do not protectproprietary rights to the same extent as the laws of the United States, andmany companies have encountered significant problems and costs in protectingtheir proprietary rights in these foreign countries.

 

We could become involved in infringement actions to enforceand/or protect our patents.  Regardlessof the outcome, patent litigation is expensive and time consuming and woulddistract

 

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ourmanagement from other activities.  Someof our competitors may be able to sustain the costs of complex patentlitigation more effectively than we could because they have substantiallygreater resources.  Uncertaintiesresulting from the initiation and continuation of any patent litigation couldlimit our ability to continue our operations.

 

***If our technology infringes the intellectual propertyof our competitors or other third parties, we may be required to pay licensefees or damages.***

*** ***

If any relevant claims of third-party patents that areadverse to us are upheld as valid and enforceable, we could be prevented fromcommercializing our technology or could be required to obtain licenses from theowners of such patents.  We cannot assureyou that such licenses would be available or, if available, would be onacceptable terms.  Some licenses may benon-exclusive and, therefore, our competitors may have access to the sametechnology licensed to us.  In addition,if any parties successfully claim that the creation or use of our technologyinfringes upon their intellectual property rights, we may be forced to paydamages, including treble damages.

 

***Our security measures maynot adequately protect our unpatented technology and, if we are unable toprotect the confidentiality of our proprietary information and know-how, thevalue of our technology may be adversely affected.***

*** ***

Our success depends upon know-how, unpatentable tradesecrets, and the skills, knowledge and experience of our scientific and technicalpersonnel.  As a result, we require allemployees to agree to a confidentiality provision that prohibits the disclosureof confidential information to anyone outside of our company, during the termof employment and thereafter.  We alsorequire 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.  Wecannot assure you that adequate protection for our trade secrets, know-how orother proprietary information against unauthorized use or disclosure will beavailable.

 

We occasionally provide information to researchcollaborators in academic institutions and request the collaborators to conductcertain tests.  We cannot assure you thatthe academic institutions will not assert intellectual property rights in theresults of the tests conducted by the research collaborators, or that theacademic institutions will grant licenses under such intellectual propertyrights to us on acceptable terms, if at all. If the assertion of intellectual property rights by an academicinstitution is substantiated, and the academic institution does not grantintellectual property rights to us, these events could limit our ability tocommercialize our technology.

 

***As we evolve from acompany primarily involved in the research and development of our technologyinto one that is also involved in the commercialization of our technology, wemay have difficulty managing our growth and expanding our operations.***

*** ***

As our business grows, we may need to add employees andenhance our management, systems and procedures. We may need to successfully integrate our internal operations with theoperations of our marketing partners, manufacturers, distributors and suppliersto produce and market commercially viable products.  We may also need to manage additionalrelationships with various collaborative partners, suppliers and otherorganizations.  Although we do notpresently

 

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conductresearch and development activities in-house, we may undertake those activitiesin the future.  Expanding our businessmay place a significant burden on our management and operations.  We may not be able to implement improvementsto our management information and control systems in an efficient and timelymanner and we may discover deficiencies in our existing systems andcontrols.  Our failure to effectivelyrespond to changes may make it difficult for us to manage our growth and expandour operations.

 

***We have no marketing orsales history and depend on third-party marketing partners.  Any failure of these parties to perform woulddelay or limit our commercialization efforts.***

*** ***

We have no history of marketing, distributing or sellingbiotechnology products and we are relying on our ability to successfullyestablish marketing partners or other arrangements with third parties tomarket, distribute and sell a commercially viable product both here andabroad.  Our business plan envisionscreating strategic alliances to access needed commercialization and marketingexpertise.  We may not be able to attractqualified sub-licensees, distributors or marketing partners, and even ifqualified, these marketing partners may not be able to successfully marketagricultural products or human health applications developed with ourtechnology If our current or potential future marketing partners fail toprovide adequate levels of sales, our commercialization efforts will be delayedor limited and we may not be able to generate revenue.

 

***We will depend onjoint ventures and strategic alliances to develop and market our technologyand, if these arrangements are not successful, our technology may not bedeveloped and the expenses to commercialize our technology will increase.***

*** ***

In its current state of development, our technology is notready to be marketed to consumers.  Weintend to follow a multi-faceted commercialization strategy that involves thelicensing of our technology to business partners for the purpose of furthertechnological development, marketing and distribution.  We are seeking business partners who willshare the burden of our development costs while our technology is still beingdeveloped, and who will pay us royalties when they market and distributeproducts incorporating our technology upon commercialization.  The establishment of joint ventures andstrategic alliances may create future competitors, especially in certainregions abroad where we do not pursue patent protection.  If we fail to establish beneficial businesspartners and strategic alliances, our growth will suffer and the continueddevelopment of our technology may be harmed.

