Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION****WASHINGTON****,****D.C.20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

 
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                         |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** ** | ** ** | **For the quarterly****period ended  September 30, 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) o |   | Smaller reporting company    x |

 

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 October 31, 2008, 18,573,184 shares of the issuer’s commonstock, par value $0.01 per share, were outstanding.

 

 

 

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Table of Contents

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

 

TABLE OFCONTENTS

 
| ** **    | ** **            | ** **                                                                                                                              | **Page** |
|---------------|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------|----------|
|          |                  |                                                                                                                                    |     |
| PART I.  | FINANCIAL INFORMATION |                                                                                                                                    |
|          |                  |                                                                                                                                    |
|          | Item 1.               | Financial Statements (Unaudited)                                                                                                        | 1        |
|          |                  |                                                                                                                                    |
|          |                  | CONDENSED CONSOLIDATED BALANCE SHEETS                                                                                                   |     |
|          |                  | as of September 30, 2008 and June 30,  2008                                                                                   | 2        |
|          |                  |                                                                                                                                    |     |
|          |                  | CONDENSED CONSOLIDATED STATEMENTS OF  OPERATIONS                                                                                        |     |
|          |                  | For the Three Months Ended  September 30, 2008 and 2007,   and From Inception on July 1, 1998 through September 30, 2008 | 3        |
|          |                  |                                                                                                                                    |     |
|          |                  | CONDENSED CONSOLIDATED STATEMENT OF  STOCKHOLDERS’ EQUITY                                                                          |     |
|          |                  | From Inception on July 1, 1998 through  September 30, 2008                                                                    | 4        |
|          |                  |                                                                                                                                    |     |
|          |                  | CONDENSED CONSOLIDATED STATEMENTS OF CASH  FLOWS                                                                                        |     |
|          |                  | For the Three Months Ended  September 30, 2008 and 2007,   and From Inception on July 1, 1998 through September 30, 2008 | 8        |
|          |                  |                                                                                                                                    |     |
|          |                  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL  STATEMENTS                                                                                   | 9        |
|          |                  |                                                                                                                                    |     |
|          | Item 2.               | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                             | 18       |
|          |                  |                                                                                                                                    |
|          |                  | Overview                                                                                                                                | 18       |
|          |                  |                                                                                                                                    |     |
|          |                  | Liquidity and Capital Resources                                                                                                         | 31       |
|          |                  |                                                                                                                                    |     |
|          |                  | Changes to Critical Accounting Policies and  Estimates                                                                                  | 32       |
|          |                  |                                                                                                                                    |     |
|          |                  | Results of Operations                                                                                                                   | 33       |
|          |                  |                                                                                                                                    |
|          | Item 3.               | Quantitative and Qualitative Disclosures  about Market Risk                                                                             | 37       |
|          |                  |                                                                                                                                    |     |
|          | Item 4.               | Controls and Procedures                                                                                                                 | 37       |
|          |                  |                                                                                                                                    |
| PART II. | OTHER INFORMATION     |                                                                                                                                    |
|          |                  |                                                                                                                                    |
|          | Item 1A.              | Risk Factors                                                                                                                            | 39       |
|          |                  |                                                                                                                                    |     |
|          | Item 6.               | Exhibits                                                                                                                                | 52       |
|          |                  |                                                                                                                                    |     |
| SIGNATURES    | 53                    |
|               |                       |                                                                                                                                         |          |  |  |

 

i

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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.

 

1

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SENESCO TECHNOLOGIES, INC. ANDSUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                     | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                                                                                     | ** ** | **2008**               | ** ** | **2008**          | ** ** |
| ** **                                                                                                                     | ** ** | **(unaudited)**        | ** ** | ** **        | ** ** |
| ASSETS                                                                                                                         |       |                   |       |              |       |
|                                                                                                                           |       |                   |       |              |       |
| CURRENT ASSETS:                                                                                                                |       |                   |       |              |       |
| Cash and cash equivalents                                                                                                      |       | $                      | 2,457,202  |              | $          | 5,676,985 |   |
| Short-term investments                                                                                                         |       | 2,450,000              |       | 500,000           |       |
| Prepaid expenses and other  current assets                                                                                     |       | 784,241                |       | 180,556           |       |
| Total Current Assets                                                                                                           |       | 5,691,443              |       | 6,357,541         |       |
|                                                                                                                           |       |                   |       |              |       |
| Property and equipment, net                                                                                                    |       | 4,678                  |       | 5,459             |       |
| Intangibles, net                                                                                                               |       | 3,346,366              |       | 3,213,543         |       |
| Deferred financing costs                                                                                                       |       | 953,308                |       | 1,059,230         |       |
| Security deposit                                                                                                               |       | 7,187                  |       | 7,187             |       |
| TOTAL ASSETS                                                                                                                   |       | $                      | 10,002,982 |              | $          | 10,642,960 |   |
|                                                                                                                           |       |                   |       |              |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                      |       |                   |       |              |       |
|                                                                                                                           |       |                   |       |              |       |
| CURRENT LIABILITIES:                                                                                                           |       |                   |       |              |       |
| Accounts payable                                                                                                               |       | $                      | 499,925    |              | $          | 370,167 |   |
| Accrued expenses                                                                                                               |       | 386,884                |       | 314,267           |       |
| Total Current Liabilities                                                                                                      |       | 886,809                |       | 684,434           |       |
|                                                                                                                           |       |                   |       |              |       |
| Convertible notes, net of  discount                                                                                            |       | 190                    |       | 57                |       |
| Grant payable                                                                                                                  |       | 99,728                 |       | 99,728            |       |
| Other liability                                                                                                                |       | 21,301                 |       | 23,062            |       |
| TOTAL LIABILITIES                                                                                                              |       | 1,008,028              |       | 807,281           |       |
|                                                                                                                           |       |                   |       |              |       |
| 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 18,573,184 and  18,375,117, respectively |       | 185,732                |       | 183,751           |       |
| Capital in excess of par                                                                                                       |       | 40,213,658             |       | 39,874,958        |       |
| Deficit accumulated during the  development stage                                                                              |       | (31,404,436            | )          | (30,223,030       | )          |
|                                                                                                                           |       |                   |       |              |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                |       | 8,994,954              |       | 9,835,679         |       |
|                                                                                                                           |       |                   |       |              |       |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                               |       | $                      | 10,002,982 |              | $          | 10,642,960 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                                              | ** ** | **For the Three Months   Ended September 30,** | ** ** | **For the Three Months   Ended September 30,** | ** ** | **From Inception on July   1, 1998 through   September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                                                     | ** ** | **2007**                                                                     | ** ** | **2008**                                                                                             | ** ** |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Revenue                                                                 |       | $                                                                            | 200,000    |                                                                         | $          | 371,250                                                                                              |       | $ | 1,375,000 |   |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Operating Expenses:                                                     |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| General and administrative                                              |       | 529,865                                                                      |       | 389,059                                                                      |       | 22,255,321                                                                                           |       |
| Research and development                                                |       | 504,386                                                                      |       | 352,895                                                                      |       | 10,461,981                                                                                           |       |
| Total Operating Expenses                                                |       | 1,034,251                                                                    |       | 741,954                                                                      |       | 32,717,302                                                                                           |       |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Loss From Operations                                                    |       | (834,251                                                                     | )          | (370,704                                                                     | )          | (31,342,302                                                                                          | )          |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Sale of state income tax loss,  net                                     |       | —                                                                       |       | —                                                                       |       | 586,442                                                                                              |       |
| Other noncash income                                                    |       | —                                                                       |       | —                                                                       |       | 321,259                                                                                              |       |
| Interest income, net                                                    |       | 23,057                                                                       |       | 6,879                                                                        |       | 503,294                                                                                              |       |
| Amortization of debt discount and  financing costs                      |       | (106,055                                                                     | )          | (15,221                                                                      | )          | (774,818                                                                                             | )          |
| Interest expense on convertible  notes                                  |       | (264,157                                                                     | )          | (3,000                                                                       | )          | (698,311                                                                                             | )          |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Net Loss                                                                |       | $                                                                            | (1,181,406 | )                                                                            | $          | (382,046                                                                                             | )          | $ | (31,404,436 | ) |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Basic and Diluted Net Loss Per  Common Share                            |       | $                                                                            | (0.06      | )                                                                            | $          | (0.02                                                                                                | )          |   |   |
|                                                                    |       |                                                                         |       |                                                                         |       |                                                                                                 |       |
| Basic and Diluted Weighted  Average Number of Common Shares Outstanding |       | 18,379,379                                                                   |       | 17,473,694                                                                   |       |                                                                                                 |       |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998THROUGH SEPTEMBER 30, 2008

(unaudited)

 
| ** **                                                                                        | ** ** | **Common Stock** | ** ** | **Capital in   Excess of ** | ** ** | **Deficit   Accumulated   During the   Development** | ** ** | ** **      | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                        | ** ** | **Shares**            | ** ** | **Amount**                                      | ** ** | **Par Value**                                                       | ** ** | ** Stage** | ** ** | **Total** | ** ** |
|                                                                                              |       |                  |       |                                            |       |                                                                     |       |            |       |   |   |
| 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 |   |
|                                                                                              |       |                  |       |                                            |       |                                                                     |       |            |       |   |   |
| 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 |   |
|                                                                                                   |            |                       |            |                                                 |            |                                                                          |            |                 |            |  |  |  |  |  |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. ANDSUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGHSEPTEMBER 30, 2008

(unaudited)

 
| ** **                                                                                                                 | ** ** | **Common Stock** | ** ** | **Capital in   Excess of ** | ** ** | **Deficit   Accumulated   During the   Development ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                                 | ** ** | **Shares**            | ** ** | **Amount**                                      | ** ** | **Par Value**                                                             | ** ** | **Stage**  | ** ** | **Total** | ** ** |
|                                                                                                                       |       |                  |       |                                            |       |                                                                           |       |       |       |   |   |   |   |
| 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 | ) |
|                                                                                                                       |       |                  |       |                                            |       |                                                                           |       |       |       |   |   |
| Reclassification of warrants                                                                                               |       | —                |       |                                            |       | 1,913,463                                                                      |       | —     |       | 1,913,463 |   |
|                                                                                                                       |       |                  |       |                                            |       |                                                                           |       |       |       |   |   |
| Commissions, legal and bank fees  associated with issuances for the year ended June 30, 2004                          |       | —                |       |                                            |       | (378,624                                                                       | )          | —     |       | (378,624 | ) |
|                                                                                                                            |            |                       |            |                                                 |            |                                                                                |            |            |            |  |  |  |  |  |

 

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, 1998THROUGH SEPTEMBER 30, 2008

(unaudited)

 
| ** **                                                                                                               | ** ** | **Common Stock** | ** ** | **Capital in   Excess of ** | ** ** | **Deficit   Accumulated   During the   Development ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                               | ** ** | **Shares**            | ** ** | **Amount**                                      | ** ** | **Par Value**                                                             | ** ** | **Stage**  | ** ** | **Total** | ** ** |
| ** **                                                                                                               | ** ** | ** **            | ** ** | ** **                                      | ** ** | ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| 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 |   |
|                                                                                                                     |       |                  |       |                                            |       |                                                                           |       |       |       |   |   |
| 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 |   |
|                                                                                                                          |            |                       |            |                                                 |            |                                                                                |            |            |            |  |  |  |  |  |

 

  See Notes to CondensedConsolidated 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, 1998THROUGH SEPTEMBER 30, 2008

