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** **

 

** **

**UNITED STATES**

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

 

**FORM 10-Q / A**

**(AmendmentNo. 1)**

** **
| **(Mark  One)** | ** **                                                                                                                                                                                                                                                                                                           |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **      | ** **                                                                                                                                                                                                                                                                                                           |
| **x**           | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                               |
|            |                                                                                                                                                                                                                                                                                                                 |   |
| ** **      | **For the quarterly****period****ended December 31, 2007**                                                                                                                                                                                                                                                      | ** ** |
| ** **      | ** **                                                                                                                                                                                                                                                                                                           | ** ** |
| **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 its charter)

 

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

 

**303 GeorgeStreet, Suite 420**

**NewBrunswick, New Jersey 08901**

(Address of principalexecutive offices)

 

**(732)296-8400**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See definitions of “accelerated filer”, “largeaccelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.   

 

Large accelerated filer o             Acceleratedfiler o

 

Smaller reporting company o      Non-accelerated filer x  

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

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

 

Asof January 31, 2008, 17,581,582 shares of the issuer’s common stock, parvalue $0.01 per share, were outstanding.

 

 

 

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SENESCO TECHNOLOGIES, INC.AND SUBSIDIARY

 

TABLE OF CONTENTS

 
| ** **    | ** **                                                                                                                                                                                                                                         | ** **                                                                                  | **Page** |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|----------|
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
| PART I.  | FINANCIAL  INFORMATION.                                                                                                                                                                                                                            |                                                                                        |     |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item  1.                                                                                                                                                                                                                                           | Financial  Statements (Unaudited)                                                           |     | 2 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | CONDENSED  CONSOLIDATED BALANCE SHEETS   as of December 31, 2007 and June 30, 2007                                                                                                                                                       |                                                                                        | 3        |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | CONDENSED  CONSOLIDATED STATEMENTS OF OPERATIONS   For the Three Months Ended December 31, 2007 and 2006,   For the Six Months Ended December 31, 2007 and 2006, and From Inception  on July 1, 1998 through December 31, 2007 |                                                                                        | 4        |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’  EQUITY   From Inception on July 1, 1998 through December 31, 2007                                                                                                                |                                                                                        | 5        |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   For the Six Months Ended December 31, 2007 and 2006, and From Inception  on July 1, 1998 through December 31, 2007                                                                |                                                                                        | 9        |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                               |                                                                                        | 10       |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item  2.                                                                                                                                                                                                                                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |     | 22 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Overview                                                                                                                                                                                                                                           |                                                                                        | 22       |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Liquidity and Capital Resources                                                                                                                                                                                                                    |                                                                                        | 30       |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Changes to Critical Accounting Policies and Estimates                                                                                                                                                                                              |                                                                                        | 34       |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Results  of Operations                                                                                                                                                                                                                             |                                                                                        | 35       |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item  3.                                                                                                                                                                                                                                 | Quantitative  and Qualitative Disclosures about Market Risk                                 |     | 43 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item 4.                                                                                                                                                                                                                                       | Controls and  Procedures                                                                    |     | 43 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
| PART II. | OTHER INFORMATION                                                                                                                                                                                                                                  |                                                                                        |     |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item 1A.                                                                                                                                                                                                                                 | Risk Factors                                                                                |     | 44 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item  2.                                                                                                                                                                                                                                      | Unregistered  Sales of Equity Securities and Use of Factors                                 |     | 57 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item 4.                                                                                                                                                                                                                                       | Submission  of Matters to a Vote of Security Holders                                        |     | 60 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
|          | Item 6.                                                                                                                                                                                                                                       | Exhibits                                                                                    |     | 62 |
|          |                                                                                                                                                                                                                                               |                                                                                        |     |
| SIGNATURES    |                                                                                                                                                                                                                                               | 63                                                                                          |

 

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**EXPLANATORYNOTE**

 

 This Amendment No. 1on Form 10-Q/A amends financial statements and the footnotes of theQuarterly Report on Form 10-Q of Senesco Technologies, Inc. (the “Company”)for the second quarter ended December 31, 2007, as filed with theSecurities and Exchange Commission on February 14, 2008 (the “QuarterlyReport”) as the Company’s financial statements for the quarterly period ended December 31,2007 should be restated and should no longer be relied upon. 

 

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

 

For convenience and ease ofreference, the Company is filing the Quarterly Report in its entirety with theapplicable changes. Unless otherwise stated, all information contained in thisamendment and restated 10-Q is as of February 14, 2008, the filing date ofthe Quarterly Report. This Form 10-Q/A does not reflect events ortransactions occurring after such filing date or modify or update thosedisclosures in the Quarterly Report that may have been affected by events ortransactions occurring subsequent to such filing date. No information in theQuarterly Report other than as set forth above is amended hereby.Currently-dated certifications from our President and Chief Executive Officerand our Chief Financial Officer have been included as exhibits to thisamendment. 

 

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**PART I.  FINANCIAL INFORMATION****.**

 

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

 

Certaininformation and footnote disclosures required under United States generallyaccepted accounting principles have been condensed or omitted from thefollowing 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.

 

Theresults of operations for the interim periods presented herein are notnecessarily indicative of the results to be expected for the entire fiscalyear.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                     | ** ** | **December 31,**       | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------|------------|
| ** **                                                                                                                     | ** ** | **2007**                    | ** ** | **2007**          | ** ** |
|                                                                                                                           |       | **(unaudited)  (restated)** |       |              |       |
| ASSETS                                                                                                                         |       |                        |       |              |       |
|                                                                                                                           |       |                        |       |              |       |
| CURRENT  ASSETS:                                                                                                               |       |                        |       |              |       |
| Cash and  cash equivalents                                                                                                     |       | $                           | 5,135,644  |              | $          | 408,061 |   |
| Short-term  investments                                                                                                        |       | 500,000                     |       | 250,000           |       |
| Prepaid  expenses and other current assets                                                                                     |       | 52,959                      |       | 104,526           |       |
| Total  Current Assets                                                                                                          |       | 5,688,603                   |       | 762,587           |       |
|                                                                                                                           |       |                        |       |              |       |
| Property  and equipment, net                                                                                                   |       | 5,444                       |       | 7,526             |       |
| Intangibles,  net                                                                                                              |       | 2,896,958                   |       | 2,544,447         |       |
| Deferred  financing costs                                                                                                      |       | 748,949                     |       |  —      |       |
| Security  deposit                                                                                                              |       | 7,187                       |       | 7,187             |       |
| TOTAL  ASSETS                                                                                                                  |       | $                           | 9,347,141  |              | $          | 3,321,747 |   |
|                                                                                                                           |       |                        |       |              |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                      |       |                        |       |              |       |
|                                                                                                                           |       |                        |       |              |       |
| CURRENT  LIABILITIES:                                                                                                          |       |                        |       |              |       |
| Accounts  payable                                                                                                              |       | $                           | 552,026    |              | $          | 109,258 |   |
| Accrued  expenses                                                                                                              |       | 368,570                     |       | 377,359           |       |
| Deferred  revenue                                                                                                              |       | 4,167                       |       | 16,667            |       |
| Total  Current Liabilities                                                                                                     |       | 924,763                     |       | 503,284           |       |
|                                                                                                                           |       |                        |       |              |       |
| Convertible note, net of discount                                                                                              |       | 12,727                      |       | —            |       |
| Grant  payable                                                                                                                 |       | 99,728                      |       | 99,728            |       |
| Other  liability                                                                                                               |       | 26,129                      |       | 29,196            |       |
| TOTAL  LIABILITIES                                                                                                             |       | 1,063,347                   |       | 632,208           |       |
|                                                                                                                           |       |                        |       |              |       |
| STOCKHOLDERS’  EQUITY:                                                                                                    |       |                        |       |              |       |
|                                                                                                                           |       |                        |       |              |       |
| Preferred  stock, $0.01 par value; authorized 5,000,000 shares, no shares issued                                               |       | —                      |       | —            |       |
| Common  stock, $0.01 par value; authorized 100,000,000 shares, issued and outstanding  17,581,852 and 17,473,694, respectively |       | 175,819                     |       | 174,737           |       |
| Capital  in excess of par                                                                                                      |       | 35,161,399                  |       | 28,136,342        |       |
| Deficit  accumulated during the development stage                                                                              |       | (27,053,424                 | )          | (25,621,540       | )          |
|                                                                                                                           |       |                        |       |              |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                |       | 8,283,794                   |       | 2,689,539         |       |
|                                                                                                                           |       |                        |       |              |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                               |       | $                           | 9,347,141  |              | $          | 3,321,747 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                                              | ** ** | **For the Three  Months Ended  December 31,** | ** ** | **For the Three  Months Ended  December 31,** | ** ** | **For the Six  Months Ended  December 31,** | ** ** | **For the Six  Months Ended  December 31,** | ** ** | **From Inception on  July 1, 1998  through  December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                                          | ** ** | **2006**                                                          | ** ** | **2007**                                                        | ** ** | **2006**                                                        | ** ** | **2007**                                                                            | ** ** |
| ** **                                                              | ** ** | **(restated)**                                                    | ** ** | ** **                                                        | ** ** | **(restated)**                                                  | ** ** | ** **                                                      | ** ** | **(restated)**                                                                      | ** ** |
| Revenue                                                                 |       | $                                                                 | 6,250      |                                                              | $          | 181,250                                                         |       | $                                                               | 377,500    |                                                                                | $          | 262,500 |   | $ | 1,095,833 |   |
|                                                                    |       |                                                              |       |                                                              |       |                                                            |       |                                                            |       |                                                                                |       |
| Operating  Expenses:                                                    |       |                                                              |       |                                                              |       |                                                            |       |                                                            |       |                                                                                |       |
| General  and administrative                                             |       | 585,851                                                           |       | 1,103,594                                                         |       | 974,910                                                         |       | 1,486,879                                                       |       | 20,409,103                                                                          |       |
| Research  and development                                               |       | 392,254                                                           |       | 239,395                                                           |       | 745,149                                                         |       | 548,743                                                         |       | 8,938,318                                                                           |       |
| Total  Operating Expenses                                               |       | 978,105                                                           |       | 1,342,989                                                         |       | 1,720,059                                                       |       | 2,035,622                                                       |       | 29,347,421                                                                          |       |
|                                                                    |       |                                                              |       |                                                              |       |                                                            |       |                                                            |       |                                                                                |       |
| Loss  From Operations                                                   |       | (971,855                                                          | )          | (1,161,739                                                        | )          | (1,342,559                                                      | )          | (1,773,122                                                      | )          | (28,251,588                                                                         | )          |
|                                                                    |       |                                                              |       |                                                              |       |                                                            |       |                                                            |       |                                                                                |       |
| Sale of state  income tax loss, net                                     |       | —                                                            |       | —                                                            |       | —                                                          |       | —                                                          |       | 586,442                                                                             |       |
| Other  noncash income                                                   |       | —                                                            |       | —                                                            |       | —                                                          |       | —                                                          |       | 321,259                                                                             |       |
| Interest  income, net                                                   |       | 25,227                                                            |       | 26,102                                                            |       | 32,106                                                          |       | 37,020                                                          |       | 411,894                                                                             |       |
| Amortization  of debt discount and financing costs                      |       | (38,374                                                           | )          | —                                                            |       | (53,595                                                         | )          | —                                                          |       | (53,595                                                                             | )          |
| Interest  expense on convertible notes                                  |       | (64,836                                                           | )          | —                                                            |       | (67,836                                                         | )          | —                                                          |       | (67,836                                                                             | )          |
| Net Loss                                                                |       | $                                                                 | (1,049,838 | )                                                                 | $          | (1,135,637                                                      | )          | $                                                               | (1,431,884 | )                                                                                   | $          | (1,736,102 | ) | $ | (27,053,424 | ) |
|                                                                    |       |                                                              |       |                                                              |       |                                                            |       |                                                            |       |                                                                                |       |
| Basic  and Diluted Net Loss Per Common Share                            |       | $                                                                 | (0.06      | )                                                                 | $          | (0.07                                                           | )          | $                                                               | (0.08      | )                                                                                   | $          | (0.11 | ) |   |   |
|                                                                    |       |                                                              |       |                                                              |       |                                                            |       |                                                            |       |                                                                                |       |
| Basic  and Diluted Weighted Average Number of Common Shares Outstanding |       | 17,474,870                                                        |       | 17,257,791                                                        |       | 17,474,282                                                      |       | 16,369,220                                                      |       |                                                                                |       |

 

See Notesto Condensed Consolidated Financial Statements.