 

***Competition in the humanhealth and agricultural biotechnology industries is intense and technology ischanging rapidly.  If our competitorsmarket their technology faster than we do, we may not be able to generate revenuesfrom the commercialization of our technology.***

* *

Many human health and agricultural biotechnology companiesare engaged in research and development activities relating to apoptosis andsenescence.  The market for plantprotection and yield enhancement products is intensely competitive, rapidlychanging and undergoing consolidation. We may be unable to compete successfully against our current and futurecompetitors, which may result in price reductions, reduced margins and theinability to achieve market acceptance for products containing ourtechnology.  Our competitors in the fieldof plant senescence gene technology are companies that develop and producetransgenic plants and

 

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includemajor international agricultural companies, specialized biotechnologycompanies, research and academic institutions and, potentially, our jointventure and strategic alliance partners. These companies include: Icoria (formerly Paradigm Genetics); MendelBiotechnology; Renessen LLC; Exelixis Plant Sciences, Inc.; SyngentaInternational AG; and Eden Bioscience, among others.  Some of our competitors that are involved inapoptosis research include:  Amgen;Centocor; Genzyme; OSI Pharmaceuticals, Inc.; Novartis; IntrogenTherapeutics, Inc.; Genta, Inc.; and Vertex Pharmaceuticals, Inc.  Many of these competitors have substantiallygreater financial, marketing, sales, distribution and technical resources thanus and have more experience in research and development, clinical trials,regulatory matters, manufacturing and marketing.  We anticipate increased competition in thefuture as new companies enter the market and new technologies becomeavailable.  Our technology may berendered obsolete or uneconomical by technological advances or entirelydifferent approaches developed by one or more of our competitors, which willprevent or limit our ability to generate revenues from the commercialization ofour technology.

 

***Our business is subject to various governmentregulations and, if we are unable to obtain regulatory approval, we may not beable to continue our operations.***

*** ***

Atpresent, the U.S. federal government regulation of biotechnology is dividedamong three agencies:

 

·      the USDA regulates the import,field testing and interstate movement of specific types of genetic engineeringthat may be used in the creation of transgenic plants;

·      the EPA regulates activity relatedto the invention of plant pesticides and herbicides, which may include certainkinds of transgenic plants; and

·      the FDA regulates foods derivedfrom new plant varieties.

 

The FDA requires that transgenic plants meet the samestandards for safety that are required for all other plants and foods ingeneral.  Except in the case of additivesthat significantly alter a food’s structure, the FDA does not require anyadditional standards or specific approval for genetically engineered foods, butexpects transgenic plant developers to consult the FDA before introducing a newfood into the marketplace.

 

Use of our technology, if developed for human healthapplications, will also be subject to FDA regulation.  The FDA must approve any drug or biologicproduct before it can be marketed in the United States.  In addition, prior to being sold outside ofthe U.S., any products resulting from the application of our human healthtechnology must be approved by the regulatory agencies of foreign governments.  Prior to filing a new drug application orbiologics license application with the FDA, we would have to perform extensiveclinical trials, and prior to beginning any clinical trial, we need to performextensive preclinical testing which could take several years and may requiresubstantial expenditures.

 

We believe that our current activities, which to date havebeen confined to research and development efforts, do not require licensing orapproval by any governmental regulatory agency. However, federal, state andforeign regulations relating to crop protection products and human healthapplications developed through biotechnology are subject to public concerns andpolitical circumstances, and, as a result, regulations have changed and maychange substantially in the

 

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future.  Accordingly, we may become subject togovernmental regulations or approvals or become subject to licensingrequirements in connection with our research and development efforts. We mayalso be required to obtain such licensing or approval from the governmentalregulatory agencies described above, or from state agencies, prior to thecommercialization of our genetically transformed plants and human healthtechnology.  In addition, our marketingpartners who utilize our technology or sell products grown with our technologymay be subject to government regulations. If unfavorable governmental regulations are imposed on our technology orif we fail to obtain licenses or approvals in a timely manner, we may not beable to continue our operations.