(unaudited)

 
| ** **                                                                                                                       | ** ** | **Common Stock** | ** ** | **Capital in   Excess of ** | ** ** | **Deficit   Accumulated   During the   Development ** | ** ** | ** ** | ** **  |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|------------|-------------|
| ** **                                                                                                                       | ** ** | **Shares**            | ** ** | **Amount**                                      | ** ** | **Par Value**                                                             | ** ** | **Stage**  | ** **  | **Total** | ** ** |
| ** **                                                                                                                       | ** ** | ** **            | ** ** | ** **                                      | ** ** | ** **                                                                     | ** ** | ** ** | ** **  | ** ** | ** ** |
| 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 year ended June 30, 2008                                       |       | —                |       | —                                          |       | 1,536,968                                                                      |       | —     |        | 1,536,968 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Allocation of proceeds from  issuance of convertible notes and warrants from September 21, 2007  through June 30, 2008 |       | —                |       | —                                          |       | 9,340,000                                                                      |       | —     |        | 9,340,000 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Issuance of common stock in lieu  of cash payment for interest during the year ended June 30, 2008                          |       | 345,867               |       | 3,458                                           |       | 430,696                                                                        |       | —     |        | 434,154 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Convertible notes converted into  common stock during the year ended June 30, 2008                                          |       | 565,556               |       | 5,556                                           |       | 430,952                                                                        |       | —     |        | 436,508 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Fair market value of options and  warrants vested during the three months ended September 30, 2008                          |       | —                |       | —                                          |       | 76,524                                                                         |       | —     |        | 76,524 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Warrants exercised during the  three months ended September 30, 2008 at an exercise price of $0.74                          |       | 2,395                 |       | 24                                              |       | (24                                                                            | )          | —     |        | — |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Issuance of common stock in lieu  of cash payment for interest during the three months ended  September 30,2008             |       | 195,672               |       | 1,957                                           |       | 262,200                                                                        |       | —     |        | 264,157 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                                           |       |       |        |   |   |
| Net loss                                                                                                                         |       | —                |       | —                                          |       | —                                                                         |       | $          | (31,404,436 | ) | (31,404,436 | ) |
| Balance at September 30,  2008                                                                                              |       | 18,573,184            |       | $                                               | 185,732    |                                                                           | $          | 40,213,658 |        | $ | (31,404,436 | ) | $ | 8,994,954 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
| ** **                                                                                       | ** ** | **For the Three Months Ended   September 30,** | ** ** | **From Inception on   July 1, 1998 through   September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2008**                                                                     | ** ** | **2007**                                                                                             | ** ** | **2008** | ** ** |
| Cash flows from operating  activities:                                                           |       |                                                                         |       |                                                                                                 |       |   |   |
| Net loss                                                                                         |       | $                                                                            | (1,181,406 | )                                                                                                    | $          | (382,046 | ) | $ | (31,404,436 | ) |
| 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 liability                             |       | —                                                                       |       | —                                                                                               |       | (321,259 | ) |
| Issuance of common stock and  warrants for interest                                              |       | 264,157                                                                      |       | —                                                                                               |       | 707,626 |   |
| Share-based compensation expense                                                                 |       | 76,524                                                                       |       | 63,500                                                                                               |       | 9,772,621 |   |
| Depreciation and amortization                                                                    |       | 26,280                                                                       |       | 21,754                                                                                               |       | 486,968 |   |
| Amortization of convertible note  discount and deferred financing costs                          |       | 106,055                                                                      |       | 15,221                                                                                               |       | 774,818 |   |
| (Increase) decrease in operating  assets:                                                        |       |                                                                         |       |                                                                                                 |       |   |   |
| Accounts receivable                                                                              |       | —                                                                       |       | (75,000                                                                                              | )          | — |   |
| Prepaid expense and other current  assets                                                        |       | (603,685                                                                     | )          | 47,450                                                                                               |       | (784,241 | ) |
| Security deposit                                                                                 |       | —                                                                       |       | —                                                                                               |       | (7,187 | ) |
| Increase (decrease) in operating  liabilities:                                                   |       |                                                                         |       |                                                                                                 |       |   |   |
| Accounts payable                                                                                 |       | 129,758                                                                      |       | 196,565                                                                                              |       | 499,925 |   |
| Accrued expenses                                                                                 |       | 72,617                                                                       |       | 127,906                                                                                              |       | 386,884 |   |
| Deferred revenue                                                                                 |       | —                                                                       |       | (6,250                                                                                               | )          | — |   |
| Other liability                                                                                  |       | (1,761                                                                       | )          | (1,534                                                                                               | )          | 21,301 |   |
| Net cash (used in) provided by  operating activities                                             |       | (1,111,461                                                                   | )          | 7,566                                                                                                |       | (19,650,551 | ) |
| Cash flows from investing  activities:                                                           |       |                                                                         |       |                                                                                                 |       |   |   |
| Patent costs                                                                                     |       | (158,322                                                                     | )          | (214,907                                                                                             | )          | (3,665,122 | ) |
| (Purchase) redemption of  investments, net                                                       |       | (1,950,000                                                                   | )          | 250,000                                                                                              |       | (2,450,000 | ) |
| Purchase of property and  equipment                                                              |       | —                                                                       |       | —-                                                                                              |       | (172,890 | ) |
| Net cash (used in) provided by  investing activities                                             |       | (2,108,322                                                                   | )          | 35,093                                                                                               |       | (6,288,012 | ) |
| Cash flows from financing  activities:                                                           |       |                                                                         |       |                                                                                                 |       |   |   |
| Proceeds from grant                                                                              |       | —                                                                       |       | —                                                                                               |       | 99,728 |   |
| Proceeds from issuance of bridge  notes                                                          |       | —                                                                       |       | —                                                                                               |       | 525,000 |   |
| Proceeds from issuance of common  stock, net and exercise of options and warrants                |       | —                                                                       |       | —                                                                                               |       | 19,082,818 |   |
| Proceeds from issuance of convertible  note and warrants, net                                    |       | —                                                                       |       | 1,395,000                                                                                            |       | 9,340,000 |   |
| Deferred financing costs                                                                         |       | —                                                                       |       | (204,717                                                                                             | )          | (651,781 | ) |
| Net cash provided by financing  activities                                                       |       | —                                                                       |       | 1,190,283                                                                                            |       | 28,395,765 |   |
| Net (decrease) increase in cash  and cash equivalents                                            |       | (3,219,783                                                                   | )          | 1,232,942                                                                                            |       | 2,457,202 |   |
| Cash and cash equivalents at  beginning of period                                                |       | 5,676,985                                                                    |       | 408,061                                                                                              |       | —- |   |
| Cash and cash equivalents at end  of period                                                      |       | $                                                                            | 2,457,202  |                                                                                                 | $          | 1,641,003 |   | $ | 2,457,202 |   |
| Supplemental disclosure of cash  flow information:                                               |       |                                                                         |       |                                                                                                 |       |   |   |
| Cash paid during the period for  interest                                                        |       | $                                                                            | —     |                                                                                                 | $          | —- |   | $ | 22,317 |   |
| Supplemental schedule of noncash  financing activity:                                            |       |                                                                         |       |                                                                                                 |       |   |   |
| Conversion of convertible note  into common stock, net of unamortized financing costs of $63,492 |       | $                                                                            | —     |                                                                                                 | $          | —- |   | $ | 500,000 |   |
| Conversion of bridge notes into  stock                                                           |       | $                                                                            | —     |                                                                                                 | $          | — |   | $ | 534,316 |   |
| Allocation of convertible debt  proceeds to warrants and beneficial conversion feature           |       | $                                                                            | —     |                                                                                                 | $          | 1,395,000 |   | $ | 9,340,000 |   |
| Warrants issued for financing  costs .                                                           |       | $                                                                            | —     |                                                                                                 | $          | 89,833 |   | $ | 639,645 |   |
| Issuance of common stock for  interest payments on convertible notes                             |       | $                                                                            | 264,157    |                                                                                                 | $          | —- |   | $ | 707,626 |   |

 

See Notes to Condensed Consolidated FinancialStatements

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

 

**Note 1 - Basis ofPresentation:**

 

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, 2008.

 

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 September 30, 2008, the results of itsoperations for the three-month period ended September 30, 2008 and 2007,cash flows for the three-month periods ended September 30, 2008 and 2007,and the results of its operations and cash flows for the period from inceptionon July 1, 1998 through September 30, 2008.

 

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

 

**Note 2 – Liquidity:**

 

TheCompany has a limited operating history and limited assets and capital and hasincurred losses each year since inception with a deficit accumulated during thedevelopment stage from inception on July 1, 1998 through September 30,2008 of $31,404,436.  The Company hasgenerated minimal revenues by licensing its technology for certain crops tocompanies willing to share in its development costs. In addition, the Company’stechnology may not be ready for commercialization for several years. TheCompany expects to continue to incur losses for the next several years becauseit anticipates that its expenditures on research and development, and administrativeactivities will significantly exceed its revenues during that period. TheCompany cannot predict when, if ever, it will become profitable.

 

The Company’s operations to date have required significantcash expenditures.  The Company’s futurecapital requirements will depend on the results of its research and developmentactivities, preclinical and clinical studies, and competitive and technologicaladvances.

 

The Company may not be able to obtainadequate funds for its operations when needed or on acceptable terms.  If the Company is unable to raise additionalfunds, it will need to do one or more of the following:

 

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

 

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·                  license third parties to develop and commercialize products or technologiesthat it would otherwise seek to develop and commercialize itself;

·                  seek strategic alliances or business combinations;

·                  attempt to sell the Company;

·                  cease operations; or

·                  declare bankruptcy.

 

As of September 30, 2008, the Company had cash and investments inthe amount of $4,907,202, which consisted of money market funds and U.S. Treasurybills, The Company estimates that such amount will cover its expenses forapproximately the next ten months.  Theaccompanying financial statements do not include any adjustment from theoutcome of this uncertainty.

 

**Note 3 – 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, the patent costs are capitalized.  The capitalized patent costs represent theoutside legal fees incurred by the Company to submit and undertake allnecessary efforts to have such patent applications issued as patents.

 

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 natureof each patent application, the actual length of time may vary.  If a patent application is denied, theassociated cost of that application would be written off.  However, the Company has not had any patentapplications denied as of September 30, 2008.  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 patent applicationspending 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 appearance of competing technology.

 

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.

 

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**Note 4 - Loss Per Share:**

** **

Net loss per commonshare is computed by dividing the loss by the weighted-average number of commonshares outstanding during the period. Shares to be issued upon the exercise of the outstanding options andwarrants aggregating 23,518,284 and 9,294,982 as of September 30, 2008 and2007, respectively, are not included in the computation of net loss per shareas their effect is anti-dilutive. Additionally, as of September 30, 2008, 10,555,556 shares to beissued upon the conversion of convertible notes at a fixed conversion price of$0.90 are not included in the computation of diluted net loss per share as theeffect is anti-dilutive.

 

**Note 5** – **Share-Based Transactions:**

** **

The termsand vesting schedules for share-based awards vary by type of grant and theemployment status of the grantee. Generally, the awards vest based upon time-based conditions.

 

The fair value of each stock option and warrant granted hasbeen determined using the Black-Scholes model. The material factors incorporated in the Black-Scholes model inestimating the value of the options and warrants include the following:

 
| ** **                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **September,**                   | ** ** |
| ** **                  | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                        |       |                             |       |   |   |
| Estimated life in years     |       | 4-6                              |       | 8-10 |   |
| Risk-free interest rate (1) |       | 2.98%                            |       | 4.7% |   |
| Volatility                  |       | 100%                             |       | 100% |   |
| Dividend paid               |       | 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 the threemonth period ended September 30, 2008 is as follows:

 
| ** **                              | ** ** | **Number of** | ** ** | **Weighted-Average**    | ** ** |
|-----------------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **Options**        | ** ** | **Exercise Price** | ** ** |
| Outstanding at July 1, 2008        |       | 3,715,600          |       | $                       | 1.95       |   |
| Granted                                 |       | —             |       | —                  |       |
| Exercised                               |       | —             |       | —                  |       |
| Canceled                                |       | —             |       | —                  |       |
| Outstanding at September 30,  2008 |       | 3,715,600          |       | $                       | 1.95       |   |
| Exercisable at September 30,  2008 |       | 2,778,336          |       | $                       | 2.25       |   |

 

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A summary of changes to the non-vested stock optionsfor the three month period ended September 30, 2008 is as follows:

 
| ** **                                           | ** ** | **Weighted-Average** | ** ** |
|------------------------------------------------------|------------|----------------------|------------|
| ** **                                           | ** ** | **Number of**   | ** ** | **Grant-Date** | ** ** |
| ** **                                           | ** ** | **Options**          | ** ** | **Fair Value** | ** ** |
| Non-vested stock options at  July 1, 2008       |       | 937,264              |       | $ | 0.77 |   |
| Granted                                              |       | —               |       | — |   |
| Vested                                               |       | —               |       | — |   |
| Forfeited                                            |       | —               |       | — |   |
| Non-vested stock options at  September 30, 2008 |       | 937,264              |       | $ | 0.77 |   |

 

As of September 30, 2008, the aggregate intrinsic valueof stock options outstanding was $470,266, with a weighted-average remainingterm of 5.9 years.  The aggregateintrinsic value of stock options exercisable at that same date was $140,541,with a weighted-average remaining term of 4.8 years.  As of September 30, 2008, the Companyhas 1,856,700 shares available for future stock option grants.

 

As of September 30, 2008, total compensation expensenot yet recognized related to stock option grants and restricted stock unitsamounted to approximately $82,000**,**which will be recognized over the next 15 months and an additional $640,000which may be recognized as achievement of certain target goals under theCompany’s Long-Term Incentive Program become probable over the next 30 months.

 

*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 Program is 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 Equity IncentiveProgram, each executive would be awarded shares of the Company’s Common Stockand options to acquire shares of the Company’s Common Stock if the Companyachieves certain target goals relating to its Multiple Myeloma research projectover the next three fiscal years.

 

The number of eligible shares and options to be awarded tothe executives is based upon the following weightings:

 

1.                 20% of the eligible shares upon the execution of a research agreement toconduct a phase I/II clinical trial at a research facility;

2.                 20% of the eligible shares upon the filing and acceptance by the FDA of aninvestigational new drug application; and

3.                 60% of the eligible shares upon the successful completion of a FDA approvedphase I/II clinical trial.

 

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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         |       |

 

----

(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 September 30,2008, 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 6** – **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 7 –ConvertibleNotes and Stockholders Equity:**

 

During the year ended June 30, 2008, the Company issued $5,000,000of convertible notes and warrants to YA Global Investments L.P. (“YA Global”)and $5,000,000 of convertible notes and warrants to Stanford Venture CapitalHoldings, Inc. (“Stanford”), for an aggregate gross proceeds of$10,000,000.  The convertible notesconvert into the Company’s common stock at a fixed price of $0.90 per sharesubject to certain adjustments (the “Fixed Conversion Price”), for a period oftwo years immediately following the signing date.  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.