 

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH DECEMBER 31,2007

(unaudited)

 
| ** **                                                                              | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** **     | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|--------------------------------------------------------|------------|----------------|------------|
| ** **                                                                              | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Par Value**                                     | ** ** | **Stage**      | ** ** | **Total** | ** ** |
|                                                                                    |       |                  |       |                                |       |                                                   |       | **(restated)** |       | **(restated)** |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |   |   |
| Common stock outstanding                                                                |       | 2,000,462             |       | $                                   | 20,005     |                                                   | $          | (20,005        | )          | — |   | — |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Contribution  of capital                                                                |       | —                |       | —                              |       | 85,179                                                 |       | —         |       | $ | 85,179 |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock in reverse merger on January 22, 1999 at $0.01 per share |       | 3,400,000             |       | 34,000                              |       | (34,000                                                | )          | —         |       | — |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for cash on May 21, 1999 at $2.63437 per share           |       | 759,194               |       | 7,592                               |       | 1,988,390                                              |       | —         |       | 1,995,982 |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for placement fees on May 21, 1999 at $0.01 per share    |       | 53,144                |       | 531                                 |       | (531                                                   | )          | —         |       | — |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for cash on January 26, 2000 at $2.867647 per share      |       | 17,436                |       | 174                                 |       | 49,826                                                 |       | —         |       | 50,000 |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for cash on January 31, 2000 at $2.87875 per share       |       | 34,737                |       | 347                                 |       | 99,653                                                 |       | —         |       | 100,000 |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for cash on February 4, 2000 at $2.934582 per share      |       | 85,191                |       | 852                                 |       | 249,148                                                |       | —         |       | 250,000 |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for cash on March 15, 2000 at $2.527875 per share        |       | 51,428                |       | 514                                 |       | 129,486                                                |       | —         |       | 130,000 |   |
|                                                                                    |       |                  |       |                                |       |                                                   |       |           |       |   |   |
| Issuance  of common stock for cash on June 22, 2000 at $1.50 per share             |       | 1,471,700             |       | 14,718                              |       | 2,192,833                                              |       | —         |       | 2,207,551 |   |
|                                                                                         |            |                       |            |                                     |            |                                                        |            |                |            |  |  |  |  |  |

 

(continued)

 

See 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, 1998 THROUGH DECEMBER 31,2007

(unaudited)

 
| ** **                                                                                                                       | ** ** | **Common Stock** | ** ** | **Capital in   Excess of ** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** **     | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|------------|----------------|------------|
| ** **                                                                                                                       | ** ** | **Shares**            | ** ** | **Amount**                                      | ** ** | **Par Value**                                     | ** ** | **Stage**      | ** ** | **Total** | ** ** |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       | **(restated)** |       | **(restated)** |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |   |   |
| Commissions, legal and bank fees associated with issuances  for the year ended June 30, 2000                                |       | —                |       | —                                          |       | $                                                      | (260,595   | )              | —     |   | $ | (260,595 | ) |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |   |   |
| Fair market value of options and warrants vested during  the year ended June 30, 2000                                       |       | —                |       | —                                          |       | 1,475,927                                              |       | —         |       | 1,475,927 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Fair market value of options and warrants vesting during  the year ended June 30, 2001                                      |       | —                |       | —                                          |       | 308,619                                                |       | —         |       | 308,619 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Issuance  of common stock and warrants for cash from   November 30, 2001 through April 17, 2002 at $1.75 per unit |       | 3,701,430             |       | $                                               | 37,014     |                                                   | 6,440,486  |           | —     |   | 6,477,500 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Issuance  of common stock and warrants associated with bridge loan conversion on  December 3, 2001                          |       | 305,323               |       | 3,053                                           |       | 531,263                                                |       | —         |       | 534,316 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Commissions,  legal and bank fees associated with issuances for the year ended  June 30, 2002                               |       | —                |       | —                                          |       | (846,444                                               | )          | —         |       | (846,444 | ) |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Fair market value of options and warrants vested  during the year ended June 30, 2002                                       |       | —                |       | —                                          |       | 1,848,726                                              |       | —         |       | 1,848,726 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Fair  market value of options and warrants vested during the year ended  June 30, 2003                                      |       | —                |       | —                                          |       | 848,842                                                |       | —         |       | 848,842 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Issuance  of common stock and warrants for cash from January 15, 2004 through  February 12, 2004 at $2.37 per unit          |       | 1,536,922             |       | 15,369                                          |       | 3,627,131                                              |       | —         |       | 3,642,500 |   |
|                                                                                                                             |       |                  |       |                                            |       |                                                   |       |           |       |   |   |
| Allocation  of proceeds to warrants                                                                                              |       | —                |       | —                                          |       | (2,099,090                                             | )          | —         |       | (2,099,090 | ) |
|                                                                                                                                  |            |                       |            |                                                 |            |                                                        |            |                |            |  |  |  |  |  |

 

(continued)

 

See Notes to Condensed Consolidated FinancialStatements.

 

6

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH DECEMBER 31,2007

(unaudited)

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

 

(continued)

 

SeeNotes to Condensed Consolidated Fnancial Statements.

 

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY

FROM INCEPTION ON JULY 1, 1998 THROUGH DECEMBER 31,2007

(unaudited)

 
| ** **                                                                                                                          | ** ** | **Common Stock** | ** ** | **Capital in   Excess of ** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** **     | ** **  |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|------------|----------------|-------------|
| ** **                                                                                                                          | ** ** | **Shares**            | ** ** | **Amount**                                      | ** ** | **Par Value**                                     | ** ** | **Stage**      | ** **  | **Total** | ** ** |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       | **(restated)** |        | **(restated)** |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Fair market value of options and warrants granted and  vested during the year ended June 30, 2006                              |       | —                |       | —                                          |       | $                                                      | 677,000    |           | —      |   | $ | 677,000 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Warrants  exercised during the year ended June 30, 2006 at an exercise price of  $0.01                                         |       | 10,000                |       | $                                               | 100        |                                                   | —     |           | —      |   | 100 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Issuance  of common stock and warrants for cash on October 11, 2006 at $1.135 per  unit                                        |       | 1,986,306             |       | 19,863                                          |       | 2,229,628                                              |       | —         |        | 2,249,491 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Commissions,  legal and bank fees associated with issuance on October 11, 2006                                                 |       | —                |       | —                                          |       | (230,483                                               | )          | —         |        | (230,483 | ) |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Fair  market value of options and warrants vested during the year ended  June 30, 2007                                         |       | —                |       | —                                          |       | 970,162                                                |       | —         |        | 970,162 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Warrants exercised during the year ended June 30,  2007 at an exercise price of $0.01                                          |       | 10,000                |       | 100                                             | ** ** | **—**                                             |       | —         |        | 100 |   |
|                                                                                                                                |       |                  |       |                                            | ** ** | ** **                                             |       |           |        |   |   |
| Fair market value of options and warrants vested  during the six months ended December 31, 2007                                |       | —                |       | —                                          |       | 408,303                                                |       | —         |        | 408,303 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Allocation of proceeds from issuance of convertible notes  and warrants from September 21, 2007 through December 20, 2007 |       | —                |       | —                                          |       | 6,550,000                                              |       | —         |        | 6,550,000 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Issuance of common stock on December 31, 2007  in lieu of cash payment                                                         |       | 108,158               |       | 1,082                                           |       | 66,754                                                 |       |           |        | 67,836 |   |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Net loss                                                                                                                            |       | —                |       | —                                          |       | —                                                 |       | $              | (27,053,424 | ) | (27,053,424 | ) |
|                                                                                                                                |       |                  |       |                                            |       |                                                   |       |           |        |   |   |
| Balance at December 31, 2007                                                                                                   |       | 17,581,852            |       | $                                               | 175,819    |                                                   | $          | 35,161,399     |        | $ | (27,053,424 | ) | $ | 8,283,794 |   |

 

See Notesto Condensed Consolidated Financial Statements.

 

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
| ** **                                                                                | ** ** | **For the Six Months Ended  December 31,** | ** ** | **From Inception on  July 1, 1998 through  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                                            | ** ** | **2006**                                                                                | ** ** | **2007** | ** ** |
| ** **                                                                                | ** ** | **(restated)**                                                      | ** ** | ** **                                                                              | ** ** | **(restated)** | ** ** |
| Cash  flows from operating activities:                                                    |       |                                                                |       |                                                                                    |       |   |   |
| Net loss                                                                                  |       | $                                                                   | (1,431,884 | )                                                                                       | $          | (1,736,102 | ) | $ | (27,053,424 | ) |
| 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                                       |       | 67,836                                                              |       | —                                                                                  |       | 77,152 |   |
| Issuance  of stock options and warrants for services                                      |       | 146,189                                                             |       | 847,000                                                                                 |       | 8,944,964 |   |
| Depreciation  and amortization                                                            |       | 44,042                                                              |       | 15,595                                                                                  |       | 407,883 |   |
| Amortization  of convertible note discount and deferred financing costs                   |       | 53,594                                                              |       | —                                                                                  |       | 53,594 |   |
| (Increase)  decrease in operating assets:                                                 |       |                                                                |       |                                                                                    |       |   |   |
| Accounts  receivable                                                                      |       | —                                                              |       | (75,000                                                                                 | )          | — |   |
| Prepaid  expense and other current assets                                                 |       | 51,567                                                              |       | 74,765                                                                                  |       | (52,959 | ) |
| Security  deposit                                                                         |       | —                                                              |       | —                                                                                  |       | (7,187 | ) |
| Increase  (decrease) in operating liabilities:                                            |       |                                                                |       |                                                                                    |       |   |   |
| Accounts  payable                                                                         |       | 442,768                                                             |       | 52,882                                                                                  |       | 552,026 |   |
| Accrued  expenses                                                                         |       | (24,656                                                             | )          | (88,603                                                                                 | )          | 352,703 |   |
| Deferred  revenue                                                                         |       | (12,500                                                             | )          | (12,500                                                                                 | )          | 4,167 |   |
| Other  liability                                                                          |       | (3,067                                                              | )          | (2,611                                                                                  | )          | 26,129 |   |
| Net cash  (used in) operating activities                                                  |       | (666,111                                                            | )          | (924,574                                                                                | )          | (16,799,782 | ) |
|                                                                                      |       |                                                                |       |                                                                                    |       |   |   |
| Cash  flows from investing activities:                                                    |       |                                                                |       |                                                                                    |       |   |   |
| Patent  costs                                                                             |       | (394,471                                                            | )          | (281,937                                                                                | )          | (3,140,178 | ) |
| Redemption  (purchase) of investments, net                                                |       | (250,000                                                            | )          | (750,000                                                                                | )          | (500,000 | ) |
| Purchase  of property and equipment                                                       |       | —                                                              |       | (1,482                                                                                  | )          | (170,107 | ) |
| Net cash  (used in) investing activities                                                  |       | (644,471                                                            | )          | (1,033,419                                                                              | )          | (3,810,285 | ) |
|                                                                                      |       |                                                                |       |                                                                                    |       |   |   |
| Cash  flows from financing activities:                                                    |       |                                                                |       |                                                                                    |       |   |   |
| Proceeds  from grant                                                                      |       | —                                                              |       | —                                                                                  |       | 99,728 |   |
| Proceeds  from issuance of bridge notes                                                   |       | —                                                              |       | —                                                                                  |       | 525,000 |   |
| Proceeds  from issuance and exercises of common stock and warrants                        |       | —                                                              |       | 2,019,108                                                                               |       | 19,082,818 |   |
| Proceeds  from issuance of convertible note and warrants, net of $450,000 paid to  holder |       | 6,550,000                                                           |       | —                                                                                  |       | 6,550,000 |   |
| Deferred  financing costs                                                                 |       | (511,835                                                            | )          | —                                                                                  |       | (511,835 | ) |
| Net cash  provided by financing activities                                                |       | 6,038,165                                                           |       | 2,019,108                                                                               |       | 25,745,711 |   |
|                                                                                      |       |                                                                |       |                                                                                    |       |   |   |
| Net  increase in cash and cash equivalents                                                |       | 4,727,583                                                           |       | 61,115                                                                                  |       | 5,135,644 |   |
|                                                                                      |       |                                                                |       |                                                                                    |       |   |   |
| Cash and  cash equivalents at beginning of period                                         |       | 408,061                                                             |       | 318,473                                                                                 |       | — |   |
|                                                                                      |       |                                                                |       |                                                                                    |       |   |   |
| Cash and  cash equivalents at end of period                                               |       | $                                                                   | 5,135,644  |                                                                                    | $          | 379,588 |   | $ | 5,135,644 |   |
|                                                                                      |       |                                                                |       |                                                                                    |       |   |   |
| Supplemental  disclosure of cash flow information:                                        |       |                                                                |       |                                                                                    |       |   |   |
| Cash  paid during the period for interest                                                 |       | $                                                                   | —     |                                                                                    | $          | — |   | $ | 22,317 |   |
| Supplemental  schedule of noncash financing activity:                                     |       |                                                                |       |                                                                                    |       |   |   |
| Conversion  of bridge notes into stock                                                    |       | $                                                                   | —     |                                                                                    | $          | — |   | $ | 534,316 |   |
| Allocation  of convertible debt proceeds to warrants and beneficial conversion feature    |       | $                                                                   | 6,550,000  |                                                                                    | $          | — |   | $ | 6,550,000 |   |
| Warrants  issued for financing costs                                                      |       | $                                                                   | 277,979    |                                                                                    | $          | — |   | $ | 277,979 |   |