 

***Preclinical studies and clinical trials of our humanhealth applications may be unsuccessful, which could delay or preventregulatory approval.***

*** ***

Preclinical studies may reveal that our human healthtechnology is ineffective or harmful, and/or clinical trials may beunsuccessful in demonstrating efficacy and safety of our human healthtechnology, which would significantly limit the possibility of obtaining regulatoryapproval for any drug or biologic product manufactured with ourtechnology.  The FDA requires submissionof extensive preclinical, clinical and manufacturing data to assess theefficacy and safety of potential products. Furthermore, the success of preliminarystudies does not ensure commercial success, and later-stage clinical trials mayfail to confirm the results of the preliminary studies.

 

 ***Even if we receive regulatoryapproval, consumers may not accept products containing our technology, whichwill prevent us from being profitable since we have no other source of revenue.***

*** ***

We cannot guarantee that consumers will accept agriculturalproducts containing our technology. Recently, there has been consumer concern and consumer advocate activismwith respect to genetically engineered agricultural consumer products.  The adverse consequences from heightenedconsumer concern in this regard could affect the markets for agriculturalproducts developed with our technology and could also result in increasedgovernment regulation in response to that concern. If the public or potentialcustomers perceive our technology to be genetic modification or geneticengineering, agricultural products grown with our technology may not gainmarket acceptance.

 

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***We depend on our key personnel and, if we are not ableto attract and retain qualified scientific and business personnel, we may notbe able to grow our business or develop and commercialize our technology.***

*** ***

We are highly dependent on ourscientific advisors, consultants and third-party research partners.  Our success will also depend in part on thecontinued service of our key employees and our ability to identify, hire andretain additional qualified personnel in an intensely competitive market.  Although we have employment agreements withall of our key employees and a research agreement with Dr. Thompson, theseagreements may be terminated upon short or no notice.  We do not maintain key person life insuranceon any member of management.  The failureto attract and retain key personnel could limit our growth and hinder ourresearch and development efforts.

 

***Certain provisions of our charter, by-laws and Delawarelaw could make a takeover difficult.***

*** ***

Certain provisions of our certificate of incorporation andby-laws could make it more difficult for a third party to acquire control ofus, even if the change in control would be beneficial to stockholders.  Our certificate of incorporation authorizesour board of directors to issue, without stockholder approval, except as may berequired by the rules of the American Stock Exchange, 5,000,000 shares ofpreferred stock with voting, conversion and other rights and preferences thatcould adversely affect the voting power or other rights of the holders of ourcommon stock.  Similarly, our by-laws donot restrict our board of directors from issuing preferred stock withoutstockholder approval.

 

In addition, we are subject to the Business Combination Actof the Delaware General Corporation Law which, subject to certain exceptions,restricts certain transactions and business combinations between a corporationand a stockholder owning 15% or more of the corporation’s outstanding votingstock for a period of three years from the date such stockholder becomes a 15%owner.  These provisions may have theeffect of delaying or preventing a change of control of us without action byour stockholders and, therefore, could adversely affect the value of our commonstock.

 

Furthermore, in the event of our merger or consolidationwith or into another corporation, or the sale of all or substantially all ofour assets in which the successor corporation does not assume outstandingoptions or issue equivalent options, our board of directors is required toprovide accelerated vesting of outstanding options.

 

***Increasing political and social turmoil, such asterrorist and military actions, increase the difficulty for us and ourstrategic partners to forecast accurately and plan future business activities.***

*** ***

Recent political and social turmoil, can be expected to putfurther pressure on economic conditions in the United States andworldwide.  These political, social andeconomic conditions may make it difficult for us to plan future businessactivities.

 

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**Risks Related to Our Common Stock**

** **

***Our management and other affiliates have significantcontrol of our common stock and could significantly influence our actions in amanner that conflicts with our interests and the interests of otherstockholders.***

* *

As of March 31, 2008, our executive officers, directorsand affiliated entities together beneficially own approximately 66.8% of theoutstanding shares of our common stock, assuming the exercise of options andwarrants which are currently exercisable or will become exercisable within 60days of March 31, 2008, held by these stockholders. As a result, thesestockholders, acting together, will be able to exercise significant influenceover matters requiring approval by our stockholders, including the election ofdirectors, and may not always act in the best interests of otherstockholders.  Such a concentration ofownership may have the effect of delaying or preventing a change in control ofus, including transactions in which our stockholders might otherwise receive apremium for their shares over then current market prices.