 

The convertible notes accrue interest on their outstanding principalbalances at an annual rate of 8%.  TheCompany has the option to pay interest in cash or, upon certain conditions,common stock.  If the Company paysinterest in common stock, the stock will be valued at a 10% discount to theaverage daily VWAP for the five day trading period prior to the interestpayment date (the “Interest Shares”)

 

At the Company’s option, it can redeem a portion of, or all of, theprincipal owed under the convertible notes by providing the investors with atleast 30 business days’ written notice, provided that, at the time of receiptof the notice, either: (A)(i) the VWAP of the common stock exceeds 130% ofthe Fixed Conversion Price for at least 20 of 30 prior trading days and (ii) thereis an effective registration statement for the resale of the common stock thatwill be issued under the redemption or (B) it redeems a portion, or all,of the principal owed at a 20% premium above the principal then outstanding andany accrued interest thereupon.  If theCompany redeems all or any of the principal outstanding under the convertiblenotes, it will pay an amount equal to the principal being redeemed plus accruedinterest.

 

If there is an effective registration statement for the resale of theshares underlying the convertible notes or if such shares become 144(k) eligible,the Company will have the option to force the investors to convert 50% and 100%of its then-outstanding convertible notes if its common stock price exceeds150% and 175% of the Fixed Conversion Price, respectively, for any 20 out of 30trading days; provided that such forced conversion meets certain conditions(the “Call Option”).  If the Companyexercises its Call Option prior to the third anniversary of the signing date,it will issue additional warrants to the investor equal to 50% of the number ofshares underlying the convertible 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 the convertible notes are secured byall of its and its subsidiary’s assets and intellectual property, as evidencedby certain Security Agreements and certain Patent Security Agreements by andbetween the Company and each of YA Global and Stanford.  Pursuant to a subordination agreement, YA Globalis the senior secured creditor.

 

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The conversion rate of each convertible note is 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 refusal on any future funding thatinvolves the issuance of the Company’s capital stock for so long as a portionof the convertible notes are outstanding.

 

Pursuant to the Registration Rights Agreement, the Company filed aninitial registration statement on October 12, 2007 to register 3,333,333shares of common stock, underlying the convertible notes, issuable to YAGlobal, and such registration statement became effective on November 1,2007.  The Company is required toregister an additional 891,667 shares of common stock issuable to YA Global.However, YA Global has amended its Registration Rights Agreement deferring itsright 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.

 

The convertible notes and warrants issued to YA Global are subject to amaximum cap of 30,500,000 on the number of shares of common stock that can beissued upon the conversion of the convertible notes and the exercise of thewarrants.

 

The convertible notes and warrants issued to Stanford are subject to amaximum cap of 31,888,888 on the number of shares of common stock that can beissued upon the conversion of the convertible notes and the exercise of thewarrants.

 

Currently, atthe fixed conversion price, the number of shares of common stock issuable uponconversion of the remaining $9,500,000 of convertible notes outstanding andshares of common stock to be issued upon exercise of the warrants outstandingat September 30, 2008 represents, in the aggregate, 24,438,888 shares,plus an estimated additional 1,400,000 shares for the payment of interest instock under the convertible notes.

 

As of September 30,2008, the outstanding balance of the Convertible Notes were $190, which iscomprised of notes with an aggregate face amount of $9,500,000 less unamortizeddebt discount of $9,499,810.  Debtdiscount associated with the Convertible Notes is amortized to interestexpense, using the effective yield method, over the remaining life of theConvertible Notes.  Upon conversion ofthe Convertible Notes into Common Stock, any unamortized debt discount relatingto the portion converted will be charged to interest.  Total charges to interest for amortization ofdebt discount were $133 for the three month period ended September 30,2008.

 

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The costs associated with the issuances in the amount of $1,291,427have been recorded as deferred financing costs and are being amortized ratablyover the term of the convertible notes. The balance of deferred financing costs as of September 30, 2008amounted to $953,308.

 

**Note 8 – IncomeTaxes:**

** **

No provision for income taxes has been madein the three month periods ended September 30, 2008 and 2007 given theCompany’s losses in 2008 and 2007 and available net operating loss carryforwards.  A benefit has not been recorded as therealization of the net operating losses is not assured and the timing in whichthe Company can utilize its net operating loss carryforwards in any year or intotal may be limited by provisions of the Internal Revenue Code regardingchanges in ownership of corporations.

 

**Note 9 – Effects ofNew Accounting Pronouncements Applicable to the Company**

** **

*EITFIssue No. 07-1 – Accounting for Collaborative Arrangements*

* *

Thispronouncement defines a collaborative arrangement as a contractual arrangementthat involves a joint operating activity that involves two or more parties whoare both active participants in the activity and exposed to significant risksand rewards dependent on the commercial success of the activity.  The pronouncement also defines how the costsincurred and revenues generated from transactions with third parties should berecorded and presented in each entity’s income statement.  This pronouncement is effective for financialstatements issued for fiscal years beginning after December 15, 2008, andinterim periods within those fiscal years, and shall be applied retrospectivelyto all prior periods presented for all collaborative arrangements existing asof the effective date.  The Company doesnot believe that this pronouncement will have any material effect on itsfinancial statements.

 

*EITFIssue No. 07-3 – Accounting for Nonrefundable Advance Payments for Goodsor Services Received for 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. This pronouncement has not had a material effect on the Company’sfinancial statements.

 

*SFAS No. 157– Fair Value Measurements*

* *

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements”(“SFAS No. 157”). SFAS No. 157 defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair value measurements.SFAS No. 157 applies under other accounting standards that require orpermit fair value measurements. Accordingly, SFAS No. 157 does not require any new fair valuemeasurement. SFAS No. 157 emphasizes that fair value is a market-basedmeasurement that 

 

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should be determined based on the assumptions that market participantswould use in pricing an asset or liability. Companies will be required todisclose the extent to which fair value is used to measure assets andliabilities, the inputs used to develop the measurements and the effect ofcertain of the measurements on earnings (or changes in net assets) for theperiod. SFAS No. 157 is effective for financial statements issued forfiscal years beginning after November 15, 2007, and interim periods withinthose fiscal years. Thispronouncement has not had a material effect on the Companys financialstatements.

 

*SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115*

* *

In February 2007, the FASB issued SFAS No. 159, “The FairValue Option for Financial Assets and Financial Liabilities—Including anAmendment of FASB Statement No. 115” (“SFAS No. 159”).  SFAS No. 159 permits entities to chooseto measure many financial instruments and certain other items at fair valuethat are not currently required to be measured at fair value.  SFAS No. 159 is effective for fiscalyears beginning after November 15, 2007. Thispronouncement has not had a material effect on the Company’s financialstatements.

 

*EITFIssue No. 07-5 – Determining Whether an Instrument (or Embedded Feature)is Indexed to an Entity’s Own Stock.*

* *

In June 2008,the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument(or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF07-5 provides guidance on how to determine if certain instruments or embeddedfeatures are considered indexed to our own stock, including instruments similarto our convertible notes and warrants to purchase our stock. EITF 07-5 requirescompanies to use a two-step approach to evaluate an instrument’s contingentexercise provisions and settlement provisions in determining whether theinstrument is considered to be indexed to its own stock and exempt from theapplication of SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities”. Although EITF 07-5 is effective for fiscal years beginningafter December 15, 2008, any outstanding instrument at the date ofadoption will require a retrospective application of the accounting through acumulative effect adjustment to retained earnings upon adoption. The Company iscurrently evaluating the impact that adoption of EITF 07-5 will have on itsconsolidated financial statements.

 

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

 

The following discussion andanalysis should be read in conjunction with our condensed consolidatedfinancial statements and the related notes thereto included in this QuarterlyReport on Form 10-Q.  The discussionand analysis may contain forward-looking statements that are based upon currentexpectations and entail various risks and uncertainties.  Our actual results and the timing of eventscould differ materially from those anticipated in the forward-lookingstatements as a result of various factors, including those set forth under “FactorsThat May Affect Our Business, Future Operating Results and FinancialCondition” and elsewhere in this report.

 

**Overview**

 

*Our Business*

* *

The primary business of SenescoTechnologies, Inc., a Delaware corporation incorporated in 1999, and itswholly-owned subsidiary, Senesco, Inc., a New Jersey corporationincorporated in 1998, collectively referred to as “Senesco,” “we,” “us” or “our,”is to utilize our patented and patent-pending genes, primarily eucaryotictranslation initiation Factor 5A, or Factor 5A, and deoxyhypusine synthase, orDHS, and related technologies for their inhibition in human health applicationsto develop novel approaches to treat inflammatory diseases and cancer.

 

In agricultural applications weare developing and licensing Factor 5A, DHS and Lipase to enhance the qualityand productivity of fruits, flowers, and vegetables and agronomic crops throughthe control of cell death, referred to herein as senescence, and growth inplants.

 

*Human HealthApplications*

* *

We believethat our gene technology could have broad applicability in the human healthfield, by either inhibiting or inducing apoptosis.  Inhibiting apoptosis may be useful inpreventing or treating a wide range of inflammatory and ischemic diseasesattributed to premature apoptosis. Inducing apoptosis may be useful in treatingcertain forms of cancer because the cancerous cells have failed to initiateapoptosis on their own due to damaged or inhibited apoptotic pathways.

 

We havecommenced preclinical *in-vivo* and*in-vitro* research to determinethe ability of Factor 5A to regulate key execution genes, pro-inflammatorycytokines, receptors, and transcription factors, which are implicated innumerous apoptotic diseases.

 

Certain preclinical humanhealth results to date include:

 

·                  demonstrated significant tumorregression and diminished rate of tumor growth of multiple myeloma tumors inSCID mice treated with Factor 5A technology encapsulated in nanoparticles;

 

·                  increased median survival byapproximately 250% in a tumor model of mice injected with melanoma cancercells;

 

·                  induced apoptosis in both humancancer cell lines derived from tumors and in lung tumors in mice;

 

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·                  induced apoptosis of cancer cells ina human multiple myeloma cell line;

 

·                  measured VEGF reduction in mouse lungtumors as a result of treatment with our genes;

 

·                  decreased ICAM and activation of NFKBin cancer cells employing siRNA against Factor 5A;

 

·                  reduced HIV-1 replication byapproximately 50 percent as evidenced by an equal decrease in HIV replicationmarkers p24 and IL-8 in an HIV-1 infected human cell line;

 

·                  increasedthe survival, while maintaining functionality, of mouse pancreatic islet cellsisolated for transplantation, using intraperitaneal administration of ourtechnology.  Initial animal studies haveshown that our technology administered prior to harvesting beta islet cellsfrom a mouse, has a significant impact not only on the survival of the betaislet cells, but also on the retention of the cells’ functionality whencompared to the untreated beta islet cells. Additional studies have shown that the treated beta islet cells survivea pro-inflammatory cytokine challenge, while maintaining their functionalitywith respect to insulin production. These further studies also revealed eIF-5A’s involvement in themodulation of inducible nitric oxide synthase (iNOS), an important indicator ofinflammation;

 

·                  demonstrated that the efficacy of ourtechnology is comparable to that of existing approved anti-inflammatoryprescription drugs in reducing certain inflammatory cytokines in mice; and

 

·                  increased the survival rate of micein a lethal challenge sepsis model. Additionally, a broad spectrum of systemic pro-inflammatory cytokineswere down-regulated, while not effecting the anti-inflammatory cytokine IL-10.

 

Accelerating Apoptosis

 

The data fromour pre-clinical studies indicate that the up-regulation of Factor 5A inducescell death in cancer cells through both the p53 (intrinsic) and cell deathreceptor (extrinsic) apoptotic pathways. Tumors arise when abnormal cells failto undergo apoptosis due to an inability to activate their apoptotic pathways.Just as the Factor 5A gene appears to facilitate expression of the entire suiteof genes required for programmed cell death in plants, the Factor 5A geneappears to regulate expression of a suite of genes required for programmed celldeath in human cells. Because the Factor 5A gene appears to function at theinitiation point of the apoptotic pathways, both intrinsic and extrinsic, webelieve that our gene technology has potential application as a means ofcombating a broad range of cancers. Based on the results obtained through our *in-vitro*studies, we have found that up-regulating Factor 5A results in: (i) theup-regulation of p53; (ii) increased inflammatory cytokine production; (iii) increasedcell death receptor formation; and (iv) increased caspase activity.  These features, coupled with a simultaneousdown-regulation Bcl-2, result in apoptosis of cancer cells.  In addition, our *in-vitro*studies have shown that the up-regulation of Factor 5A also down-regulatesVEGF, a growth factor which allows tumors to develop additional vascularizationneeded for growth beyond a small mass of cells.