 

SeeNotes to Condensed Consolidated Financial Statements.

 

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SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

**Note 1 – Restatement:**

** **

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

 
| ** **                                                          | ** ** | **As Originally** | ** ** | ** ** | ** ** | **As**       | ** ** |
|---------------------------------------------------------------------|------------|------------------------|------------|------------|------------|--------------|------------|
| ** **                                                          | ** ** | **Reported**           | ** ** | **Change** | ** ** | **Restated** | ** ** |
|                                                                |       |                   |       |       |       |         |       |
| **Statements  of Operations**                                       | ** ** | ** **             | ** ** | ** ** | ** ** | ** **   | ** ** |
| ** **                                                          | ** ** | ** **             | ** ** | ** ** | ** ** | ** **   | ** ** |
| Three months  ended December 31, 2007                          |       |                   |       |       |       |         |       |
|                                                                |       |                   |       |       |       |         |       |
| Amortization  of debt discount and financing costs                  |       | (283,207               | )          | 244,833    |       | (38,374      | )          |
| Net loss                                                            |       | (1,294,671             | )          | 244,833    |       | (1,049,838   | )          |
| Loss per  share                                                     |       | (.07                   | )          | .01        |       | (.06         | )          |
|                                                                |       |                   |       |       |       |         |       |
| Six months  ended December 31, 2007                            |       |                   |       |       |       |         |       |
|                                                                |       |                   |       |       |       |         |       |
| Amortization  of debt discount and financing costs                  |       | (298,428               | )          | 244,833    |       | (53,595      | )          |
| Net loss                                                            |       | (1,676,717             | )          | 244,833    |       | (1,431,884   | )          |
| Loss per  share                                                     |       | (.10                   | )          | .02        |       | (.08         | )          |
|                                                                |       |                   |       |       |       |         |       |
| From  inception on July 1, 1998 through December 31, 2007 |       |                   |       |       |       |         |       |
|                                                                |       |                   |       |       |       |         |       |
| Amortization  of debt discount and financing costs                  |       | (298,428               | )          | 244,833    |       | (53,595      | )          |
| Net loss                                                            |       | (27,298,257            | )          | 244,833    |       | (27,053,424  | )          |

 

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**BalanceSheet as of December 31, 2007**

 
| Convertible  notes                                |   | 257,560     |   | (244,833 | )      | 12,727      |   |
|---------------------------------------------------|--------|-------------|--------|----------|--------|-------------|--------|
| Total  liabilities                                |   | 1,308,180   |   | (244,833 | )      | 1,063,347   |   |
| Deficit  accumulated during the development stage |   | (27,298,257 | )      | 244,833  |   | (27,053,424 | )      |
| Stockholders  equity                              |   | 8,038,961   |   | 244,833  |   | 8,283,794   |   |

 

**Note 2 - Basis of Presentation:  **

** **

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

 

In the opinion of the Company’s management, the accompanying unauditedcondensed consolidated financial statements contain all adjustments, consistingsolely of those which are of a normal recurring nature, necessary to presentfairly its financial position as of December 31, 2007, the results of itsoperations for the three-month and six-month periods ended December 31, 2007and 2006, cash flows for the six-month periods ended December 31, 2007 and2006, and the results of its operations and cash flows for the period frominception on July 1, 1998 through December 31, 2007.

 

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

 

**Note 3 – Liquidity:  **

** **

The operations of the Company to date haverequired significant cash expenditures.  Asshown in the accompanying financial statements, the Company has a history oflosses with a deficit accumulated during the development stage from inceptionthrough December 31, 2007 of $27,053,424. The future capital requirements of the Company will depend on theresults of its research and development activities, preclinical studies andcompetitive and technological advances.  

 

On August 1, 2007 and August 29, 2007, the Company enteredinto agreements to issue convertible notes and warrants which will provideworking capital in the gross amount of up to $10,000,000 to fund its operationsfor approximately two years. On September 21, 2007, October 16, 2007and December 20, 2007 the Company issued a convertible notes in theaggregate gross amount of $7,000,000 and 10,550,000 five year warrants,one-half at an exercise price of $1.01 and one-half at an exercise price of$0.90.  The Company will issueconvertible notes and warrants and will receive $1,500,000 on the date theCompany enters into a supply agreement with a third party manufacturer forsufficient quantity and quality of nano-particle for encapsulation of Factor 5Agene to be used in toxicology and proof of concept human studies 

 

11

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under a United States Food and Drug Administration, (the “FDA”),accepted Investigational New Drug application, (an “IND Application, and$1,500,000 on the date the Company enters into a supply agreement with a thirdparty manufacturer to provide sufficient quantity and quality of Factor 5A DNAto carry out toxicology and proof of concept human studies under a FDA acceptedIND Application.

 

As of December 31, 2007, the Company has cash and investments inthe amount of $5,635,644, which the Company estimates will cover its expensesfor approximately the next thirteen months.

 

The AmericanStock Exchange requires the Company to meet minimum financial requirements inorder to maintain its listing. Specifically, the Company is required to maintain a minimum net worth of$6,000,000 under the continued listing requirements of the American Stock Exchange.The Company had previously received a notice of noncompliance from the AmericanStock Exchange.  The Company submitted aplan to the American Stock Exchange discussing how it intends to regaincompliance with the continued listing requirements.  The American Stock Exchange has accepted theCompany’s plan and has given the Company until March 1, 2008 to effectuatethe plan and regain compliance with the continued listing requirements.  As of December 31, 2007, the Companybelieves that it has regained compliance with the American Stock Exchange’scontinued listing requirements.

 

**Note 4 – Intangible Assets:  **

** **

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

 

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

 

Issued patents and agricultural patentspending are being amortized over a period of 17 years, the life 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 an impairmentreview include the following:

 

·                  significant negative industry trends;

·                  significant underutilization of the assets;

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

·                  changes in technology and the emergence of competing technology.

 

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If theCompany’s review determines that the future discounted cash flows related tothese assets will not be sufficient to recover their carrying value, theCompany will reduce the carrying values of these assets down to its estimate offair value and continue amortizing them over their remaining useful lives.  To date, the Company has not recorded anyimpairment of intangible assets.

 

**Note 5 - Loss Per Share:  **

** **

Net loss per common share is computed bydividing the net loss by the weighted average number of common sharesoutstanding during the period.  As ofDecember 31, 2007, shares to be issued upon the exercise of options andwarrants aggregating 19,281,261 at an average exercise price of $1.55, and asof December 31, 2006, shares to be issued upon the exercise of options andwarrants aggregating 9,100,877 at an average price of $2.62 are not included inthe computation of diluted loss per share as the effect is anti-dilutive.  Additionally, at December 31, 2007, 7,777,777shares to be issued upon the conversion of convertible notes at a fixedconversion rate of $0.90 are not included in the computation of diluted lossper share as the effect is anti-dilutive.

 

**Note 6** – **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 warrantgranted has been determined using the Black-Scholes model.  The material factors incorporated in theBlack-Scholes model in estimating the value of the options and warrants includethe following:

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                  | ** ** | **December 31,**            | ** ** | **December 31,**          | ** ** |
| ** **                  | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                        |       |                             |       |                           |       |   |   |   |   |
| Estimated life in years     |       | 6                                |       | 6-10                           |       | 6 |   | 6-10 |   |
| Risk-free interest rate (1) |       | 3.4%-4.1%                        |       | 4.2%-4.7%                      |       | 3.4%-4.1% |   | 4.2%-4.7% |   |
| Volatility                  |       | 100%                             |       | 70%-148%                       |       | 100% |   | 70%-148% |   |
| Dividend paid               |       | None                             |       | None                           |       | None |   | None |   |

 

----

(1) Represents the interestrate on a U.S. Treasury security with a maturity date corresponding to that ofthe option term.

 

The ultimate values of the options will depend on the futureprice 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 sixmonth period ended December 31, 2007 is as follows:

 
| ** **                             | ** ** | **Number of** | ** ** | **Weighted-Average**    | ** ** |
|----------------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **Options**        | ** ** | **Exercise Price** | ** ** |
| Outstanding at July 1, 2007       |       | 2,646,000          |       | $                       | 2.33       |   |
| Granted                                |       | 1,069,600          |       | $                       | 0.99       |   |
| Exercised                              |       | —             |       | —                  |       |
| Canceled                               |       | —             |       | —                  |       |
| Outstanding at December 31,  2007 |       | 3,715,600          |       | $                       | 1.95       |   |
| Exercisable at December 31,  2007 |       | 2,773,336          |       | $                       | 2.25       |   |

 

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A summary of changes to the non-vested stock options for thesix month period ended December 31, 2007 is as follows:

 
| ** **                                          | ** ** | **Weighted-Average** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|
| ** **                                          | ** ** | **Number of**   | ** ** | **Grant-Date** | ** ** |
| ** **                                          | ** ** | **Options**          | ** ** | **Fair Value** | ** ** |
| Non-vested stock options at  July 1, 2007      |       | 249,666              |       | $ | 1.07 |   |
| Granted                                             |       | 1,069,600            |       | $ | 0.76 |   |
| Vested                                              |       | (377,002             | )          | $ | (0.82 | ) |
| Forfeited                                           |       | —               |       | — |   |
|                                                |       |                 |       |   |   |
| Non-vested stock options at  December 31, 2007 |       | 942,264              |       | $ | 0.78 |   |

 

As of December 31, 2007, the aggregate intrinsic valueof stock options outstanding was $0, with a weighted-average remaining term of6.5 years.  The aggregate intrinsic valueof stock options exercisable at that same date was $0, with a weighted-averageremaining term of 5.4 years.  As of December 31,2007, the Company has 1,856,700 shares available for future stock optiongrants.