*** ***

***A significant portion of our total outstanding sharesof common stock may be sold in the market in the near future, which could causethe market price of our common stock to drop significantly.***

* *

As of March 31, 2008, we had 17,728,314 shares of ourcommon stock issued and outstanding, of which approximately 1,986,306 sharesare registered pursuant to a registration statement on Form S-3, which wasdeclared effective on November 27, 2006, and the remainder of which areeither eligible to be sold under SEC Rule 144 or are in the publicfloat.  In addition, we have registered2,701,715 shares of our common stock underlying warrants previously issued onthe Form S-3 registration statement that was declared effective on November 27,2006, and we registered 6,000,000 shares of our common stock underlying optionsgranted or to be granted under our stock option plan.  We have also filed a registration statementon October 12, 2007, which became effective on November 1, 2007, toregister 3,333,333 shares of common stock underlying convertible notes.  Consequently, sales of substantial amounts ofour common stock in the public market, or the perception that such sales couldoccur, may have a material adverse effect on our stock price.

 

***Our common stock has a limited trading market, whichcould limit your ability to resell your shares of common stock at or above yourpurchase price.***

*** ***

Our common stock is quoted on the American Stock Exchangeand currently has a limited trading market. The American Stock Exchange requires us to meet minimum financialrequirements in order to maintain our listing. We currently believe that we meet the continued listing requirements ofthe American Stock Exchange. However, we cannot assure you that we willcontinue to meet such standards.  If wedo not meet the continued listing standards, we could be delisted.  We cannot assure you that an active tradingmarket will develop or, if developed, will be maintained.  As a result, our stockholders may find itdifficult to dispose of shares of our common stock and, as a result, may suffera loss of all or a substantial portion of their investment.

 

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***If our common stock is delisted from the American StockExchange, we may not be able to list on any other stock exchange, and ourcommon stock may be subject to the “penny stock” regulations which may affectthe ability of our stockholders to sell their shares.***

*** ***

The American Stock Exchangerequires us to meet minimum financial requirements in order to maintain ourlisting.  We have received notices fromthe American Stock Exchange that we do not meet each of Section 1003(a)(ii) ofthe American Stock Exchange Company Guide with shareholders’ equity of lessthan $4,000,000 and losses from continuing operations and/or net losses inthree out of our four most recent fiscal years and Section 1003(a)(iii) ofthe American Stock Exchange Company Guide with shareholders’ equity less than$6,000,000 and losses from continuing operations and/or net losses in the fivemost recent fiscal years.  We hadsubmitted a plan to the American Stock Exchange discussing how we intended toregain compliance with the continued listing requirements.  The American Stock Exchange had accepted ourplan and had given us until March 1, 2008 to effectuate the plan andregain compliance with the continued listing requirements.  On March 12, 2008, the American StockExchange notified us that we have regained compliance with the continuedlisting requirements. As of March 31, 2008, we believe that we continue tobe in compliance with the American Stock Exchange’s continued listingrequirements.  However, if we are unableto continue to be in compliance with the continued listing requirements, it ispossible that we will be delisted.  If weare delisted from the American Stock Exchange, our common stock likely willbecome a “penny stock.”  In general,regulations of the SEC define a “penny stock” to be an equity security that isnot listed on a national securities exchange or the NASDAQ Stock Market andthat has a market price of less than $5.00 per share or with an exercise priceof less than $5.00 per share, subject to certain exceptions.  If our common stock becomes a penny stock,additional sales practice requirements would be imposed on broker-dealers thatsell 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 determinationfor the purchaser and receive the purchaser’s written consent to thetransaction prior to the sale.  Inaddition, the rules on penny stocks require delivery, prior to and afterany penny stock transaction, of disclosures required by the SEC.

 

If our stock is not accepted for listing on the AmericanStock Exchange, we will make every possible effort to have it listed on theOver the Counter Bulletin Board, or the OTC Bulletin Board.  If our common stock were to be traded on theOTC Bulletin Board, the Securities Exchange Act of 1934, as amended, andrelated SEC rules would impose additional sales practice requirements onbroker-dealers that sell our securities. These rules may adversely affect the ability of stockholders tosell our common stock and otherwise negatively affect the liquidity, tradingmarket and price of our common stock.