 

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Inhibiting Apoptosis

 

Our preclinical studies indicate that down-regulation of ourproprietary Factor 5A gene may have potential application as a means forcontrolling the effects of a broad range of diseases that are attributable topremature cell death, ischemia, or inflammation. Such inflammatory diseasesinclude glaucoma, heart disease, and certain inflammatory diseases such asCrohn’s disease, 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, the results of our studies haveindicated a reduction in pro-inflammatory cytokine formation and the formationof receptors for liposolysaccharide, or LPS, interferon-gamma and TNF-alpha.  Our studies have also indicated that byinhibiting Factor 5A iNOS, MAPK, NFkB, JAK1 and ICAM are downregulated, whichdecreases the inflammatory cytokines formed through these pathways.Additionally, a mouse study has indicated that our siRNA is comparable to asteroid and to a prescription anti-TNF drug in its ability to reduce cytokineresponse to LPS.  Other mouse studies have also indicated that the siRNA againstFactor 5A (i) protects thymocyte cells from apoptosis and decreasesformation of myeloperoxidase, or MPO, TNF-a, MIP-1alpha, and IL-1 in the lungsof mice challenged with LPS and (ii) increases the survival rate in whichsepsis was induced by a lethal injection of LPS and reduced blood serum levelsof inflammatory proteins, such as IL-1, IL-2, IL-6, IL-12, TNF-a, IFNg andMIP-1alpha, while not effecting IL-10, an anti-inflammatory cytokine.  Other experiments utilizing siRNA to Factor5A include inhibition of or apoptosis during the processing of mouse pancreaticbeta islet cells for transplantation, the inhibition of early inflammatorychanges associated with type-1 diabetes in an in-vivo rat model and theinhibition of viral replication in a human cell line infected with HIV-1.

 

Proteins required for cell death include p53,interleukins, TNF-a and other cytokines and caspases.  Expression of these cell death proteins isrequired for the execution of apoptosis. Based on our studies, we believe that downregulating Factor 5A bytreatment with siRNA inhibits the expression of p53, a major cell deathtranscription factor that in turn controls the formation of a suite of othercell death proteins.  In addition, webelieve that the down-regulation of Factor 5A up-regulates Bcl-2, a suppressorof apoptosis.

 

*Human Health Target Markets*

* *

We believe thatour gene technology could have broad applicability in the human health field,by either inhibiting or accelerating apoptosis. Inhibiting apoptosis may be useful in preventing or treating a widerange of inflammatory and ischemic diseases attributed to premature apoptosis,including diabetes, diabetic retinopathy and lung inflammation, amongothers.  Accelerating apoptosis may beuseful in treating certain forms of cancer because the body’s immune system isnot able to force cancerous cells to undergo apoptosis.

 

Our preclinical research hasyielded data that we have presented to various biopharmaceutical companies thatmay be prospective licensees for the development and 

 

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marketing of potentialapplications of our technology. Additionally, we plan on using the proceeds of our recent financing toadvance our research in multiple myeloma with the goal of initiating a Phase Iclinical trial, and may select additional human health indications, to bringinto clinical trials on our own. We believe that the success of our futureoperations will likely depend on our ability to transform our research anddevelopment activities into a commercially feasible technology.

 

*Human Health Research Program*

* *

Our human health research program, which has consisted of pre-clinical *in-vitro* and *in-vivo*experiments designed to assess the role and method of action of the Factor 5Agenes in human diseases, is being performed by approximately thirteen (13)third party researchers, at our direction, at Mayo Clinic, the University ofVirginia, and the University of Waterloo.

 

Our researchand development expenses incurred on human health applications wereapproximately 66% and 49% of our total research and development expenses forthe three months ended September 30, 2008 and 2007, respectively.  Since inception, the proportion of ourresearch and development expenses on human health applications has increased,as compared to our research and development expenses on agriculturalapplications.  This change is primarilydue to the fact that our research focus on human health has increased and someof our research costs for plant applications have shifted to our licensepartners.

 

Our plannedfuture pre-clinical research and development initiatives for human healthinclude:

 

·                  MultipleMyeloma.  Our objective is to advance ourtechnology for the potential treatment of multiple myeloma with the goal ofinitiating a clinical trial.  Inconnection with the potential clinical trial, we have engaged a clinicalresearch organization, or CRO, to assist us through the process.  We have also determined the delivery systemfor our technology, contracted for the supply of pharmaceutical grade materialsto be used in toxicology and human studies and have contracted with a thirdparty laboratory to conduct toxicoly studies, Together with the assistance ofour CRO, we will have the toxicology studies performed with the goal of filingan investigational new drug application, or IND application, with the U.S. Foodand Drug Administration, or FDA, for their review and consideration in order toinitiate a clinical trial.  We estimatethat it will take less than twelve (12) months from September 30, 2008 tocomplete these objectives.

·                  LungInflammation.  The objective of ourplanned future lung inflammation experiments is to optimize the delivery anddose of the siRNA to Factor 5A to the lungs. A mouse model system is currently being conducted to illustrate thesiRNA to Factor 5A’s ability to reduce morbidity and mortality of lunginflammation, caused by the up-regulation of pro-inflammatory cytokines inducedby a pathogen.

·                  Beta-IsletCells.             We are currentlyreviewing the direction of our future research in beta-islet cell protectionutilizing siRNA against Factor 5A.

·                  Other.  We may continue to look at other diseasestates in order to determine the role of Factor 5A.

 

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In order topursue the above research initiatives, as well as other research initiativesthat may arise, we completed private placements of $10 million of convertiblenotes and warrants in fiscal 2008. However, it may be necessary for us to raise a significant amount ofadditional working capital in the future to continue to pursue some of theabove and new initiatives.  If we areunable to raise the necessary funds, we may be required to significantlycurtail the future development of some of our research initiatives and we willbe unable to pursue other possible research initiatives.

 

We may furtherexpand our research and development program beyond the initiatives listed aboveto include other research centers.

 

*HumanHealth Competition*

* *

Our competitors in humanhealth that are presently attempting to distribute their technology havegenerally utilized one of the following distribution channels:

 

·                  Entering into strategic alliances, includinglicensing technology to major marketing and distribution partners; or

 

·                  developing in-house production and marketingcapabilities.

 

In addition, somecompetitors are established distribution companies, which alleviates the needfor strategic alliances, while others are attempting to create their owndistribution and marketing channels.

 

There are manylarge companies and development stage companies working in the field ofapoptosis research including: Amgen; Centocor; Genzyme; OSI Pharmaceuticals, Inc.;Novartis; Introgen Therapeutics, Inc.; Genta, Inc.; and VertexPharmaceuticals, Inc., amongst others.

 

*AgriculturalApplications*

* *

Our agricultural researchfocuses on the discovery and development of certain gene technologies, whichare designed to confer positive traits on fruits, flowers, vegetables, forestryspecies and agronomic crops.  To date, wehave isolated and characterized the senescence-induced Lipase gene, DHS, andFactor 5A in certain species of plants. Our goal is to modulate the expressionof these genes in order to achieve such traits as extended shelf life,increased biomass, increased yield and increased resistance to environmentalstresses and disease, thereby demonstrating proof of concept in each categoryof crop.

 

Certainagricultural results to date include:

 

·                  longer shelf life of perishableproduce;

 

·                  increased biomass and seed yield;

 

·                  greater tolerance to environmentalstresses, such as drought and soil salinity;

 

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·                  greater tolerance to certain fungaland bacterial pathogens;

 

·                  more efficient use of fertilizer; and

 

·                  advancement to field trials inbanana, lettuce, and trees.

 

The technology presentlyutilized by the industry for increasing the shelf life in certain flowers,fruits and vegetables relies primarily on reducing ethylene biosynthesis, andtherefore only has application to the crops that are ethylene-sensitive.  Because Factor 5A, DHS and Lipase are alreadypresent in all plant cells, our technology may be incorporated into crops byusing either conventional breeding methods (non-genetically modified) orbiotechnology techniques.

 

We have licensed thistechnology to various strategic partners and have entered into a joint venture.We may continue to license this technology, as the opportunities presentthemselves, to additional strategic partners and/or enter into additional jointventures.  Our commercial partners havelicensed our technology for use in lettuce, turfgrass, canola, corn, soybean,cotton, banana, alfalfa, rice and certain species of trees and bedding plants,and we have obtained proof of concept for enhanced post harvest shelf life,seed yield, biomass, and resistance to disease in several of these plantspecies.

 

We have ongoing field trials ofcertain trees and bananas with our respective partners.  The initial field trials conducted withArborGen over a three year period in certain species of trees have concludedand the trees have been harvested for wood quality assessment.  Preliminary data from our joint field trialsshow significantly enhanced growth rates in some of the trees relative tocontrols.  Additional field trials forenhanced growth rates and other traits are currently being performed withArborGen.

 

To date, banana field trialshave indicated that our technology extends the shelf life of banana fruit by100%.  In addition to the post harvestshelf life benefits, an additional field trial generated encouraging diseasetolerance data specific to Black Sigatoka (Black Leaf Streak Disease), forbanana plants. Additional field trials for banana plants are ongoing for thecombined traits of disease tolerance and shelf life extension.

 

Commercialization by ourpartners may require a combination of traits in a crop, such as both postharvest shelf life and disease resistance, or other traits.  Our near-term research and developmentinitiatives include modulating the expression of DHS and Factor 5A genes inthese plants and then propagation and phenotype testing of such plants.

 

Our ongoing research anddevelopment initiatives for agriculture include assisting our license and jointventure partners to:

 

·                  further develop and implement the DHSand Factor 5A gene technology in lettuce, melon, banana, canola, cotton,turfgrass, bedding plants, rice, alfalfa, corn, soybean and trees; and

 

·                  test the resultant crops for newbeneficial traits such as increased yield, increased tolerance to environmentalstress, disease resistance and more efficient use of 

 

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fertilizer.

 

*Agricultural Target Markets*

* *

In order toaddress the complexities associated with marketing and distribution in theworldwide market, we have adopted a multi-faceted commercialization strategy,in which we have entered into and plan to enter into, as the opportunitiespresent themselves, additional licensing agreements or other strategicrelationships with a variety of companies or other entities on a crop-by-cropbasis.  Weanticipate revenues from these relationships in the form of licensing fees,royalties,, usage fees, or the sharing of gross profits.  In addition, we anticipate payments fromcertain of our partners, which are described in the *AgriculturalDevelopment and License Agreements* section of this Form 10-Q, uponour achievement of certain research and development benchmarks.  This commercialization strategy allows us togenerate revenue at various stages of product development, while ensuring thatour technology is incorporated into a wide variety of crops.  Our optimal partners combine the technologicalexpertise to incorporate our technology into their product line along with theability to successfully market the enhanced final product, thereby eliminatingthe need for us to develop and maintain a sales force.

 

Because the agriculturalmarket is dominated by privately held companies or subsidiaries of foreignowned companies, market size and market share data for the crops under ourlicense and development agreements is not readily available.  Additionally, because we have entered intoconfidentiality agreements with our license and development partners, we areunable to report the specific financial terms of the agreements as well as anymarket size and market share data that our partners may have disclosed to usregarding their companies.

 

*AgriculturalDevelopment and License Agreements*

* *

Through October 31, 2008, we have entered into nine (9) licenseagreements and one joint collaboration with established agriculturalbiotechnology companies or, in the case of Poet, as more fully described below,an established ethanol company, as follows:

 

·                  In November 2001, weentered into a worldwide exclusive development and license agreement with theHarris Moran Seed Company, referred to herein as the Harris Moran License, tocommercialize our technology in lettuce and certain melons for an indefinite term,unless terminated by either party pursuant to the terms of the agreement.  To date, the development steps performed byHarris Moran and us have all been completed in accordance with the protocol setforth in the Harris Moran License.  Therehas been extensive characterization of our genes in lettuce in a laboratorysetting. The initial lab work has produced genetically modified seed undergreenhouse containment, which has been followed by substantial field trials forevaluation.  These field trials representa vital step in the process necessary to develop a commercial product. Togetherwith Harris Moran, we will evaluate all results to date to determine thedirection of further research necessary for our work in lettuce and melon.** **Underthe Harris Moran License, we have received an upfront payment and we mayreceive benchmark payments upon achievement of certain research and marketingmilestones.

 

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·                  In June 2002,we entered into a three-year worldwide exclusive development and optionagreement with ArborGen, LLC to develop our technology in certain species oftrees.  In June 2006, ArborGenexercised their option to license our technology and in December 2006,converted the development and option agreement into a license agreement,referred to herein as the ArborGen Agreement. To date, the research being conducted by ArborGen has proceededaccording to schedule.  ArborGen has seenpromising positive growth responses in greenhouse-grown seedlings.  These initial greenhouse data led to theinitiation of field trials by ArborGen in the second half of calendar2004.  At the end of the 2005 growingseason, certain trees which were enhanced by our technology had approximatelydouble the increase in volume relative to control trees.  Further field trials are ongoing to supportthese data and to analyze the growth rates of trees which incorporate ourtechnology. Under the ArborGen Agreement, we have received an upfront paymentand benchmark payments and we may receive additional benchmark payments uponachievement of certain development milestones and royalties uponcommercialization.