 

As of December 31, 2007, total compensation expense notyet recognized related to stock option grants amounted to approximately$428,000**,** which will be recognizedover the next 24 months and an additional $418,000 which may be recognized  as certain target goal undet the CompanysLong-Term Incentive Program are met over the next 36 months.

 

*Short-TermIncentive Program*

* *

On December 13, 2007, upon recommendation of theCompany’s Compensation Committee, the Board adopted a Short-Term EquityIncentive Program for each of Bruce C. Galton, John E. Thompson, Ph.D, JoelBrooks, Richard Dondero and Sascha Fedyszyn. The Programs are intended to ensure the achievement of certain goals ofthe Company, continuity of the Company’s executive management, and to align theinterests of the executive management with those of the shareholders.

 

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

 

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

 

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

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

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

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

5.               4% of the eligible sharesand options for contributions relating to the administration of the Company’sintellectual property;

6.               3% of the eligible sharesand options for contributions relating to the Company’s investor relationsprogram;

 

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7.               1% of the eligible sharesand options for contributions relating to the administration of the Company’swebsite;

8.               1% of the eligible sharesand options for contributions relating to the administration and monitoring ofthe requirements of the American Stock Exchange; and

9.               1% of the eligible sharesand options for contributions relating to planning for future financingrequirements.

 

If the target goals are achieved by the Company, the executiveofficers would be awarded the following number of shares and options for theFiscal year ended June 30, 2008:

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

 

----

(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 December 31, 2007, the Company has determinedthat the achievement of the target goals is probable.  The total amount of  compensation expense in connection with theshort-term incentive program in the amount of $206,269 is being recordedratably over the six and one-half month period from December 13, 2007through June 30, 2008.   For the sixmonths ended December 31, 2007, the Company recorded $15,867 of suchexpense.

 

*Long-TermIncentive Program*

* *

On December 13, 2007, upon recommendation of the Company’sCompensation Committee, the Board adopted a Long-Term Equity Incentive Programfor each of Bruce C. Galton, John E. Thompson, Ph.D, Joel Brooks, RichardDondero and Sascha P. Fedyszyn.  ThePrograms are intended to ensure the achievement of certain goals of theCompany, continuity of the Company’s executive management, and to align theinterests of the executive management with 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 executive is based upon the following weightings:

 

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

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

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

 

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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         |       |

 

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

 

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

** **

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

 

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

** **

On August 1, 2007 and August 29,2007, the Company entered into binding Securities Purchase Agreements with YAGlobal Investments L.P. (“YA Global”) and Stanford Venture Capital Holdings, Inc.(“Stanford”), respectively, to sell to each of YA Global and Stanford up to$5,000,000 of secured convertible notes and accompanying warrants for an aggregategross proceeds of $10,000,000.  Theconvertible notes convert into the Company’s common stock at a fixed price of$0.90 per share subject to certain adjustments (the “Fixed Conversion Price”),for a period of two years immediately following the signing date, provided thatthe Company has achieved the following milestones by January 31, 2008: (i) successfulcompletion of animal studies, other than toxicology studies, necessary for theadvancement of Factor 5A1 in human clinical trials, (ii) the engagement ofa contract research organization for human clinical studies 

 

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of Factor 5A1, and (iii) the signing ofat least one (1) corporate partnership or license agreement after August 1,2007 with an agricultural company utilizing the Company’s proprietary platform.As of January 31, 2008, the Company has completed all of the threerequired milestones.  After the secondanniversary of the signing date, the convertible notes may convert into sharesof the Company’s common stock at the lower of the fixed conversion price or 80%of the lowest daily volume-weighted average price (the “VWAP”), of the commonstock during the five trading days prior to the conversion date. The maturitydate of each of the convertible notes for YA Global and Stanford is December 30,2010 and December 31, 2010, respectively. Currently, at the fixed conversion price, the number of shares of commonstock issuable upon conversion of the convertible notes outstanding and to beissued and exercise of warrants outstanding and to be issued represents, in theaggregate, 24,994,445 shares, plus an estimated additional 2,000,000 shares forthe payment of interest in stock under the convertible notes.

 

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

 

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

 

If there is an effective registrationstatement for the resale of the shares underlying the convertible notes or ifsuch shares become 144(k) eligible, the Company will have the option toforce the investors to convert 50% and 100% of its then-outstanding convertiblenotes if its common stock price exceeds 150% and 175% of the Fixed ConversionPrice, respectively, for any 20 out of 30 trading days; provided that suchforced conversion meets certain conditions (the “Call Option”).  If the Company exercises its Call Optionprior to the third anniversary of the signing date, it will issue additionalwarrants to the investor equal to 50% of the number of shares underlying theconvertible note subject to the forced conversion.  These warrants will be exercisable at thefixed conversion price and will have the same maturity as the other warrantsissued under the YA Global financing.

 

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

 

YA Global and Stanford will also be issuedwarrants to purchase an aggregate of 5,550,000 and 8,333,333, respectively, ofthe Company’s Common Stock, exercisable six months and one day from the date ofissuance until their expiration on the date that is five years from the 

 

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date of issuance.  The warrants will be issued in two series.Generally, the Series A warrants may be issued prior to stockholderapproval, while the Series B warrants are only issued after stockholderapproval.  The exercise price of the Series Awarrants is $1.01 per share, and the exercise price of the Series Bwarrants is $0.90 per share, subject to certain adjustments.  The warrants provide a right of cashlessexercise if, at the time of exercise, there is no effective registrationstatement registering the resale of the shares underlying the warrants.

 

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

 

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

 

Pursuant to the Registration RightsAgreement, the Company filed an initial registration statement on October 12,2007 to register 3,333,333 shares of common stock issuable to YA Global, andsuch registration statement became effective on November 1, 2007.  The Company filed another registrationstatement to register an additional 891,667 shares of common stock issuable toYA Global.  If the shares issuable to YAGlobal remain outstanding after all shares under the registration statementshave been sold, the Company may be required to file additional registrationstatements for those shares.  Theseregistration rights will cease once the shares issuable to YA Global on January 22,2008 are eligible 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 total gross proceeds from the issuance ofthe convertible notes and warrants will be $10,000,000 before payment of 3.25%of the purchase price in commissions to Wainwright & Co., Inc. (the“Placement Agent”).  The Company willissue to the Placement Agent warrants to purchase 7% of the purchase price, or777,777 shares, of the Company’s Common Stock with similar terms to thewarrants that will be issued to the investors. The Company paid YA Global and Stanford a non-refundable structuring/duediligence fee of $30,000 each.  TheCompany has also agreed to pay YA Global and Stanford a commitment fee of 5%and 7%, respectively, of its purchase price, which is paid proportionately ateach closing.

 

*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities PurchaseAgreement, the Company has issued three convertible notes in the aggregateamount of $5,000,000 and two Series A warrants in the 

 

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amount of 1,387,500 shares each on September 21,2007 and October 16, 2007 and a Series B warrant in the amount of2,775,000 shares on December 20, 2007.

 

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

 
| Estimated life in years     |   | 5           |   |
|-----------------------------|--------|-------------|--------|
| Risk-free interest rate (1) |   | 3.5% - 4.4% |   |
| Volatility                  |   | 100%        |   |
| Dividend paid               |   | None        |   |

 

At December 31, 2007, netproceeds of $4,720,000 were allocated to the warrants and beneficial conversionfeature and recorded as equity.

 

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

 

*Specifics of Stanford Financing*

* *

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

 

Thegross proceeds, less $170,000 paid to Stanford, of $1,830,000 from the issuanceof the convertible note and warrants have been allocated between theconvertible note and warrants based upon their fair values using theBlack-Scholes model.  Additional amountswere allocated to the beneficial conversion feature based upon the effectiveconversion price compared to the fair value of the common stock on the date ofissuance of the convertible notes and warrants.Thematerial factors incorporated in the Black-Scholes model in estimating thevalue of the warrants include the following:

 
| Estimated life in years     |   | 5    |   |
|-----------------------------|--------|------|--------|
| Risk-free interest rate (1) |   | 3.5% |   |
| Volatility                  |   | 100% |   |
| Dividend paid               |   | None |   |

 

At December 31, 2007, netproceeds of $1,830,000 were allocated to the warrants and beneficial conversionfeature and recorded as equity.

 

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

 

1.               a convertible noteand warrants in the amount of $1,500,000 on the date the Company enters into asupply agreement with a third party manufacturer for 

 

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sufficient quantity and quality ofnano-particle for encapsulation of Factor 5A gene to be used in toxicology andproof of concept human studies under an FDA accepted IND Application;

 

2.               a convertible noteand warrants in the amount of $1,500,000 on the date the Company enters into asupply agreement with a third party manufacturer to provide sufficient quantityand quality of Factor 5A DNA to carry out toxicology and proof of concept humanstudies under a FDA accepted IND Application.

 

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

 

As of December 31,2007, the outstanding balance of the Convertible Notes were $12,727, which iscomprised of notes with an aggregate face amount of $7,000,000 less unamortizeddebt discount of $6,987,273.  

 

Debt discountassociated with the Convertible Notes is amortized to interest expense, usingthe effective yield method, over the remaining life of the ConvertibleNotes.  Upon conversion of theConvertible Notes into Common Stock, any unamortized debt discount relating tothe portion converted will be charged to equity.  Total charges to interest for amortization ofdebt discount were $12,723 and $12,727 for the three month and six monthperiods ended December 31, 2007.  

 

The costs associated with theissuances in the amount of $789,817 have been recorded as deferred financingcosts and are being amortized ratably over the term of the convertible notes.

 

**Note 9 – IncomeTaxes:  **

** **

No provisionfor income taxes has been made in the three months and six month periods ended December 31,2007 and 2006 given the Company’s losses in 2007 and 2006 and available netoperating loss carryforwards.  A benefithas not been recorded as the realization of the net operating losses is notassured and the timing in which the Company can utilize its net operating losscarryforwards in any year or in total may be limited by provisions of theInternal Revenue Code regarding changes in ownership of corporations.

 

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

 

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**Note 10 – Subsequent Event:  **

** **

On February 14**,** 2008, the Company amended its non-exclusive financialadvisory agreement with Stanford Group Company, which was originally entered intoon October 11, 2006.  The amendmentextended the term of the agreement through June 30, 2012 and expanded theservices to be provided to the Company. As compensation for the term extension and expansion of services,previously issued warrants were amended. The exercise prices of the 1,500,000 shares of Common Stock underlyingthe warrants, 750,000 of which had an exercise price of $2.00 and 750,000 ofwhich had an exercise price of $1.50, were reduced to $1.00.  Additionally, the expiration dates of December 2009and January 2010 were each extended through June 30**,** 2012.  The agreementmay be terminated by either party upon sixty days written notice.