 

We believe that the listing of our common stock on arecognized national trading market, such as the American Stock Exchange, is animportant part of our business and strategy. Such a listing helps our stockholders by providing a readily availabletrading market with current quotations. Without that, stockholders may have a difficult time getting a quote forthe sale or purchase of our stock, the sale or purchase of our stock wouldlikely be made more difficult and the trading volume and liquidity of our stockwould likely decline.  The absence ofsuch a listing may adversely affect the acceptance of our common stock as currencyor the value accorded it by other parties. In that regard, the absence of a listing on a recognized nationaltrading market will also affect our ability to benefit from the use of ouroperations and expansion plans, including for

 

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use in licensing agreements, joint ventures, the developmentof strategic relationships and acquisitions, which are critical to our businessand strategy and none of which is currently the subject of any agreement,arrangement or understanding, with respect to any future financing or strategicrelationship it may undertake.  Thedelisting from the American Stock Exchange would result in negative publicityand would negatively impact our ability to raise capital in the future.

 

***The market price of our common stock may fluctuate andmay drop below the price you paid.***

*** ***

We cannot assure you that you will be able to resell theshares of our common stock at or above your purchase price.  The market price of our common stock mayfluctuate significantly in response to a number of factors, some of which arebeyond our control.  These factorsinclude:

 

·      quarterly variations in operating results;

·      the progress or perceived progress of our research and development efforts;

·      changes in accounting treatments or principles;

·      announcements by us or our competitors of new technology, product andservice offerings, significant contracts, acquisitions or strategicrelationships;

·      additions or departures of key personnel;

·      future offerings or resales of our common stock or other securities;

·      stock market price and volume fluctuations of publicly-traded companies ingeneral and development companies in particular; and

·      general political, economic and market conditions.

 

***Because we do not intend to pay, and have not paid, anycash dividends on our shares of common stock, our stockholders will not be ableto receive a return on their shares unless the value of our common stockappreciates and they sell their shares.***

*** ***

We have never paid or declared any cash dividends onour common stock and we intend to retain any future earnings to finance thedevelopment and expansion of our business. We do not anticipate paying any cash dividends on our common stock inthe foreseeable future.  Therefore, ourstockholders will not be able to receive a return on their investment unlessthe value of our common stock appreciates and they sell their shares.

 

***Our stockholders may experiencesubstantial dilution as a result of the conversion of outstanding convertibledebentures, or the exercise of options and warrants to purchase our commonstock.***

 

As of March 31, 2008, we have granted options outside of our stockoption plan to purchase 10,000 shares of our common stock and outstandingwarrants to purchase 16,230,261 shares of our common stock.  In addition,as of March 31, 2008, we have reserved 6,000,000 shares of our commonstock for issuance upon the exercise of options granted pursuant to our stockoption plan, 3,805,600 of which have been granted, 90,000 of which have beenexercised since inception, 3,715,600 of which are outstanding, and 2,194,400 ofwhich may be granted in the future.  The exercise of these options andwarrants will result in dilution to our existing stockholders and could have amaterial adverse effect on our stock price. In addition, any shares issued inconnection with the YA Global financing, as further discussed elsewhere in thisForm 10-Q, or the Stanford financing can also have a dilutive effect and apossible material adverse effect on our stock price.  The conversion price of the warrants are alsosubject to certain anti-dilution adjustments. The agreements with YA Global and Stanford provide for the potentialissuance of up to 62,388,888 shares of our common stock.

 

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**Item 6.            Exhibits.**

 
| Exhibits. | ** ** | ** **                                                                                                                                                         |
|-----------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |       |                                                                                                                                                               |
| 31.1      |       | Certification of principal executive officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed  herewith)                                    |
| 31.2      |       | Certification of principal financial and accounting  officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (filed herewith)                     |
| 32.1      |       | Certification of principal executive officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.  1350. (furnished herewith)                |
| 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. (furnished herewith) |

 

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**SIGNATURES**

** **

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|   | SENESCO TECHNOLOGIES, INC. |
|--------|----------------------------|

 
| DATE: October 31, 2008 | By:    |  /s/ Bruce C. Galton                    |
|-----------------------------|--------|----------------------------------------------|
|                        |   | Bruce C. Galton, President                   |
|                        |   | and Chief Executive Officer                  |
|                        |   | (Principal Executive Officer)                |
|                        |   |                                         |
|                        |   |                                         |
| DATE: October 31, 2008 | By:    |  /s/ Joel Brooks                        |
|                        |   | Joel Brooks, Chief Financial Officer         |
|                        |   | and Treasurer                                |
|                        |   | (Principal Financial and Accounting Officer) |

 

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