 

·                  In September 2002,we entered into an exclusive development and license agreement with Cal/WestSeeds, referred to herein as the Cal/West License, to commercialize ourtechnology in certain varieties of alfalfa. The Cal/West License will continue until the expiration of the patentsset forth in the agreement, unless terminated earlier by either party pursuantto the terms of the agreement.  TheCal/West License also grants Cal/West an exclusive option to develop ourtechnology in various other forage crops. The Cal/West development effort successfully incorporated our technologyinto their alfalfa seed as of July 2004. Seed transformation and greenhouse trait analysis is ongoing.  Under the Cal/West License, we have receivedan upfront payment and we may receive benchmark payments as certain developmentmilestones are achieved and a royalty upon commercialization based upon thevolume of alfalfa seed sold that contains our technology.

 

·                  In March 2004,we entered into an exclusive development and license agreement with The ScottsCompany, referred to herein as the Scotts Agreement, to commercialize ourtechnology in turfgrass and certain species of bedding plants.  Scotts is working on incorporating ourtechnology to enhance a variety of traits in these plants, includingenvironmental stress resistance, disease resistance and enhanced bloomproperties.  We are collaborating withScotts in the areas of ornamental bedding plants and turfgrass.  A large-scale greenhouse evaluation ofbedding plants was being conducted and additional greenhouse testing isplanned.  Transformation and initialtissue culture screening of events have been undertaken in turfgrass.  In tissue culture, turfgrass containing ourtechnology has grown more successfully than control turfgrass without ourtechnology.  Greenhouse testing of thegrass containing our technology is the next planned development step. Under theScotts Agreement, we have received an upfront payment and benchmark payments.  In January 2006, the development andlicense agreement with The Scotts Company was amended. Due to a change in thecorporate financial policy at 

 

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Scotts,Scotts requested to defer certain milestone payments, which were to be made ona calendar basis.  We agreed and thesepayments have now been deferred and incorporated in the amount to be paid to usupon commercialization.  Additionally,the commercialization fee has been increased. All other aspects of the agreement remain unchanged, and the projectcontinues to move forward without interruption. We may also receive royaltiesupon commercialization from the net sales of turfgrass seed and bedding plantscontaining our technology.

 

·                  In October 2005,we entered into an agreement with Poet to license our proprietary genetechnology to Poet to improve aspects of Poet’s ethanol productioncapabilities.  We are currently revisingour work plan to incorporate our technology into those aspects of Poet’sethanol production.  We will receive anannual payment for each Poet facility that incorporates our technology.  If Poet incorporates our technology into eachof its facilities, we would be entitled to receive an annual payment in excessof $1,000,000.

 

·                  On November 8, 2006, we entered into a licenseagreement with Bayer CropScience GmbH for the development and commercializationof Canola.  Under the terms of theagreement, we received an upfront payment, will receive milestone payments uponthe achievement of certain development milestones and will receive****commercialization fees based uponspecified benchmarks.  In August, 2008,Bayer CropScience GmbH successfully completed the first developmentmilestone related to this license.

 

·                  On July 17,2007 we entered into a license agreement with Bayer CropScience AG for thedevelopment and commercialization of cotton. Under the terms of the agreement, we received an upfront payment, willreceive milestone payments upon the achievement of certain development milestones,and additionally, upon commercialization, and a royalty on net sales.

 

·                  On August 6, 2007 we entered into a licenseagreement with Monsanto for the development and commercialization of corn andsoy.  Under the terms of the agreement,we received an upfront payment, will receive milestone payments upon theachievement of certain development milestones, and additionally, uponcommercialization, and a royalty on net sales.

 

·                  On September 11, 2007 we entered into a licenseagreement with Bayer CropScience AG for the development and commercializationof rice.  Under the terms of theagreement, we received an upfront payment, will receive milestone payments uponthe achievement of certain development milestones, and additionally, uponcommercialization, and a royalty on net sales.

 

*Joint Venture*

 

On May 14, 1999, weentered into a agreement with Rahan Meristem Ltd., or Rahan Meristem, anIsraeli company engaged in the worldwide export marketing of banana germplasm,referred to herein as the Rahan Joint Venture**. **In general, bananas are growneither for local domestic consumption or grown for export.  According to the Food and AgricultureOrganization of the United Nations, there were approximately 16 million metrictons of bananas exported in 2004.  Thelevel of production equates to the fruit of approximately 480 million bananaplants.  

 

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A percentageof these plants are replaced each year with new banana seedlings.** **RahanMeristem accounts for approximately 10% of the worldwide export of enhancedbanana seedlings.

 

We have contributed, by way ofa limited, exclusive, worldwide license to the Rahan Joint Venture, access toour technology, discoveries, inventions and know-how, whether patentable orotherwise, pertaining to plant genes and their cognate expressed proteins thatare induced during senescence for the purpose of developing, on a joint basis,genetically enhanced banana plants which will result in a banana that has alonger shelf life.  Rahan Meristem hascontributed its technology, inventions and know-how with respect to bananaplants.  Rahan Meristem and Senesco haveequally shared the expense of field trials.

 

All aspects of the Rahan JointVenture’s research and development initiative are proceeding on time**. **Boththe DHS and lipase genes have been identified and isolated in banana, and theRahan Joint Venture is currently in the process of silencing these genes.  Two Israeli field trials indicated thatSenesco’s proprietary technology extends the shelf life of the banana fruit upto 100%, while allowing the banana fruit to ripen normally.  Later field trials have indicated what webelieve are promising disease tolerance results and we are currently performingadditional field trials to further assess disease tolerance.  However, as the banana modified with ourtechnology may be considered a genetically modified organism, or GMO, shelflife extension may have to be combined with disease tolerance to gainacceptance by the growers.

 

*AgriculturalResearch Program*

* *

Our agricultural research anddevelopment is performed by three (3) researchers, at our direction, atthe University of Waterloo, where the technology was developed.  Additional agricultural research anddevelopment is performed by our partners in connection with the Harris MoranLicense, the Scotts Agreement, the ArborGen License, the Cal/West License, theBayer Licenses, the Monsanto License and through the Rahan Joint Venture.

 

The discoverer of ourtechnology, John E. Thompson, Ph.D., is the Associate Vice President, Researchand former Dean of Science at the University of Waterloo in Ontario, Canada,and is our Executive Vice President and Chief Scientific Officer.  Dr. Thompson is also one of ourdirectors and owns 3.1% of theoutstanding shares of our common stock as of September 30, 2008.  On September 1, 1998, we entered into, and have extended through August 31,2009, a research and development agreement with the University ofWaterloo and Dr. Thompson as the principal inventor.  The Research and Development Agreementprovides that the University of Waterloo will perform research and developmentunder our direction, and we will pay for the cost of this work and make certainpayments to the University of Waterloo. In return for payments made under the Research and DevelopmentAgreements, we have all rights to the intellectual property derived from theresearch.

 

## *Agricultural Competition*

## * *

Our competitors in bothhuman health and agriculture that are presently attempting to distribute theirtechnology have generally utilized one of the following distribution channels:

 

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·                  licensing technology to major marketing anddistribution partners;

 

·                  entering into strategic alliances; or

 

·                  developing in-house production and marketingcapabilities.

 

In addition, somecompetitors are established distribution companies, which alleviates the need forstrategic alliances, while others are attempting to create their owndistribution and marketing channels.

 

Ourcompetitors in the field of delaying plant senescence are companies thatdevelop and produce transformed plants with a variety of enhanced traits.  Such companies include: Icora (formerlyParadigm Genetics); Mendel Biotechnology; Renessen LLC; Exelixis Plant Sciences, Inc.;Syngenta International AG; and Eden Bioscience, among others.

 

*AgriculturalDevelopment Program*

* *

Generally,projects with our licensee’s and joint venture partner begin by transformingseed or germplasm to incorporate our technology.  Those seeds or germplasm are then grown inour partners’ greenhouses.  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.

 

Generally, the approximatetime to complete each sequential development step is as follows:

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

 

The actual amount of timespent on each development phase depends on the crop, its growth cycle and thesuccess 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.

 

The development of ourtechnology with Poet is different than our other licenses in that we aremodifying 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.

 

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The status of each of ourprojects with our partners is as follows:

 
| **Project**                      | ** ** | **Partner**        | ** ** | **Status**                         |
|----------------------------------|------------|--------------------|------------|------------------------------------|
|                             |       |               |       |                               |
| Banana                           |       | Rahan Meristem     |       |                               |
|   - Shelf Life         |       |               |       | Field trials                       |
|   - Disease Resistance |       |               |       | 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           |       | Recently initiated                 |
| Cotton                           |       | Bayer              |       | Recently initiated                 |
| Canola                           |       | Bayer              |       | Seed transformation                |
| Rice                             |       | Bayer              |       | Recently initiated                 |
| Soybean                          |       | Monsanto           |       | Recently initiated                 |
| Turfgrass                        |       | The Scotts Company |       | Greenhouse                         |
| Bedding Plants                   |       | The Scotts Company |       | Greenhouse                         |
| Ethanol                          |       | Poet               |       | Modify inputs                      |

 

Commercializationby our partners may require a combination of traits in a crop, such as bothshelf life and disease resistance, or other traits.

 

Based upon ourcommercialization strategy, we anticipate that there may be a significantperiod of time before plants enhanced using our technology reachconsumers.  Thus, we have not begun toactively market our technology directly to consumers, but rather, we havesought to establish ourselves within the industry through presentations atindustry conferences, our website and direct communication with prospectivelicensees.

 

Consistentwith our commercialization strategy, we intend to attract other companiesinterested in strategic partnerships or licensing our technology, which mayresult in additional license fees, revenues from contract research and otherrelated revenues.  Successful futureoperations will depend on our ability to transform our research and developmentactivities into a commercially feasible technology.

 

*Intellectual Property*

* *

## We have nineteen (19) issuedpatents from the United States Patent and Trademark Office, or PTO, andtwenty-three (23) issued patents from foreign countries, thirty-one (31) of 

 

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## which are for the use of our technology inagricultural applications and eleven (11) of which relate to human healthapplications.

##  

In addition toour forty-two (42) patents, we have a wide variety of patent applications,including divisional applications and continuations-in-part, in process withthe PTO and internationally.  We intendto continue our strategy of enhancing these new patent applications through theaddition of data as it is collected.

 

*Government Regulation*

 

At present, the U.S. federalgovernment regulation of biotechnology is divided among three agencies: (i) theU.S. Department of Agriculture regulates the import, field-testing andinterstate movement of specific types of genetic engineering that may be usedin the creation of transformed plants; (ii) the Environmental ProtectionAgency regulates activity related to the invention of plant pesticides andherbicides, which may include certain kinds of transformed plants; and (iii) theFDA regulates foods derived from new plant varieties.  The FDA requires that transformed plants meetthe same standards for safety that are required for all other plants and foodsin general.  Except in the case ofadditives that significantly alter a food’s structure, the FDA does not requireany additional standards or specific approval for genetically engineered foodsbut expects transformed plant developers to consult the FDA before introducinga new food into the market place.

 

In addition, our ongoingpreclinical research with cell lines and lab animal models of human disease isnot currently subject to the FDA requirements that govern clinical trials.  However, use of our technology, if developedfor human health applications, will also be subject to FDA regulation.  Generally, the FDA must approve any drug orbiologic product 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 health technologymust 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 currentactivities, which to date have been confined to research and developmentefforts, do not require licensing or approval by any governmental regulatoryagency. However, we, or our licensees, may be required to obtain such licensingor approval from governmental regulatory agencies prior to thecommercialization of our genetically transformed plants and the application ofour human health technology.

 

*Patent and PatentApplications*

* *

To date, we have been granted nineteen patents by the United StatesPatent and Trademark Office, or PTO, and twenty-three patents from foreigncountries, thirty-four of which are for use of our technology in agriculturalapplications and eight of which relates to human health applications.

 

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In additionto our thirty-six patents, we have a wide variety of patent applications,including divisional applications and continuations-in-part, in process withthe PTO and internationally.  We intendto continue our strategy of enhancing these new patent applications through theaddition of data as it is collected.

 

**Liquidity and CapitalResources**

** **

*Overview*

* *

As of September 30, 2008, our cash balance and investments, whichconsisted of money market funds and U.S. treasury bills, totaled $4,907,202**,** and we had working capital of$4,804,634.  As of September 30,2008, we had a federal tax loss carryforward of approximately $19,950,000 and astate tax loss carry-forward of approximately $12,588,000 to offset futuretaxable income. We cannot assure you that we will be able to take advantage ofany or all of such tax loss carryforwards, if at all, in future fiscal years.