 

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

 

Thefollowing discussion and analysis should be read in conjunction with ourcondensed consolidated financial statements and the related notes theretoincluded in this Quarterly Report on Form 10-Q.  The discussion and analysis may containforward-looking statements that are based upon current expectations and entailvarious risks and uncertainties.  Ouractual results and the timing of events could differ materially from thoseanticipated in the forward-looking statements as a result of various factors,including those set forth under “Factors That May Affect Our Business,Future Operating Results and Financial Condition” and elsewhere in this report.

 

**Overview**

** **

*Our Business*

* *

We are adevelopment stage biotechnology company whose primary business is to developand license our patented and patent-pending genes, primarily eucartyotictranslation initiation Factor 5A, or Factor 5A, and deoxyhypusine synthase, orDHS, and related technologies for inhibition, i.e. siRNA, in human healthapplications, to:

 

·                  develop novel approaches to treat inflammatory and/or apoptotic relateddiseases in humans;  and

·                  develop novel approaches to treat cancer, a group of diseases in whichapoptosis does not occur normally;

 

Inagricultural applications we are developing and licensing Factor 5A, DHS andLipase to enhance the quality and productivity of fruits, flowers, vegetablesand agronomic crops through the control of cell death, referred to assenescence, and growth in plants.

 

*Human Health Applications*

* *

We believethat our gene technology could have broad applicability in the human health field,by either inhibiting or accelerating apoptosis. Inhibiting apoptosis may be useful in preventing or treating a widerange of inflammatory and ischemic diseases attributed to premature apoptosis.  Accelerating apoptosis may be useful intreating certain forms of cancer because the body’s immune system is not ableto force cancerous cells to undergo apoptosis via normal mechanisms.

 

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

 

Certain preclinical humanhealth results to date include:

 

·                  demonstrated significant tumor regression and diminished rate of tumorgrowth of multiple myeloma tumors in SCID mice treated with Factor 5Aencapsulated in nanoparticles.

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

 

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·                  inducing apoptosis in both human cancer cell lines derived from tumors andin lung tumors in mice;

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

·                  measuring VEGF reduction in mouse lung tumors as a result of treatment withour genes;

·                  reducing the amounts of p24 and IL-8 by approximately 50 percent in a HIV-1infected human cell line;

·                  increasing the survival, while maintaining functionality, of mousepancreatic islet cells isolated for transplantation.  Preliminary animal studies have shown thatsiRNA to Factor 5A administered prior to harvesting beta islet cells from amouse has a significant impact not only on the survival of the beta isletcells, but also on the retention of the cells functionality when compared tothe untreated beta islet cells.  Additionalstudies have also shown that the treated beta islet cells survive apro-inflammatory cytokine challenge, while maintaining their functionality withrespect to insulin production;

·                  demonstrating that the efficacy of our technology is comparable to that ofexisting approved anti-inflammatory prescription drugs in reducing certaininflammatory cytokines in mice; and

·                  increasing the survival rate of mice in a lethal challenge sepsis model.  Additionally, a broad spectrum of systemicpro-inflammatory cytokines were down-regulated, while not effecting theanti-inflammatory cytokine IL-10.

 

Inhibiting Apoptosis

 

We believe that down-regulation of our proprietary Factor 5Agene may have potential application as a means for controlling the effect of abroad range of diseases that are attributable to premature apoptosis, ischemia,or inflammation. Apoptotic diseases include glaucoma, heart disease, andcertain inflammatory diseases such as Crohn’s disease, sepsis and diabeticretinopathy, among  others.  We are engaged in preclinical research oncertain inflammatory diseases. Using small inhibitory RNA’s, or siRNA’s,against the apoptosis isoform of Factor 5A to inhibit its expression, we havereduced pro-inflammatory cytokine formation and formation of receptors forliposolysaccharide, or LPS, interferon-gamma and TNF-alpha.  We have also determined that inhibiting theapoptosis isoform of Factor 5A down-regulates MAPK, NFkB and JAK1 and decreasesthe inflammatory cytokines formed through these pathways. Additionally, we haveshown in a mouse study that our siRNA is comparable to a steroid and to aprescription anti-TNF drug in its ability to reduce cytokine response to LPS.  *In-vivo*mouse studies have shown that the siRNA against Factor 5A (i) protectsthymocyte cells from apoptosis and decreases formation of myeloperoxidase, orMPO, TNF-a, MIP-1alpha, and IL-1 in the lungs of mice challenged with LPS; and (ii) increasesthe survival rate in which sepsis was induced by a lethal injection of LPS andreduced blood serum levels of inflammatory proteins, such as IL-1, IL-2, IL-6,IL-12, TNF-a, IFNg and MIP-1alpha, while not effecting IL-10, ananti-inflammatory cytokine.  The siRNA’sagainst Factor 5A are currently being tested in several preclinical *in-vivo* inflammatory disease models. Otherexperiments utilizing siRNA to Factor 5A include inhibition of cell death, orapoptosis, during the processing of mouse pancreatic beta islet cells fortransplantation; the inhibition of early inflammatory changes associated withtype-2 diabetes in 

 

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an in-vivo rat model; and the inhibition of viralreplication 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. We have found that downregulating Factor 5A by treatment with siRNA,inhibits the expression of p53, a major cell death transcription factor that inturn controls the formation of a suite of other cell death proteins.  In addition, down-regulation of Factor 5Aup-regulates Bcl-2, a major suppressor of apoptosis.

 

Accelerating Apoptosis

 

Inpre-clinical studies, we have also established that up-regulation of Factor 5Aisoform induces cell death in cancer cells through both the p53 (intrinsic) andcell death receptor (extrinsic) apoptotic pathways. Tumors arise when cellsthat have been targeted by the immune system to undergo apoptosis are unable todo so because of an inability to activate the apoptotic pathways. Just as theFactor 5A gene appears to facilitate expression of the entire suite of genesrequired for programmed cell death in plants, the Factor 5A gene appears toregulate expression of a suite of genes required for programmed cell death inhuman cells. Because the Factor 5A gene appears to function at the initiationpoint of the apoptotic pathways, both intrinsic and extrinsic, we believe thatour gene technology has potential application as a means of combating a broadrange of cancers.  Through in-vitrostudies, we have found that up-regulating Factor 5A results in: (i) theup-regulation of p53; (ii)  increases inflammatory cytokine production; (iii) increasescell death receptor formation; and (iv) increases caspase activity.  These features, coupled with a simultaneousdown-regulation Bcl-2, result in apoptosis of cancer cells.  In addition, in-vitro studies have shown thatup-regulation of Factor 5A also down-regulates VEGF, a growth factor whichallows tumors to develop additional vascularization needed for growth beyond asmall mass of cells.

** **

*Human Health Research Program*

* *

Our human health research program, which has consisted ofpre-clinical in-vitro and in-vivo experiments designed to assess the role andmethod of action of the Factor 5A genes in human diseases, is performed byapproximately 16 third party researchers at our direction, at the University ofWaterloo, Mayo Clinic, the University of Colorado, and the University ofVirginia.

 

Our preclinical research has yielded data that we havepresented to various biopharmaceutical companies that may be prospectivelicensees for the development and marketing of potential applications for ourtechnology.

 

Our planned future pre-clinical research and developmentinitiatives for human health include:

 

·                  Multiple Myeloma. Advance our technology for the potential treatment ofmultiple myeloma with the goal of initiating a clinical trial.  In connection with the potential clinicaltrial, we have engaged a clinical research organization, or CRO, to assist usthrough the process.  Together with theCRO, we will also be finalizing our evaluation of 

 

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potential delivery systems for our technology in theanimal model, contracting for the supply of pharmaceutical grade materials tobe used in toxicology and human studies, and ultimately filing aninvestigational 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 approximately eighteen to twenty four months to complete thisprogram.

 

·                  Pancreatic Islets isolated for transplantation.  Additional in-vitro experiments will testhuman beta islet cells.  The human cellswill be tested for survival and functionality, insulin activity post processingand cytokine challenge.

 

·                  HIV-1.  We will continue in-vitrostudies utilizing different siRNA delivery systems in order to increase thetransfection efficiency of the siRNA to Factor 5A to determine furtherdecreases in HIV replication and may seek animal models to test.

 

·                  DeliverySystems.  Studies have been initiated toevaluate a number of delivery systems in an effort to maximize the efficacy ofeIF-5A.

 

·                  LungInflammation.  Optimization of thedelivery and dose of the siRNA to Factor 5A to the lungs is the direction ofour planned future experiments.  Mousemodel systems may be used to illustrate the siRNA to Factor 5A’s ability toreduce morbidity and mortality in lung inflammation, caused by theup-regulation of pro-inflammatory cytokines induced by flu causing pathogens.

 

·                  DiabeticRetinopathy.  We have receivedencouraging results from our initial studies, which have shown a decrease inkey cytokines related to retinopathy, such as TNF, VEGF, and iNOS.  This study has been placed on hold due tobudget constraints.  This study willresume at such time when our budget will allow.

 

·                  Other.  We may look at other disease states in orderto determine the role of Factor 5A.

 

In order to pursue the above research initiatives, aswell as other research initiatives that may arise, we have recently completedprivate placements of $10 million of convertible notes and common stockwarrants.  We have already issued andreceived the net proceeds from $7 million of the convertible notes and commonstock warrants.  The remaining $3 millionfrom the private placements will be received upon the occurrence of thefollowing development milestones:

 

·                  $1.5million on the date that we enter into a supply agreement with a third partymanufacturer for sufficient quantity and quality of nano-particle forencapsulation of Factor 5A gene to be used in toxicology and proof of concepthuman studies; and

 

·                  $1.5million on the date that we enter into a supply agreement with a third partymanufacturer to provide sufficient quantity and quality of Factor 5A DNA tocarry out toxicology and proof of concept human studies under an FDA acceptedIND application.

 

However, it may be necessary for us to raise asignificant amount of additional working capital in the future to continue topursue some of the above and new initiatives. If we are unable to raise the necessary funds or meet the corporate andscientific milestones provided for in the 

 

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private placements, we may be required to significantlycurtail the future development of some of our research initiative and we willbe unable to pursue other possible research initiatives.

 

We may further expand our research and developmentprogram beyond the initiatives listed above to include other research centers.

 

*Agricultural Applications*

* *

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

 

Certainagricultural results to date include:

 

·                  longer shelf life of perishable produce;

·                  increased biomass and seed yield;

·                  greater tolerance to environmental stresses, such as drought and soilsalinity;

·                  greater tolerance to certain fungal and bacterial pathogens;

·                  more efficient use of fertilizer; and

·                  advancement to field trials in banana, lettuce, trees, and bedding plants.

 

We havelicensed this technology to various strategic partners and have entered into ajoint venture, and we intend to continue to license this technology, as theopportunities present themselves, to additional strategic partners and/or enterinto additional joint ventures.  Togetherwith our commercial partners, we are currently working with lettuce, turfgrass,canola, corn, soybean, cotton, banana, alfalfa, rice and certain species oftrees and bedding plants, and we have obtained proof of concept for enhancedpost harvest shelf life, seed yield, biomass, and resistance to disease inseveral of these plant species.  We haveongoing field trials of certain trees and bananas with our respectivepartners.  The first and second round ofbanana field trials have shown that our technology extends the shelf life ofbanana fruit by 100%.  In addition to thepost harvest shelf life benefits, an additional field trial generated encouragingdisease tolerance data, specific to Black Sigatoka (Black Leaf Streak Disease),for banana plants. Additional field trials for banana plants are ongoing forBlack Sigatoka.  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 propagation and then propagation and phenotype testing of suchplants.

 

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Our ongoing research and development initiatives foragriculture include assisting our license and joint venture partners to:

 

·                  furtherdevelop and implement the DHS and Factor 5A gene technology in lettuce, melon,banana, canola, cotton, turfgrass, bedding plants, rice, alfalfa, corn, soybeanand trees; and

 

·                  test theresultant crops for new beneficial traits such as increased yield, increasedtolerance to environmental stress, disease resistance and more efficient use offertilizer.

 

*Commercialization Strategy*

* *

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

 

Through January 31, 2008, we have entered into nine license agreements and one jointventure with established agricultural biotechnology companies or, in the caseof Poet, an established ethanol company.

 

Because the agricultural market is dominated by privatelyheld companies or subsidiaries of foreign owned companies, market size andmarket share data for the crops under our license and development agreements isnot readily available.  Additionally,because we have entered into confidentiality agreements with our license anddevelopment partners, we are unable to report the specific financial terms ofthe agreements as well as any market size and market share data that ourpartners may have disclosed to us regarding their companies.

 

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

 

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

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

 

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

 

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

 

Thecurrent status of each of our projects with our partners is as follows:

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

 

Commercialization by our partners may require a combinationof traits in a crop, such as both shelf life and disease resistance, or othertraits.

 

Based uponour commercialization strategy, we anticipate that there may be a significantperiod of time before plants enhanced using our technology reach consumers andwe begin to receive royalties.  Thus, wehave not begun to actively market our technology directly to consumers, butrather, we have sought to establish ourselves within the industry throughpresentations at industry conferences, our website and direct communicationwith prospective licensees.

 

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We plan toemploy the same partnering strategy in both the human health and agriculturaltarget markets.  Our preclinical researchhas yielded data that we have presented to various biopharmaceutical companiesthat may be prospective licensees for the development and marketing ofpotential applications of our technology. Consistent with our commercialization strategy, we intend to attractother companies interested in strategic partnerships or licensing ourtechnology, which may result in additional license fees, revenues from contractresearch and other related revenues. Additionally, we have selected multiple myeloma as a target indicationto develop and bring into clinical trials and may select additional humanhealth indications to bring into clinical trials on our own.  Successful future operations will depend onour ability to transform our research and development activities intocommercially feasible technology.

 

*Patent and Patent Applications*

* *

To date, we have been granted sixteen patents by the UnitedStates Patent and Trademark Office, or PTO, and thirteen patents from foreigncountries, twenty-six of which are for use of our technology in agriculturalapplications and three of which relates to human health applications.

 

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

 

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**Liquidity and Capital Resources**

** **

*Overview*

* *

As of December 31, 2007, our cash balance andinvestments totaled $5,635,644**,**and we had working capital of $4,763,840. As of December 31, 2007, we had a federal tax loss carryforward ofapproximately $18,674,000 and a state tax loss carry-forward of approximately$11,055,000 to offset future taxable income. We cannot assure you that we willbe able to take advantage of any or all of such tax loss carryforwards, if atall, in future fiscal years.

 

*Contractual Obligations*

* *

Thefollowing table lists our cash contractual obligations as of December 31,2007:

 
| ** **                                                           | ** ** | **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)                              |       | $                                         | 663,485    |   | $ | 663,485 |   | $ | — |   | $ | — |   | $ | — |   |
| Facility, Rent and Operating Leases (2)                              |       | $                                         | 270,332    |   | $ | 78,052 |   | $ | 158,840 |   | $ | 33,440 |   | $ | — |   |
| Employment, Consulting and Scientific Advisory  Board Agreements (3) |       | $                                         | 571,380    |   | $ | 531,996 |   | $ | 39,384 |   | $ | — |   | $ | — |   |
| Total Contractual Cash Obligations                                   |       | $                                         | 1,505,197  |   | $ | 1,273,533 |   | $ | 198,224 |   | $ | 33,440 |   | $ | — |   |

 

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(1)        Certain ofour research and development agreements disclosed herein provide that paymentis to be made in Canadian dollars and, therefore, the contractual obligationsare subject to fluctuations in the exchange rate.

 

(2)        The leasefor our office space in New Brunswick, New Jersey is subject to certainescalations for our proportionate share of increases in the building’soperating costs.

 

(3)        Certain ofour employment and consulting agreements provide for automatic renewal, whichis not reflected in the table, unless terminated earlier by the parties to therespective agreements.

** **

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

 

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Effective September 1,2007, we extended our research and development agreement with the University ofWaterloo for an additional one-year period through August 31, 2008, in theamount of CAD $631,050 or approximately USD $630,000. Research and developmentexpenses under this agreement for the three months ended December 31, 2007and 2006 aggregated USD $176,536 and $129,439, respectively.  Research and development expenses under thisagreement for the six months ended December 31, 2007 and 2006 aggregatedUSD $368,792 and $295,939, respectively, and USD $4,265,096 for the cumulativeperiod from inception through December 31, 2007.

 

*Capital Resources*

 

Sinceinception, we have generated revenues of $1,095,833 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.

 

*Financings*

* *

On August 1, 2007 and August 29, 2007, we entered intobinding Securities Purchase Agreements with YA Global Investments, referred toherein as YA Global, and Stanford Venture Capital Holdings, Inc., referredto herein as Stanford, respectively, to sell to each of YA Global and Stanfordup to $5,000,000 of secured convertible notes and accompanying warrants for anaggregate gross proceeds of $10,000,000. The convertible notes convert into our common stock at a fixed price of$0.90 per share subject to certain adjustments, referred to herein as the FixedConversion Price, for a period of two years immediately following the signingdate, provided that we have achieved the following milestones by January 31,2008: (i) successful completion of animal studies, other than toxicologystudies, necessary for the advancement of Factor 5A1 in human clinical trials, (ii) theengagement of a contract research organization for human clinical studies ofFactor 5A1, and (iii) the signing of at least one (1) corporatepartnership or license agreement after August 1, 2007 with an agriculturalcompany utilizing our proprietary platform. As of January 31, 2008, wehave completed all of the three required milestones.  After the second anniversary of the signingdate, the convertible notes may convert into shares of our common stock at thelower of the fixed conversion price or 80% of the lowest daily volume-weightedaverage price, referred to herein as the VWAP, of our common stock during thefive trading days prior to the conversion date. The maturity date of each ofthe convertible notes for YA Global and Stanford is December 30, 2010 and December 31,2010, respectively.  Currently, at thefixed conversion price, the number of shares of our common stock issuable uponconversion of the convertible notes and exercise of warrants represents, in theaggregate, 24,994,445 shares, plus an estimated additional 2,000,000 shares forthe payment of interest in stock under the convertible notes.

 

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The convertible notes accrue interest ontheir outstanding principal balances at an annual rate of 8%.  We have the option to pay interest in cashor, upon certain conditions, common stock. If we pay interest in our common stock, the stock will be valued at a10% discount to the average daily VWAP for the five day trading period prior tothe interest payment date, referred to herein as the Interest Shares.

 

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

 

If there is an effective registrationstatement for the resale of the shares underlying the convertible notes or ifsuch shares become 144(k) eligible, we will have the option to force theinvestors to convert 50% and 100% of our then-outstanding convertible notes ifour common stock price exceeds 150% and 175% of the Fixed Conversion Price,respectively, for any 20 out of 30 trading days; provided that such forcedconversion meets certain conditions, referred to herein as the CallOption.  If we exercise our Call Optionprior to the third anniversary of the signing date, we will issue additionalwarrants to the investors equal to 50% of the number of shares underlying theconvertible notes 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.

 

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

 

YA Global and Stanford have been andwill  be issued warrants to purchase anaggregate of 5,550,000 and 8,333,333, respectively, of our common stock,exercisable six months and one day from the date of issuance until theirexpiration on the date that is five years from the date of issuance.  The warrants have been and will be issued intwo series. The exercise price of the Series A warrants is $1.01 pershare, and the exercise price of the Series B warrants is $0.90 per share,subject to certain adjustments.  Thewarrants provide a right of cashless exercise if, at the time of exercise,there is no effective registration statement registering the resale of theshares underlying the warrants.

 

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

 

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

 

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

 

*Specifics of YA Global Financing*

* *

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

 

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

 

*Specifics of Stanford Financing*

* *

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

 

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

 

1.               A convertible noteand warrants in the amount of $1,500,000 on the date we enter into a supplyagreement with a third party manufacturer for sufficient quantity and qualityof nano-particle for encapsulation of Factor 5A gene to be used in toxicologyand proof of concept human studies under an FDA accepted IND Application;

 

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

 

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

 

The costs associated with theissuances to YA Global and Stanford in the amount of $789,817 have beenrecorded as deferred financing costs and are being amortized ratably over theterm of the convertible notes.

 

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

 

·                  utilizing our current cash balance and investments;

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

·                  through the execution of additional licensing agreementsfor our technology; and

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

 

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

 

**Changes toCritical Accounting Policies and Estimates**

** **

There 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 30,2007.

 

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** **

**Results of Operations**

** **

Three Months Ended December 31, 2007 and Three Months Ended December 31, 2006

 

The net loss for the three-month period ended December 31, 2007and 2006 was $1,049,838 and $1,135,637, respectively, a decrease of $85,799**,**or 7.6%. This decrease in net loss was primarily the result of a decrease inrevenue which was partially offset by a decrease in operating expenses.  

** **

*Revenue*

* *

Total revenues consisted of initialfees and milestone payments on our agricultural development and licenseagreements.  During the three-monthperiod ended December 31, 2007, revenue of $6,250 consisted of theamortized portion of previous milestone payments received in connection withcertain license agreements.  During thethree-month period ended December 31, 2006, revenue of $181,250 consistedof initial fees, milestone payments and the amortized portion of previous milestonepayments received in connection with certain development and licenseagreements.

 

We anticipatethat we will continue to receive milestone payments in connection with ourcurrent agricultural 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 if 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 December 31,** | ** ** |
|----------------------------|------------|---------------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                 | ** ** | **(in thousands, except % values)** | ** ** |
| General and administrative |       | $                                                       | 586        |   | $ | 1,104 |   | $ | (518 | ) | (46.9 | )% |
| Research and development   |       | 392                                                     |       | 239 |   | 153 |   | 64.0 | % |
| Total operating expenses   |       | $                                                       | 978        |   | $ | 1,343 |   | $ | (365 | ) | (27.2 | )% |

 

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

 

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* *

*General andAdministrative Expenses*

* *

| ** **                       | ** ** | **Three Months Ended December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                       | ** ** | **(in thousands, except % values)** | ** ** |
| Stock-based compensation         |       | $                                                       | 67         |   | $ | 744 |   | $ | (677 | ) | (91.0 | )% |
| Payroll and benefits             |       | 177                                                     |       | 150 |   | 27 |   | (18.0 | )% |
| Investor relations               |       | 160                                                     |       | 110 |   | 50 |   | 45.5 | % |
| Professional fees                |       | 113                                                     |       | 40 |   | 73 |   | 182.5 | % |
| Depreciation and amortization    |       | 22                                                      |       | 9 |   | 13 |   | 144.4 | % |
| Other general and administrative |       | 47                                                      |       | 51 |   | (4 | ) | (7.8 | )% |
| Total general and administrative |       | $                                                       | 586        |   | $ | 1,104 |   | $ | (518 | ) | (46.9 | )% |

 

·                  Stock-based compensation for the three months ended December 31,2007 consists primarily of the amortized portion of the Black-Scholes value ofoptions and warrants granted to directors, employees and consultants. Duringthe three-month period ended December 31, 2007, there were 351,000 optionsor warrants granted to such directors, employees and consultants.

 

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

 

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

 

·                  Investor relations increased as a result of anincrease in the cost of the annual report due to additional requireddisclosures.  Also, during the threemonth period ended December 31, 2007, a proxy solicitor was retained toassist with the voting for our 2007 annual meeting.