 

*ContractualObligations*

* *

The followingtable lists our cash contractual obligations as of September 30, 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)                             |       | $                                         | 2,598,620  |   | $ | 2,598,620 |   | $ | — |   | $ | — |   | $ | — |   |
| Facility, Rent and Operating  Leases (2)                             |       | $                                         | 211,888    |   | $ | 78,736 |   | $ | 133,152 |   | $ | — |   | $ | — |   |
| Employment, Consulting and  Scientific Advisory Board Agreements (3) |       | $                                         | 726,730    |   | $ | 695,317 |   | $ | 31,413 |   | $ | — |   | $ | — |   |
| Total Contractual Cash  Obligations                                  |       | $                                         | 3,537,238  |   | $ | 3,372,673 |   | $ | 164,565 |   | $ | — |   | $ | — |   |

 

----

| (1)    |   | Certain of our research and development agreements disclosed herein  provide that payment is to be made in Canadian dollars and, therefore, the  contractual obligations are subject to fluctuations in the exchange rate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                       |
| (2)    |   | The lease for our office space in New Brunswick, New Jersey is  subject to certain escalations for our proportionate share of increases in  the building’s operating costs.                                           |
|   |   |                                                                                                                                                                                                                       |
| (3)    |   | Certain of our employment and consulting agreements provide for  automatic renewal, which is not reflected in the table, unless terminated  earlier by the parties to the respective agreements.                           |

 

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We expect ourcapital requirements to increase significantly over the next several years aswe 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.

 

Effective September 1,2008, we extended our research and development agreement with the University ofWaterloo for an additional one-year period through August 31, 2009, in theamount of CAD $735,000 or approximately USD $700,000. Research and developmentexpenses under this agreement aggregated $169,518 for the three month periodended September 30, 2008 and USD $192,256 for the three month period endedSeptember 30, 2007 and USD $4,796,782 for the cumulative period frominception through September 30, 2008.

 

*Capital Resources*

 

Sinceinception, we have generated revenues of $1,375,000 in connection with theinitial fees and milestone payments received under our license and developmentagreements.  We have not been profitablesince inception, we will continue to incur additional operating losses in thefuture, and we will require additional financing to continue the developmentand 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.

 

We anticipate that, based upon our current cash and investments, as of September 30,2008 we will be able to fund our operations for the next ten (10) months.Over the next twelve 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 possible execution of additionallicensing agreements for our technology; and

·                  through the placement of equity or debt instruments.

 

We cannot assure you that we will be able to raise money through any ofthe foregoing transactions, or on favorable terms, if at all.

 

**Changes to CriticalAccounting Policies and Estimates**

** **

There havebeen no changes to our critical accounting policies and estimates as set forthin our Annual Report on Form 10-K for the fiscal year ended June 30,2008.

 

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**Resultsof Operations**

** **

Three Months Ended September 30,2008 and Three Months Ended September 30,2007

 

The net loss for the three-month period ended September 30, 2008was $1,181,406.  The net loss for thethree-month period ended September 30, 2007 was $382,046.  Such a change represents an increase in netloss of $799,360**,**or 209.2%.  This increase in net loss was primarily theresult of an increase in non-cash expenses associated with the outstandingconvertible notes that were issued during the year ended June 30, 2008, anincrease in operating expenses and a decrease in revenue.

** **

*Revenue*

* *

Total revenues of $200,000 for thethree-month period ended September 30, 2008 consisted of milestonepayments in connection with certain agricultural license agreements.  Total revenues of $371,250 for thethree-month period ended September 30, 2007 consisted of the initialpayments and the amortized portion of previous milestone payments received inconnection with certain agricultural license agreements.

 

We anticipate that we will continue toreceive milestone payments in connection with our current agriculturaldevelopment and license agreements while we continue to pursue our goal ofattracting other companies to license our technologies in various othercrops.  Additionally, we anticipate thatwe will receive royalty payments from our license agreements when our partnerscommercialize their crops containing our technology.  However, it is difficult for us to determineour future revenue expectations because we are a development stagebiotechnology company.  As such, thetiming and outcome of our experiments, the timing of signing new partners andthe timing of our partners moving through the development process intocommercialization is difficult to accurately predict.

 

*OperatingExpenses*

* *
| ** **                 | ** ** | **Three Months Ended September 30,** | ** ** |
|----------------------------|------------|----------------------------------------------------------|------------|
| ** **                 | ** ** | **2008**                                                 | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                 | ** ** | **(in thousands, except  % values)**      | ** ** |
|                       |       |                                                     |       |   |   |   |   |   |   |
| General and administrative |       | $                                                        | 530        |   | $ | 389 |   | $ | 141 |   | 36.2 | % |
| Research and development   |       | 504                                                      |       | 353 |   | 151 |   | 42.8 | % |
| Total operating expenses   |       | $                                                        | 1,034      |   | $ | 742 |   | $ | 292 |   | 39.4 | % |

 

We expect operating expenses toincrease over the next twelve months as we anticipate that research anddevelopment expenses will increase as we continue to expand our research and developmentactivities.

 

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*General andAdministrative Expenses*

* *
| ** **                       | ** ** | **Three Months Ended September 30,** | ** ** |
|----------------------------------|------------|----------------------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                                 | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                       | ** ** | **(in thousands, except  % values)**      | ** ** |
| Stock-based compensation         |       | $                                                        | 72         |   | $ | 49 |   | $ | 23 |   | 46.9 | % |
| Payroll and benefits             |       | 164                                                      |       | 154 |   | 10 |   | 6.5 | % |
| Investor relations               |       | 46                                                       |       | 51 |   | (5 | ) | (9.8 | )% |
| Professional fees                |       | 142                                                      |       | 59 |   | 83 |   | 140.7 | % |
| Depreciation and amortization    |       | 26                                                       |       | 22 |   | 4 |   | 18.2 | % |
| Director fees                    |       | 28                                                       |       | — |   | 28 |   | — |   |
| Other general and administrative |       | 52                                                       |       | 54 |   | (2 | ) | (3.7 | )% |
| Total general and administrative |       | $                                                        | 530        |   | $ | 389 |   | $ | 141 |   | 36.2 | % |

 

·                  Stock-based compensation for the three months ended September 30,2008 and, 2007 consisted of the amortized portion of the Black-Scholes value ofoptions and warrants previously granted to directors, employees andconsultants.  During the three month periodsended September 30, 2008 and 2007, there were no option and warrantgrants.

 

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

 

·                  Investor relations decreased primarily as a result ofa decrease in investor relations consulting costs.

 

·                  Professional fees increased primarily as a result ofan increase in legal fees and accounting fees primarily due to an increase inlegal fees related to our multiple myeloma project and accounting fees relatedto the review and filing of our securities filings.

 

·                  Depreciation and amortization decreased primarily asa result of additional agricultural and human health patent costs beingamortized.

 

·                  Director fees increased due to the Companyimplementing a cash compensation plan for non-employee directors beginning July 1,2008.  During the three month periodended September 30, 2007, the non-employee directors did not receive anycash compensation.

 

We expect general andadministrative expenses to modestly increase over the next twelve monthsprimarily due to an increase in payroll and benefits and legal and accountingfees related to the increased regulatory environment surrounding our business.

 

*Research andDevelopment Expenses*

* *
| ** **                     | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------|------------|----------------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                                 | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except  % values)**      | ** ** |
| Stock-based compensation       |       | $                                                        | 4          |   | $ | 15 |   | $ | (11 | ) | (73.3 | )% |
| Other research and development |       | 500                                                      |       | 338 |   | 162 |   | 47.9 | % |
| Total research and development |       | $                                                        | 504        |   | $ | 353 |   | $ | 151 |   | 42.8 | % |

 

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·                  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,specifically our multiple myeloma research program, which was partially offsetby a decrease in the cost of our research agreement with the University ofWaterloo due to the strengthening of the U.S. dollar against the Canadiandollar.

 

The breakdown of our research anddevelopment expenses between our agricultural and human health researchprograms is as follows:

 
| ** **                     | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------|------------|----------------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                                 | ** ** | **%** | ** ** | **2007** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except  % values)**      | ** ** |
| Agricultural                   |       | $                                                        | 170        |   | 34 | % | $ | 180 |   | 51 | % |
| Human health                   |       | 334                                                      |       | 66 | % | 173 |   | 49 | % |
|                           |       |                                                     |       |   |   |   |   |   |   |   |   |
| Total research and development |       | $                                                        | 504        |   | 100 | % | $ | 353 |   | 100 | % |
|                                |            |                                                          |            |  |  |  |  |  |  |  |  |  |

 

·                  Agricultural research expensesdecreased during the three-month period ended September 30, 2008 primarilyas a result of a decrease in the cost of our research with the University ofWaterloo due to the strengthening of the U.S. dollar against the Canadiandollar.

 

·                  Human health research expensesincreased during the three-month period ended September 30, 2008 primarilyas a result of the initiation of the multiple myeloma project.

 

We expect the percentage of humanhealth research programs to continue to increase as a percentage of the totalresearch and development expenses as we continue our current research projectsand begin new human health initiatives.

 

*Amortization of debt discount, financingcosts and interest expense*

* *

During the year ended June 30,2008, we issued $10,000,000 in convertible notes and warrants.  The net proceeds of those notes and warrantswere recorded as equity.  The discount onthe convertible notes is being amortized, using the effective yield method,over the term of the convertible notes. The related costs of issuance were recorded as deferred financing costsand are being amortized on a straight line basis over the term of theconvertible notes.  At September 30,2008 there were $9,500,000 of convertible notes outstanding.  At September 30, 2007, there were$1,500,000 of convertible notes outstanding.

 

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*Interest Income, net*

*** ***

Interest income was higherduring the three-month period ended September 30, 2008 as a result of anhigher average cash balance compared to the three-month period ended September 30,2007.

 

Period From Inception on July 1, 1998through September 30, 2008

 

Frominception of operations on July 1, 1998 through September 30, 2008,we had revenues of $1,375,000, which consisted of the initial license fees andmilestone payments in connection with our various development and licenseagreements.  We do not expect to generatesignificant revenues for approximately the next one to three years, duringwhich time we will continue to engage in significant research and developmentefforts.

 

We haveincurred losses each year since inception and have an accumulated deficit of$31,404,436 at September 30, 2008. We expect to continue to incur losses as a result of expenditures onresearch and development and administrative activities.

 

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**Item3.****                                   Quantitative and Qualitative Disclosures about MarketRisk.**

 

*Foreign Currency Risk*

* *

Our financial statements are denominated inUnited States dollars and, except for our agreement with the University ofWaterloo, which is denominated in Canadian dollars, all of our contracts aredenominated in United States dollars. Therefore, we believe that fluctuations in foreign currency exchangerates will not result in any material adverse effect on our financial conditionor results of operations.  In the eventwe derive a greater portion of our revenues from international operations or inthe event a greater portion of our expenses are incurred internationally and denominatedin a foreign currency, then changes in foreign currency exchange rates couldeffect our results of operations and financial condition.

 

*Interest Rate Risk*

* *

We invest in high-quality financialinstruments, primarily money market funds, federal agency notes, corporate debtsecurities and United States treasury notes, with an effective duration of theportfolio of less than one year, and no security with an effective duration inexcess of one year, which we believe are subject to limited credit risk.  We currently do not hedge our interest rateexposure.  Due to the short-term natureof our investments, which we plan to hold until maturity, we do not believethat we have any material exposure to interest rate risk arising from ourinvestments.

 

**Item4T.****                           Controls and Procedures.**

 

(a)          Evaluation of disclosurecontrols and procedures.

 

Theprincipal executive officer and principal financial officer have evaluated our disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30,2008.  Based on this evaluation, theyhave concluded that our disclosure controls and procedures were effective toensure that the information required to be disclosed by us in our reports thatwe file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported, within the time periods specified in theCommission’s rules and forms and to ensure that information required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934 is accumulated and communicated to our management,including our principal executive and principal financial officers, to allowtimely decisions regarding required disclosure.

 

(b)                                 Changes in internal controls.

 

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No change in our internal controls over financial reporting(as defined in Rules 13a-15(f) and 15d-15(f) under the ExchangeAct) occurred during the three-month ended September 30, 2008 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrols over financial reporting.

 

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**PART II.OTHER INFORMATION.**

 

**Item 1A.  Risk Factors.**

 

The moreprominent risks and uncertainties inherent in our business are described below.However, additional risks and uncertainties may also impair our businessoperations.  If any of the followingrisks actually occur, our business, financial condition or results ofoperations may suffer.

 

**RisksRelated to Our Business**

 

***We have a limited operating history and have incurredsubstantial 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 had an accumulated deficit of $31,404,436at September 30, 2008. We have generated minimal revenues by licensing ourtechnology for certain crops to companies willing to share in our developmentcosts. In addition, our technology may not be ready for commercialization forseveral years. We expect to continue to incur losses for the next several yearsbecause we anticipate that our expenditures on research and development, andadministrative activities will significantly exceed our revenues during thatperiod. We cannot predict when, if ever, we will become profitable.

 

***Wemay need additional capital to fund our operations until we are able togenerate a profit.***

*** ***

Ouroperations to date have required significant cash expenditures.  Our future capital requirements will dependon the results of our research and development activities, preclinical andclinical studies, and competitive and technological advances.

 

In addition, the recent financings with YA Global Investments, L.P.,referred to herein as YA Global, and Stanford Venture Capital Holdings, Inc.,referred to herein as Stanford, are secured by all of our assets.  If we default under the convertible notes,the investors may foreclose on our assets and our business.  As a result, we may need to obtain morefunding in the future through collaborations or other arrangements withresearch institutions and corporate partners or public and private offerings ofour securities, including debt or equity financing.  We may not be able to obtain adequate funds forour operations from these sources when needed or on acceptable terms. Futurecollaborations or similar arrangements may require us to license valuableintellectual property to, or to share substantial economic benefits with, ourcollaborators.  If we raise additionalcapital by issuing additional equity or securities convertible into equity, ourstockholders may experience dilution and our share price may decline.  Any debt financing may result in restrictionson our spending.

 

If we areunable to raise additional funds, we will need to do one or more of thefollowing:

 

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

 

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

·                  seek strategic alliances or business combinations;

·                  attempt to sell our company;

·                  cease operations; or

·                  declare bankruptcy.

 

We believethat at the projected rate of spending we should have sufficient cash andinvestments to maintain our present operations for the next 10 months as of September 30,2008.

 

***We depend on a single principal technology and, if ourtechnology is not commercially successful, we will have no alternative sourceof revenue****.*

* *

Ourprimary business is the development and licensing of technology to identify,isolate, characterize and promote or silence genes which control the death ofcells in humans and plants. Our future revenue and profitability criticallydepend upon our ability to successfully develop apoptosis and senescence genetechnology and later license or market such technology.  We have conducted experiments on certaincrops with favorable results and have conducted certain preliminary cell-lineand animal experiments, which have provided us with data upon which we havedesigned additional research programs. However, we cannot give any assurancethat our technology will be commercially successful or economically viable forany crops or human health applications.

 

Inaddition, no assurance can be given that adverse consequences might not resultfrom the use of our technology such as the development of negative effects onhumans or plants or reduced benefits in terms of crop yield or protection.  Our failure to obtain market acceptance ofour technology or of our current or potential licensees to successfullycommercialize such technology would have a material adverse effect on ourbusiness.

 

***We outsource all of our research and developmentactivities and, if we are unsuccessful in maintaining our alliances with thesethird parties, our research and development efforts may be delayed orcurtailed.***

*** ***

We rely onthird parties to perform all of our research and development activities.  Our research and development efforts takeplace at the University of Waterloo in Ontario, Canada, where our technologywas discovered, the University of Colorado, Mayo Clinic, the University ofVirginia, and with our commercial partners. At this time, we do not have the internal capabilities to perform ourresearch and development activities. Accordingly, the failure of third-partyresearch partners to perform under agreements entered into with us, or ourfailure to renew important research agreements with these third parties, maydelay or curtail our research and development efforts.

 

***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 September 30,2008, we had cash and highly-liquid investments of $4,907,202 and workingcapital of $4,804,634. Using our available reserves as of September 30,2008, we

 

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believethat we can operate according to our current business plan for the next 10months from September 30, 2008.  Todate, we have generated minimal revenues and anticipate that our operatingcosts 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 may notbe 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 eliminate some or all of our research and developmentprograms;

·                  license third parties to develop and commercialize our technology that wewould otherwise seek to develop and commercialize ourselves;

·                  seek strategic alliances or business combinations;

·                  attempt to sell our company;

·                  cease operations; or

·                  declare bankruptcy.

 

Inaddition, in connection with any funding, if we need to issue more equitysecurities than our certificate of incorporation currently authorizes, or morethan 20% of the shares of our common stock outstanding, we may need stockholderapproval.  If stockholder approval is notobtained or 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 September 30, 2008, we had 7,764,132 sharesof common stock authorized but unissued and unreserved, which may be issuedfrom time 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-K.  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 ourinception, we have financed all of our operations through private equity anddebt financings. Our future capital requirements depend on numerous factors,including:

 

·                  the scope of our research and development;

·                  our ability to attract business partners willing to share in ourdevelopment costs;

·                  our ability to successfully commercialize our technology;

·                  competing technological and market developments;

·                  our ability to enter into collaborative arrangements for the development,regulatory approval and commercialization of other products; and

·                  the cost of filing, prosecuting, defending and enforcing patent claims andother intellectual property rights.

 

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***Our business depends upon our patents and proprietaryrights and the enforcement of these rights. Our failure to obtain and maintain patent protection may increasecompetition and reduce demand for our technology.***

 

As aresult of the substantial length of time and expense associated with developingproducts and bringing them to the marketplace in the biotechnology and agriculturalindustries, obtaining and maintaining patent and trade secret protection fortechnologies, products and processes is of vital importance.  Our success will depend in part on severalfactors, including, without limitation:

 

·                  our ability to obtain patent protection for our technologies and processes;

·                  our ability to preserve our trade secrets; and

·                  our ability to operate without infringing the proprietary rights of otherparties both in the United States and in foreign countries.

 

As of September 30,2008, we have been issued nineteen (19) patents by the PTO and twenty-three(23) patents from foreign countries.  Wehave also filed numerous patent applications for our technology in the UnitedStates and in several foreign countries, which technology is vital to ourprimary business, as well as several Continuations in Part on these patentapplications.  Our success depends inpart upon the grant of patents from our pending patent applications.

 

Althoughwe believe that our technology is unique and will not violate or infringe uponthe proprietary rights of any third party, we cannot assure you that theseclaims will not be made or if made, could be successfully defendedagainst.  If we do not obtain andmaintain patent protection, we may face increased competition in the UnitedStates and internationally, which would have a material adverse effect on ourbusiness.

 

Sincepatent applications in the United States are maintained in secrecy untilpatents are issued, and since publication of discoveries in the scientific andpatent literature tend to lag behind actual discoveries by several months, wecannot be certain that we were the first creator of the inventions covered byour pending patent applications or that we were the first to file patent applicationsfor these inventions.

 

Inaddition, among other things, we cannot assure you that:

 

·                  our patent applications will result in the issuance of patents;

·                  any patents issued or licensed to us will be free from challenge and thatif challenged, would be held to be valid;

·                  any patents issued or licensed to us will provide commercially significantprotection for our technology, products and processes;

·                  other companies will not independently develop substantially equivalentproprietary information which is not covered by our patent rights;

·                  other companies will not obtain access to our know-how;

·                  other companies will not be granted patents that may prevent thecommercialization of our technology; or

 

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·                  we will not incur licensing fees and the payment of significant other feesor royalties to third parties for the use of their intellectual property inorder to enable us to conduct our business.

*** ***

***Our competitors may allege that we are infringing upontheir intellectual property rights, forcing us to incur substantial costs andexpenses in resulting litigation, the outcome of which would be uncertain.***

*** ***

Patent lawis still evolving relative to the scope and enforceability of claims in thefields in which we operate.  We are likemost biotechnology companies in that our patent protection is highly uncertainand involves complex legal and technical questions for which legal principlesare not yet firmly established.  Inaddition, if issued, our patents may not contain claims sufficiently broad toprotect us against third parties with similar technologies or products, orprovide us with any competitive advantage.

 

The PTOand the courts have not established a consistent policy regarding the breadthof claims allowed in biotechnology patents. The allowance of broader claims may increase the incidence and cost ofpatent interference proceedings and the risk of infringement litigation.  On the other hand, the allowance of narrowerclaims may limit the value of our proprietary rights.

 

The lawsof some foreign countries do not protect proprietary rights to the same extentas the laws of the United States, and many companies have encounteredsignificant problems and costs in protecting their proprietary rights in theseforeign countries.

 

We couldbecome involved in infringement actions to enforce and/or protect ourpatents.  Regardless of the outcome,patent litigation is expensive and time consuming and would distract 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 anyrelevant claims of third-party patents that are adverse to us are upheld asvalid and enforceable, we could be prevented from commercializing ourtechnology or could be required to obtain licenses from the owners of suchpatents.  We cannot assure you that suchlicenses would be available or, if available, would be on acceptableterms.  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 may not adequately protect ourunpatented technology and, if we are unable to protect the confidentiality ofour proprietary information and know-how, the value of our technology may beadversely affected.***

*** ***

Oursuccess depends upon know-how, unpatentable trade secrets, and the skills,knowledge and experience of our scientific and technical personnel.  As a result, we require all employees to agreeto a confidentiality provision in their employment agreement that prohibits thedisclosure of confidential information to anyone outside of our company, duringthe term of 

 

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employmentand thereafter.  We also require allemployees to disclose and assign to us the rights to their ideas, developments,discoveries and inventions.  We alsoattempt to enter into similar agreements with our consultants, advisors andresearch collaborators.  We cannot assureyou that adequate protection for our trade secrets, know-how or otherproprietary information against unauthorized use or disclosure will beavailable.

 

We occasionallyprovide information to research collaborators in academic institutions andrequest the collaborators conduct certain tests.  We cannot assure you that the academicinstitutions will not assert intellectual property rights in the results of thetests conducted by the research collaborators, or that the academicinstitutions will grant licenses under such intellectual property rights to uson acceptable terms, if at all.  If theassertion of intellectual property rights by an academic institution is substantiated,and the academic institution does not grant intellectual property rights to us,these events could limit our ability to commercialize our technology.

 

***As we evolve from a company primarily involved in theresearch and development of our technology into one that is also involved inthe commercialization of our technology, we may have difficulty managing ourgrowth and expanding our operations.***

*** ***

As ourbusiness grows, we may need to add employees and enhance our management,systems and procedures.  We may need tosuccessfully integrate our internal operations with the operations of ourmarketing partners, manufacturers, distributors and suppliers to produce andmarket commercially viable products.  Wemay also need to manage additional relationships with various collaborativepartners, suppliers and other organizations. Although we do not presently conduct research and development activitiesin-house, we may undertake those activities in the future.  Expanding our business may place asignificant 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 or sales history and depend onthird-party marketing partners.  Anyfailure of these parties to perform would delay or limit our commercializationefforts.***

*** ***

We have nohistory of marketing, distributing or selling biotechnology products and we arerelying on our ability to successfully establish marketing partners or otherarrangements with third parties to market, distribute and sell a commerciallyviable product both here and abroad.  Ourbusiness plan envisions creating strategic alliances to access neededcommercialization and marketing expertise. We may not be able to attract qualified sub-licensees, distributors ormarketing partners, and even if qualified, these marketing partners may not beable to successfully market agricultural products or human health applicationsdeveloped with our technology.  If ourcurrent or potential future marketing partners fail to provide adequate levelsof sales, our commercialization efforts will be delayed or limited and we maynot be able to generate revenue.

 

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***We will depend on joint ventures and strategicalliances to develop and market our technology and, if these arrangements arenot successful, our technology may not be developed and the expenses tocommercialize our technology will increase.***

*** ***

In itscurrent state of development, our technology is not ready to be marketed toconsumers.  We intend to follow amulti-faceted commercialization strategy that involves the licensing of ourtechnology to business partners for the purpose of further technologicaldevelopment, marketing and distribution. We have and are seeking business partners who will share the burden ofour development costs while our technology is still being developed, and whowill pay us royalties when they market and distribute products incorporatingour technology upon commercialization. The establishment of joint ventures and strategic alliances may createfuture competitors, especially in certain regions abroad where we do not pursuepatent protection.  If we fail toestablish beneficial business partners and strategic alliances, our growth willsuffer and the continued development of our technology may be harmed.

 

***Competition in the human health and agriculturalbiotechnology industries is intense and technology is changing rapidly.  If our competitors market their technologyfaster than we do, we may not be able to generate revenues from thecommercialization of our technology.***

* *

Many humanhealth and agricultural biotechnology companies are engaged in research anddevelopment activities relating to apoptosis and senescence.  The market for plant protection and yieldenhancement products is intensely competitive, rapidly changing and undergoingconsolidation.  We may be unable tocompete successfully against our current and future competitors, which mayresult in price reductions, reduced margins and the inability to achieve marketacceptance for products containing our technology.  Our competitors in the field of plantsenescence gene technology are companies that develop and produce transgenicplants and include major international agricultural companies, specializedbiotechnology companies, research and academic institutions and, potentially,our joint venture and strategic alliance partners.  These companies include: Icoria (formerlyParadigm Genetics); Mendel Biotechnology; Renessen LLC; Exelixis Plant Sciences, Inc.;Syngenta International 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 be renderedobsolete or uneconomical by technological advances or entirely differentapproaches developed by one or more of our competitors, which will prevent orlimit our ability to generate revenues from the commercialization of ourtechnology.

 

***Our business is subject to various governmentregulations and, if we or our licensees are unable to obtain regulatoryapproval, we may not be able to continue our operations.***

*** ***

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

 

·                  the USDA regulates the import, field testing andinterstate movement of specific

 

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types of genetic engineering that may be usedin the creation of transgenic plants;

·                  the EPA regulates activity related to the inventionof plant pesticides and herbicides, which may include certain kinds oftransgenic plants; and

·                  the FDA regulates foods derived from new plant varieties.

 

The FDA requires that transgenic plants meet the same standards forsafety that are required for all other plants and foods in general.  Except in the case of additives thatsignificantly alter a food’s structure, the FDA does not require any additionalstandards or specific approval for genetically engineered foods, but expectstransgenic plant developers to consult the FDA before introducing a new foodinto the marketplace.