 

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

 

·                  Depreciation and amortization increased primarily asa result of an increase in amortization of patent costs.  We began amortizing the cost of our pendingpatent applications during the three month period ended March 31,2007.  Therefore such amortization wasnot included in depreciation and amortization during the three month periodended December 31, 2006.

 

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We expectgeneral and administrative expenses to modestly increase over the next twelvemonths primarily due to an increase in legal and accounting fees related to theincreased regulatory environment surrounding our business.

 

*Research and Development Expenses*

* *

| ** **                     | ** ** | **Three Months Ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)** | ** ** |
| Stock-based compensation       |       | $                                                       | 16         |   | $ | 16 |   | $ | — |   | — | % |
| Other research and development |       | 376                                                     |       | 223 |   | 153 |   | 68.6 | % |
| Total research and development |       | $                                                       | 392        |   | $ | 239 |   | $ | 153 |   | 64.0 | % |

 

·                           Stock-based compensation consists primarily of theamortized portion of Black-Scholes value of options and warrants granted toresearch and development consultants and employees. During the three-monthperiods ended December 31, 2007 and 2006 there were 45,000 and 88,000options granted to such consultants and employees.

 

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

 

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

 

| ** **                     | ** ** | **Three Months Ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                | ** ** | **%** | ** ** | **2006** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)** | ** ** |
| Agricultural                   |       | $                                                       | 172        |   | 44 | % | $ | 158 |   | 66 | % |
| Human health                   |       | 220                                                     |       | 56 | % | 81 |   | 34 | % |
| Total research and development |       | $                                                       | 392        |   | 100 | % | $ | 239 |   | 100 | % |

 

Ouragricultural research expenses increased during the three-month period ended December 31,2007 primarily as a result of an increase in the budget for the banana fieldtrials and an unfavorable exchange rate variance in connection with ourresearch agreement at the University of Waterloo.

 

Our humanhealth expenses increased during the three-month period ended December 31,2007 as we have initiated certain research projects that were not in progressduring the three month period ended December 31, 2006.  We expect the percentage of human healthresearch programs to continue to increase as a percentage of the total researchand development expenses as we continue our current research projects and beginnew human health initiatives.

 

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*** ***

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

* *

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

 

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

 

Below is a summary of the convertible notes as of December 31,2007:

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

 

Costs related to the issuance of the convertible notes and warrants inthe amount of $789,817, which include $277,979 of non-cash charges for warrantsissued to the placement agent, have been recorded as deferred financing costsand are being amortized over the term of the convertible notes.  The expected future quarterly amortization ofthe deferred financing costs will be $62,409.

 

Six Months Ended December 31, 2007 and Six Months Ended December 31, 2006

 

The net loss for the six-month period ended December 31, 2007 and2006 was $1,431,884 and $1,736,102, respectively, a decrease of $304,218**,**or 17.5%. This decrease in net loss was primarily the result of an increase inrevenue and a decrease in operating expenses.  

 

*Revenue*

* *

Total revenues consisted of initialfees and milestone payments on our agricultural development and licenseagreements.  During the six-month periodended December 31, 2007, revenue of $377,500 consisted of initial paymentsand the amortized portion of previous milestone payments received in connectionwith certain license agreements.  Duringthe six-month period ended December 31, 2006, revenue of $262,500consisted of initial fees, milestone payments and the amortized portion ofprevious milestone payments received in connection with certain development andlicense agreements.

 

We anticipatethat we will continue to receive milestone payments in connection with ourcurrent agricultural 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 if our partnerscommercialize their crops containing our technology.  However, it is difficult for us to determineour future revenue 

 

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expectations because we are a developmentstage biotechnology company.  As such,the timing and outcome of our experiments, the timing of signing new partnersand the timing of our partners moving through the development process intocommercialization is difficult to accurately predict.

 

*OperatingExpenses*

* *

| ** **                 | ** ** | **Six Months Ended December 31,**   | ** ** |
|----------------------------|------------|---------------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                 | ** ** | **(in thousands, except % values)** | ** ** |
| General and administrative |       | $                                                       | 975        |   | $ | 1,487 |   | $ | (512 | ) | (34.4 | )% |
| Research and development   |       | 745                                                     |       | 549 |   | 196 |   | 35.7 | % |
| Total operating expenses   |       | $                                                       | 1,720      |   | $ | 2,036 |   | $ | (316 | ) | (15.5 | )% |

 

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

 

*General andAdministrative Expenses*

* *

| ** **                       | ** ** | **Six Months Ended December 31,**   | ** ** |
|----------------------------------|------------|---------------------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                       | ** ** | **(in thousands, except % values)** | ** ** |
| Stock-based compensation         |       | $                                                       | 115        |   | $ | 813 |   | $ | (698 | ) | (85.9 | )% |
| Payroll and benefits             |       | 332                                                     |       | 304 |   | 28 |   | (9.2 | )% |
| Investor relations               |       | 211                                                     |       | 161 |   | 50 |   | 31.1 | % |
| Professional fees                |       | 171                                                     |       | 90 |   | 81 |   | 90.0 | % |
| Depreciation and amortization    |       | 44                                                      |       | 16 |   | 28 |   | 175.0 | % |
| Other general and administrative |       | 102                                                     |       | 103 |   | (1 | ) | (1.0 | )% |
| Total general and administrative |       | $                                                       | 975        |   | $ | 1,487 |   | $ | (512 | ) | (34.4 | )% |

 

·                  Stock-based compensation for the six months ended December 31,2007 consists primarily of the amortized portion of the Black-Scholes value ofoptions and warrants granted to directors, employees and consultants. Duringthe six-month period ended December 31, 2007, there were 351,000 optionsor warrants granted to such directors, employees and consultants.

 

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

 

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

 

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·                  Investor relations increased as a result of an increasein the cost of the annual report due to additional required disclosures.  Also, during the six month period ended December 31,2007, a proxy solicitor was retained to assist with the voting for our 2007annual meeting.

 

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

 

·                  Depreciation and amortization increased primarily asa result of an increase in amortization of patent costs.  We began amortizing the cost of our pendingpatent applications during the three month period ended March 31,2007.  Therefore such amortization wasnot included in depreciation and amortization during the six month period endedDecember 31, 2006.

 

We expectgeneral and administrative expenses to modestly increase over the next twelvemonths primarily due to an increase in legal and accounting fees related to theincreased regulatory environment surrounding our business.

 

*Research and Development Expenses*

* *

| ** **                     | ** ** | **Six Months Ended December 31,**   | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)** | ** ** |
| Stock-based compensation       |       | $                                                       | 31         |   | $ | 34 |   | $ | (3 | ) | (8.8 | )% |
| Other research and development |       | 714                                                     |       | 515 |   | 199 |   | 38.6 | % |
| Total research and development |       | $                                                       | 745        |   | $ | 549 |   | $ | 196 |   | 35.7 | % |

 

·                                Stock-based compensation consists primarily of theamortized portion of Black-Scholes value of options and warrants granted toresearch and development consultants and employees. During the six-monthperiods ended December 31, 2007 and 2006 there were 45,000 and 88,000options granted to such consultants and employees.

 

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

 

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

 

| ** **                     | ** ** | **Six Months Ended December 31,**   | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                | ** ** | **%** | ** ** | **2006** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except % values)** | ** ** |
| Agricultural                   |       | $                                                       | 357        |   | 48 | % | $ | 341 |   | 62 | % |
| Human health                   |       | 388                                                     |       | 52 | % | 208 |   | 38 | % |
| Total research and development |       | $                                                       | 745        |   | 100 | % | $ | 549 |   | 100 | % |

 

Ouragricultural research expenses increased during the six-month period ended December 31,2007 primarily as a result of an increase in the budget for the banana fieldtrials and an unfavorable exchange rate variance in connection with ourresearch agreement at the University of Waterloo.

 

Our humanhealth expenses increased during the six-month period ended December 31,2007 as we have initiated certain research projects that were not in progressduring the three month period ended December 31, 2006.  We expect the percentage of human healthresearch programs to continue to increase as a percentage of the total researchand development expenses as we continue our current research projects and beginnew human health initiatives.

 

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

* *

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

 

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

 

Below is a summary of the convertible notes as of December 31,2007:

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

 

Costs related to the issuance of the convertible notes and warrants inthe amount of $789,817, which include $277,979 of non-cash charges for warrantsissued to the placement agent, have been recorded as deferred financing costsand are being amortized over the term of the convertible notes.  The expected future quarterly amortization ofthe deferred financing costs will be $62,409.

 

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** **

Period From Inception on July 1, 1998 through December 31,2007

 

From inception of operations on July 1,1998 through December 31, 2007, we had revenues of $1,095,833, whichconsisted of the initial license fees and milestone payments in connection withour various development and license agreements. We do not expect to generate significant revenues for approximately thenext one to three years, during which time we will continue to engage insignificant research and development efforts.

 

We have incurred losses each yearsince inception and have an accumulated deficit of $27,053,424 at December 31,2007.  We expect to continue to incurlosses as a result of expenditures on research and development andadministrative activities.  

 

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** **

**Item 3.****                                   Quantitative and Qualitative Disclosures about MarketRisk.**

** **

*Foreign Currency Risk*

* *

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

** **

*Interest Rate Risk*

* *

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

 

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

 

Our management, with the participation of ourchief executive officer and chief financial officer, evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of December 31, 2007.  Based on this evaluation, our chief executiveofficer and chief financial officer concluded that as of December 31,2007, our disclosure controls and procedures were (1) designed to ensurethat material information relating to us, including our consolidatedsubsidiaries, is made known to our chief executive officer and chief financialofficer by others within those entities, particularly during the period inwhich this report was being prepared and (2) effective, in that theyprovide reasonable assurance that information required to be disclosed by us inthe reports that we file or submit under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms; and (ii) accumulated and communicated to ourmanagement including our chief executive officer and chief financial officer,as appropriate, to allow timely decisions regarding disclosures.

 

No change in our internal controls over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the three-month ended December 31, 2007 thathas materially affected, or is reasonably likely to materially affect, ourinternal controls over financial reporting.

 

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** **

**PART II. OTHERINFORMATION.**

 

**Item1A.  Risk Factors.**

** **

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

 

**Risks Related to Our Business**

 

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

* *

We are adevelopment stage biotechnology company with a limited operating history andlimited assets and capital.  We haveincurred losses each year since inception and have an accumulated deficit of$27,053,424 at December 31, 2007. We have generated minimal revenues bylicensing our technology for certain crops to companies willing to share in ourdevelopment costs. However, our technology may not be ready forcommercialization for several years. We expect to continue to incur losses forthe next several years because we anticipate that our expenditures on researchand development, and administrative activities will significantly exceed ourrevenues during that period. We cannot predict when, if ever, we will becomeprofitable.  

 

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

*** ***

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

 

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

*** ***

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

 

We have entered into definitive agreements toissue convertible notes and warrants for aggregate gross proceeds of $5,000,000to YA Global , of which all $5,000,000 have been issued.  We have also entered into definitiveagreements to issue convertible notes and warrants to Stanford , of which$2,000,000 have been issued.

 

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

 

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

 

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

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

·                  attempt to sell our company;

·                  cease operations; or

·                  declare bankruptcy.

 

We believe that at the projected rate of spending and theadditional $3,000,000 proceeds from the issuance of the convertible notes, weshould have sufficient cash and investments to maintain our present operationsfor the next 21 months.  However, if wedo not receive the additional $3,000,000 proceeds from the issuance of theconvertible notes and warrants, we should have sufficient cash and investmentsto maintain our present operations for the next 13 months.