 

Use of our technology, if developed for human health applications, willalso be subject to FDA regulation.  TheFDA must approve any drug or biologic product before it can be marketed in theUnited States.  In addition, prior tobeing sold outside of the U.S., any products resulting from the application ofour human health technology must be approved by the regulatory agencies offoreign governments.  Prior to filing anew drug application or biologics license application with the FDA, we wouldhave to perform extensive clinical trials, and prior to beginning any clinicaltrial, we need to perform extensive preclinical testing which could takeseveral years and may require substantial expenditures.

 

We believethat our current activities, which to date have been confined to research anddevelopment efforts, do not require licensing or approval by any governmentalregulatory agency. However, we are planning on performing clinical trials,which would be subject to FDA approval. Additionally, federal, state and foreign regulations relating to cropprotection products and human health applications developed throughbiotechnology are subject to public concerns and political circumstances, and,as a result, regulations have changed and may change substantially in thefuture.  Accordingly, we may becomesubject to governmental 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 health technology isineffective or harmful, and/or clinical trials may be unsuccessful indemonstrating efficacy and safety of our human health technology, which wouldsignificantly limit the possibility of obtaining regulatory approval for anydrug or biologic product manufactured with our technology.  The FDA requires submission of extensivepreclinical, clinical and manufacturing data to assess the efficacy and safetyof potential products. Furthermore, the success of preliminary studies does notensure commercial success, and later-stage clinical trials may fail to confirmthe results of the preliminary studies.

 

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***Anyinability to license from third parties their proprietary technologies orprocesses which we use in connection with the development of our technology mayimpair our business.***

*** ***

Othercompanies, universities and research institutions have or may obtain patentsthat could limit our ability to use our technology in a product candidate orimpair our competitive position.  As aresult, we would have to obtain licenses from other parties before we couldcontinue using our technology in a product candidate.  Any necessary licenses may not be availableon commercially acceptable terms, if at all. If we do not obtain required licenses, we may not be able to develop ourtechnology into a product candidate or we may encounter significant delays indevelopment while we redesign methods that are found to infringe on the patentsheld by others.

 

***Clinicaltrials for our human health technology will be lengthy and expensive and theiroutcome is uncertain***

*** ***

Before obtaining regulatory approval for thecommercial sales of any product containing our technology, we must demonstratethrough clinical testing that our technology and product containing ourtechnology is safe and effective for use in humans.  Conducting clinical trials is atime-consuming, expensive and uncertain process and typically requires years tocomplete.  In our industry, the resultsfrom preclinical studies and early clinical trials often are not predictive ofresults obtained in later-stage clinical trials.  Some products and technologies that haveshown promising results in preclinical studies or early clinical trialssubsequently fail to establish sufficient safety and efficacy data necessary toobtain regulatory approval.  At any timeduring clinical trials we or the FDA might delay or halt any clinical trial forvarious reasons, including:

 

·                  occurrence of unacceptable toxicities or sideeffects;

 

·                  ineffectiveness of the product candidate;

 

·                  negative or inconclusive results from theclinical trials, or results that necessitate additional studies or clinicaltrials;

 

·                  delays in obtaining or maintaining requiredapprovals from institutions, review boards or other reviewing entities atclinical sites;

 

·                  delays in patient enrollment; or

 

·                  insufficient funding or a reprioritization offinancial or other resources.

 

Any failure or substantial delay insuccessfully completing clinical trials and obtaining regulatory approval forour product candidates could severely harm our business.

 

***Even if we receiveregulatory approval, consumers may not accept products containing ourtechnology, which will prevent us from being profitable since we have no othersource of revenue.***

*** ***

We cannotguarantee that consumers will accept products containing our technology.  Recently, there has been consumer concern andconsumer advocate activism with respect to genetically engineered agriculturalconsumer products.  The adverseconsequences from heightened consumer concern in this regard could affect themarkets for agricultural products

 

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developedwith our technology and could also result in increased government regulation inresponse to that concern. If the public or potential customers perceive ourtechnology to be genetic modification or genetic engineering, agriculturalproducts grown with our technology may not gain market acceptance.

 

***We depend on our keypersonnel and, if we are not able to attract and retain qualified scientificand business personnel, we may not be able to grow our business or develop andcommercialize our technology.***

 

We arehighly dependent on our scientific advisors, consultants and third-partyresearch partners.  Our success will alsodepend in part on the continued service of our key employees and our ability toidentify, hire and retain additional qualified personnel in an intenselycompetitive market.  Although we haveemployment agreements with all of our key employees and a research agreementwith Dr. Thompson, these agreements may be terminated upon short or nonotice.  We do not maintain key personlife insurance on any member of management. The failure to attract and retain key personnel could limit our growthand hinder our research and development efforts.

 

***Certain provisions of ourcharter, by-laws and Delaware law could make a takeover difficult.***

*** ***

Certainprovisions of our certificate of incorporation and by-laws could make it moredifficult for a third party to acquire control of us, even if the change incontrol would be beneficial to stockholders. Our certificate of incorporation authorizes our board of directors toissue, without stockholder approval, except as may be required by the rules ofthe American Stock Exchange, 5,000,000 shares of preferred stock with voting,conversion and other rights and preferences that could adversely affect thevoting power or other rights of the holders of our common stock.  Similarly, our by-laws do not restrict ourboard of directors from issuing preferred stock without stockholder approval.

 

In addition,we are subject to the Business Combination Act of the Delaware GeneralCorporation Law which, subject to certain exceptions, restricts certaintransactions and business combinations between a corporation and a stockholderowning 15% or more of the corporation’s outstanding voting stock for a periodof three years from the date such stockholder becomes a 15% owner.  These provisions may have the effect ofdelaying or preventing a change of control of us without action by ourstockholders and, therefore, could adversely affect the value of our commonstock.

 

Furthermore,in the event of our merger or consolidation with or into another corporation,or the sale of all or substantially all of our assets in which the successorcorporation does not assume outstanding options or issue equivalent options,our board of directors is required to provide accelerated vesting ofoutstanding options.

 

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***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.***

*** ***

Recentpolitical and social turmoil, can be expected to put further pressure oneconomic conditions in the United States and worldwide.  These political, social and economicconditions may make it difficult for us to plan future business activities.

 

**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 September 30,2008, our executive officers, directors and affiliated entities togetherbeneficially own approximately 70.9% of the outstanding shares of our commonstock, assuming the exercise of options and warrants which are currentlyexercisable or will become exercisable within 60 days of September 30,2008, held by these stockholders. As a result, these stockholders, actingtogether, will be able to exercise significant influence over matters requiringapproval by our stockholders, including the election of directors, and may notalways act in the best interests of other stockholders.  Such a concentration of ownership may havethe effect of delaying or preventing a change in control of us, includingtransactions in which our stockholders might otherwise receive a premium fortheir 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 September 30,2008, we had 18,573,184 shares of our common stock issued and outstanding, ofwhich approximately 5,319,639 shares are registered pursuant to registrationstatements on Form S-3 and the remainder of which are either eligible tobe sold under SEC Rule 144 or are in the public float.  In addition, we have registered 2,632,194shares of our common stock underlying warrants previously issued on the Form S-3registration statement and we registered 6,000,000 shares of our common stockunderlying options granted or to be granted under our stock option plan.  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 commonstock is quoted on the NYSE Alternext US Exchange and currently has a limitedtrading market.  The NYSE Alternext US requiresus to meet minimum financial requirements in order to maintain ourlisting.  We currently believe that wemeet the continued listing requirements of the NYSE Alternext US Exchange.However, we cannot assure you that we will continue to meet such standards.  If we do not meet the continued listingstandards, we could be delisted.  Wecannot assure you that an active trading market will develop or, if developed,will be maintained.  As a result, ourstockholders may find it difficult to dispose of

 

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shares ofour common stock and, as a result, may suffer a loss of all or a substantialportion of their investment.

 

***If our common stock is delisted from the NYSE AlternextUS Exchange, 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 NYSE Alternext US Exchangerequires us to meet minimum financial requirements in order to maintain ourlisting.  As of September 30, 2008,we believe that we continue to be in compliance with the NYSE Alternext USExchange’s continued listing requirements. However, if we are unable to continue to be in compliance with thecontinued listing requirements, it is possible that we will be delisted.  If we are delisted from the NYSE Alternext USExchange, our common stock likely will become a “penny stock.”  In general, regulations of the SEC define a “pennystock” to be an equity security that is not listed on a national securitiesexchange or the NASDAQ Stock Market and that has a market price of less than$5.00 per share or with an exercise price of less than $5.00 per share, subjectto certain exceptions.  If our commonstock becomes a penny stock, additional sales practice requirements would beimposed on broker-dealers that sell such securities to persons other thancertain qualified investors.  Fortransactions involving a penny stock, unless exempt, a broker-dealer must makea special suitability determination for the purchaser and receive the purchaser’swritten consent to the transaction prior to the sale.  In addition, the rules on penny stocksrequire delivery, prior to and after any penny stock transaction, ofdisclosures required by the SEC.

 

If our stock is not accepted for listing on the NYSE Alternext USExchange, we will make every possible effort to have it listed on the Over the CounterBulletin Board, or the OTC Bulletin Board. If our common stock were to be traded on the OTC Bulletin Board, theSecurities Exchange Act of 1934, as amended, and related SEC rules wouldimpose additional sales practice requirements on broker-dealers that sell oursecurities.  These rules mayadversely affect the ability of stockholders to sell our common stock andotherwise negatively affect the liquidity, trading market and price of ourcommon stock.

 

We believe that the listing of our common stock on a recognizednational trading market, such as the NYSE Alternext US 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 of sucha 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 use in licensing agreements,joint ventures, the development of strategic relationships and acquisitions,which are critical to our business and strategy and none of which is currentlythe subject of any agreement, arrangement or understanding, with respect to anyfuture financing or strategic relationship it may undertake.  The delisting from the NYSE Alternext USExchange would result in negative publicity and would negatively impact ourability to raise capital in the future.

 

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

 

We cannotassure you that you will be able to resell the shares of our common stock at orabove your purchase price.  The marketprice of our common stock may fluctuate significantly in response to a numberof factors, some of which are beyond our control.  These factors include:

 
| · |   | 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 and service offerings,  significant contracts, acquisitions or strategic relationships; |
| · |   | 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 in general  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 on ourcommon stock and we intend to retain any future earnings to finance the developmentand expansion of our business.  We do notanticipate paying any cash dividends on our common stock in the foreseeablefuture.  Therefore, our stockholders willnot be able to receive a return on their investment unless the value of ourcommon stock appreciates and they sell their shares.

 

***Our stockholders mayexperience substantial dilution as a result of the conversion of outstandingconvertible debentures, or the exercise of options and warrants to purchase ourcommon stock.***

 

As of September 30,2008, we have granted options outside of our stock option plan to purchase10,000 shares of our common stock and outstanding warrants to purchase19,792,684 shares of our common stock.  In addition, as of September 30,2008, we have reserved 6,000,000 shares of our common stock for issuance uponthe exercise of options granted pursuant to our stock option plan, 3,805,600 ofwhich have been granted, 90,000 of which have been exercised since inception,3,715,600 of which are outstanding, and 2,194,400 of which may be granted inthe future.  The exercise of these options and warrants will result indilution to our existing stockholders and could have a material adverse effecton our stock price. In addition, any shares issued in connection with the YA Globalfinancing or Stanford Financing, as further discussed elsewhere in this Form 10-Q,can also have a dilutive effect and a possible material adverse effect on ourstock price.  The conversion price of thewarrants are also subject to certain anti-dilution adjustments.  The agreements with YA Global and Stanfordprovide for the potential issuance of up to an additional 61,833,332 shares ofour common stock.

 

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**Item 6.****                                   Exhibits.**

 
| **Exhibits.** | ** ** | ** **                                                                                                                                                                                   |
|---------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |       |                                                                                                                                                                                         |
| 10.1+         |       | Proposal for  Manufacture and Supply by and between Avecia Biotechnology, Inc. and  Senesco Technologies, Inc. dated as of September 4, 2008. (filed  herewith)               |
| 10.2+         |       | Proposal for  Biodistribution and Repeat Dose Toxicity Studies in Mice by and between  BioReliance and Senesco Technologies, Inc. dated as of September 5,  2008. (filed herewith) |
| 10.3+         |       | Services  Agreement by and between KBI BioPharma, Inc. and Senesco  Technologies, Inc. dated as of September 15, 2008. (filed herewith)                                       |
| 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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+                 Confidential treatment for portions of this Exhibit hasbeen requested from the SEC.

 

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**SIGNATURES**

** **

In accordancewith the requirements of the Securities Exchange Act of 1934, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                         | SENESCO TECHNOLOGIES, INC. |
|------------------------------|----------------------------|
|                         |                       |
|                         |                       |
| DATE: November 14, 2008 | By:                        | /s/ Bruce C. Galton |
|                         |                       | Bruce C. Galton, President |
|                         |                       | and Chief Executive  Officer |
|                         |                       | (Principal Executive  Officer) |
|                         |                       |   |
|                         |                       |   |
| DATE: November 14, 2008 | By:                        | /s/ Joel Brooks |
|                         |                       | Joel Brooks, Chief Financial Officer |
|                         |                       | and Treasurer |
|                         |                       | (Principal Financial and Accounting Officer) |

 

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