 

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

* *

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

 

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

 

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

 

***We outsource all of ourresearch and development activities and, if we are unsuccessful in maintainingour alliances with these third parties, our research and development effortsmay be delayed or curtailed.***

*** ***

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

 

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

* *

As of December 31, 2007, we had cash andhighly-liquid investments valued at $5,635,644 and working capital of$4,763,840. Using our available reserves as of December 31, 2007, webelieve that we can operate according to our current business plan for the next13 months.  However, with the potentialadditional gross proceeds of $3,000,000 from the issuance of additionalconvertible notes and warrants, we believe that we can operate according to ourcurrent business plan for the next 21 months. To date, we have generated minimal revenues and anticipate that ouroperating costs will exceed any revenues generated over the next several years.Therefore, we will be required to raise additional capital in the future inorder to operate according to our current business plan, and this funding maynot be available on favorable terms, if at all. If we are unable to raise additional funds, we will need to do one ormore of the following:

 

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

·                  license third parties todevelop and commercialize our technology that we would otherwise seek todevelop and commercialize ourselves;

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

·                  cease operations.

 

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

 

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obtained orif adequate funds are not available, we may be required to curtail operationssignificantly or to obtain funds through arrangements with collaborativepartners or others that may require us to relinquish rights to certain of ourtechnologies, product candidates, products or potential markets. Investors mayexperience dilution in their investment from future offerings of our commonstock. 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 December 31, 2007, we had 8,428,999 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-Q.  Furthermore, we may need to issue securitiesthat have rights, preferences and privileges senior to our common stock.  Failure to obtain financing on acceptableterms would have a material adverse effect on our liquidity.

 

Since our inception, we have financed all of our operationsthrough private equity financings. Our future capital requirements depend onnumerous factors, including:

 

·                  the scope of our researchand development;

·                  our ability to attractbusiness partners willing to share in our development costs;

·                  our ability to successfullycommercialize our technology;

·                  competing technological andmarket developments;

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

·                  the cost of filing,prosecuting, defending and enforcing patent claims and other intellectualproperty rights.

 

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

*** ***

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

 

·                  our ability to obtainpatent protection for our technologies and processes;

·                  our ability to preserve ourtrade secrets; and

·                  our ability to operatewithout infringing the proprietary rights of other parties both in the UnitedStates and in foreign countries.

 

As of December 31, 2007, we have been issued sixteenpatents by the PTO and thirteen patents from foreign countries.  We have also filed numerous patentapplications for our technology in the United States and in several foreigncountries, which technology is vital to our primary business, as well asseveral Continuations in Part on these patent applications.  Our success depends in part upon the grant ofpatents from our pending patent applications.

 

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Although we believe that our technology is unique and willnot violate or infringe upon the proprietary rights of any third party, wecannot assure you that these claims will not be made or if made, could be successfullydefended against.  If we do not obtainand maintain patent protection, we may face increased competition in the UnitedStates and internationally, which would have a material adverse effect on ourbusiness.

 

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

 

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

 

·      our patent applications will result in theissuance of patents;

·                  any patents issued orlicensed to us will be free from challenge and that if challenged, would beheld to be valid;

·                  any patents issued orlicensed to us will provide commercially significant protection for ourtechnology, products and processes;

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

·                  other companies will notobtain access to our know-how;

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

·                  we will not requirelicensing and the payment of significant fees or royalties to third parties forthe use of their intellectual property in order to enable us to conduct ourbusiness.

 

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

*** ***

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

 

The PTO and the courts have not established a consistentpolicy regarding the breadth of claims allowed in biotechnology patents.  The allowance of broader claims may increasethe incidence and cost of patent interference proceedings and the risk of infringementlitigation.  On the other hand, theallowance of narrower claims 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 

 

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

 

***If our technologyinfringes the intellectual property of our competitors or other third parties,we may be required to pay license fees 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 maynot adequately protect our unpatented technology and, if we are unable toprotect the confidentiality of our proprietary information and know-how, thevalue of our technology may be adversely affected.***

*** ***

Our success depends upon know-how, unpatentable tradesecrets, and the skills, knowledge and experience of our scientific andtechnical personnel.  As a result, werequire all employees to agree to a confidentiality provision that prohibitsthe disclosure of confidential information to anyone outside of our company,during the term of employment and thereafter. We also require all employees to disclose and assign to us the rights totheir ideas, developments, discoveries and inventions.  We also attempt to enter into similaragreements with our consultants, advisors and research collaborators.  We cannot assure you that adequate protectionfor our trade secrets, know-how or other proprietary information againstunauthorized use or disclosure will be available.

 

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

 

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

*** ***

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

 

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

 

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

*** ***

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

 

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

*** ***

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

 

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

* *

Many human health and agricultural biotechnology companiesare engaged in research and development activities relating to apoptosis andsenescence.  The market for plantprotection and yield enhancement products is intensely competitive, rapidly changingand undergoing consolidation.  We may beunable to compete successfully against our current and future competitors,which may result in price reductions, reduced margins and the inability toachieve market acceptance for products containing our technology.  Our competitors in the field of plantsenescence gene technology are companies that develop and produce transgenicplants and 

 

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

 

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

*** ***

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

 

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

 

The FDA requires that transgenic 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 foods,but expects transgenic plant developers to consult the FDA before introducing anew food into the marketplace.

 

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

 

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

 

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

 

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

*** ***

Preclinicalstudies may reveal that our human health technology is ineffective or harmful,and/or clinical trials may be unsuccessful in demonstrating efficacy and safetyof our human health technology, which would significantly limit the possibilityof obtaining regulatory approval for any drug or biologic product manufacturedwith our technology.  The FDA requiressubmission of extensive preclinical, clinical and manufacturing data to assessthe efficacy and safety of potential products. Furthermore, the success ofpreliminary studies does not ensure commercial success, and later-stageclinical trials may fail to confirm the results of the preliminary studies.

 

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

*** ***

We cannotguarantee that consumers will accept agricultural products containing ourtechnology.  Recently, there has beenconsumer concern and consumer advocate activism with respect to geneticallyengineered agricultural consumer products. The adverse consequences from heightened consumer concern in this regardcould affect the markets for agricultural products developed with ourtechnology and could also result in increased government regulation in responseto that concern. If the public or potential customers perceive our technologyto be genetic modification or genetic engineering, agricultural products grownwith our technology may not gain market acceptance.

 

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*** ***

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

*** ***

We 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 our charter, by-laws and Delawarelaw could make a takeover difficult.***

*** ***

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

 

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

 

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

 

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

*** ***

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

 

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**Risks Related to Our Common Stock**

 

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

* *

As of December 31, 2007, our executive officers,directors and affiliated entities together beneficially own approximately 66.6%of the outstanding shares of our common stock, assuming the exercise of optionsand warrants which are currently exercisable or will become exercisable within60 days of December 31, 2007, held by these stockholders. As a result,these stockholders, acting together, will be able to exercise significantinfluence over matters requiring approval by our stockholders, including theelection of directors, and may not always act in the best interests of otherstockholders.  Such a concentration ofownership may have the effect of delaying or preventing a change in control ofus, including transactions in which our stockholders might otherwise receive apremium for their shares over then current market prices.

 

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

* *

As of December 31, 2007, we had 17,581,852 shares ofour common stock issued and outstanding, of which approximately 1,986,306shares are registered pursuant to a registration statement on Form S-3,which was declared effective on November 27, 2006, and the remainder ofwhich are either eligible to be sold under SEC Rule 144 or are in thepublic float.  In addition, we haveregistered 2,701,715 shares of our common stock underlying warrants previouslyissued on the Form S-3 registration statement that was declared effectiveon November 27, 2006, and we registered 6,000,000 shares of our commonstock underlying options granted or to be granted under our stock optionplan.  We have also filed a registrationstatement on October 12, 2007, which became effective on November 1,2007, to register 3,333,333 shares of common stock underlying convertiblenotes.  We have also filed anotherregistration statement on January 22, 2008 to register an additional891,667 shares of common stock underlying convertible notes.  Consequently, sales of substantial amounts ofour common stock in the public market, or the perception that such sales couldoccur, may have a material adverse effect on our stock price.

 

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

*** ***

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

 

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

*** ***

The American Stock Exchange requires us tomeet minimum financial requirements in order to maintain our listing.  We have received notices from the AmericanStock Exchange that we do not meet each of Section 1003(a)(ii) of theAmerican Stock Exchange Company Guide with shareholders’ equity of less than$4,000,000 and losses from continuing operations and/or net losses in three outof our four most recent fiscal years and Section 1003(a)(iii) of theAmerican Stock Exchange Company Guide with shareholders’ equity less than$6,000,000 and losses from continuing operations and/or net losses in the fivemost recent fiscal years.  We havesubmitted a plan to the American Stock Exchange discussing how we intend toregain compliance with the continued listing requirements.  The American Stock Exchange has accepted ourplan and has given us until March 1, 2008 to effectuate the plan andregain compliance with the continued listing requirements.  As of December 31, 2007, we believe thatwe are in compliance with the continued listing requirements.  However, if we are unable to continue to bein compliance with the continued listing requirements, it is possible that wewill be delisted.  If we are delistedfrom the American Stock Exchange, our common stock likely will become a “pennystock.”  In general, regulations of theSEC define a “penny stock” to be an equity security that is not listed on anational securities exchange or the NASDAQ Stock Market and that has a marketprice of less than $5.00 per share or with an exercise price of less than $5.00per share, subject to certain exceptions. If our common stock becomes a penny stock, additional sales practice requirementswould be imposed on broker-dealers that sell such securities to persons otherthan certain 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 onthe American Stock Exchange, we will make every possible effort to have itlisted on the Over the Counter Bulletin Board, or the OTC Bulletin Board.  If our common stock were to be traded on theOTC Bulletin Board, the Securities Exchange Act of 1934, as amended, andrelated SEC rules would impose additional sales practice requirements onbroker-dealers that sell our securities. These rules may adversely affect the ability of stockholders tosell our common stock and otherwise negatively affect the liquidity, tradingmarket and price of our common stock.

 

We believe that the listing of our commonstock on a recognized national trading market, such as the American StockExchange, is an important part of our business and strategy.  Such a listing helps our stockholders byproviding a readily available trading market with current quotations.  Without that, stockholders may have adifficult time getting a quote for the sale or purchase of our stock, the saleor purchase of our stock would likely be made more difficult and the tradingvolume and liquidity of our stock would likely decline.  The absence of such a listing may adverselyaffect the acceptance of our common stock as currency or the value accorded itby other parties.  In that regard, theabsence of a listing on a recognized national trading market will also affectour ability to benefit from the use of our operations and expansion plans,including for use in licensing agreements, joint ventures, the development ofstrategic relationships and 

 

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acquisitions, which are critical to ourbusiness and strategy and none of which is currently the subject of anyagreement, arrangement or understanding, with respect to any future financingor strategic relationship it may undertake. The delisting from the American Stock Exchange would result in negativepublicity and would negatively impact our ability to raise capital in thefuture.

 

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

*** ***

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

 

·      quarterly variations in operating results;

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

·      changes in accounting treatments or principles;

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

·      additions or departures of key personnel;

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

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

·      general political, economic and market conditions.

 

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

*** ***

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

 

***Our stockholders 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 December 31, 2007, we have granted options outside of ourstock option plan to purchase 10,000 shares of our common stock and outstandingwarrants to purchase 16,230,261 shares of our common stock.  In addition,as of December 31, 2007, we have reserved 6,000,000 shares of our common stockfor issuance upon the exercise of options granted pursuant to our stock optionplan, 3,805,600 of which have been granted, 90,000 of which have been exercisedsince inception, 3,715,600 of which are outstanding, and 2,194,400 of which maybe granted in the future.  The exercise of these options and warrants willresult in dilution to our existing stockholders and could have a materialadverse effect on our stock price. In addition, any shares issued in connectionwith the YA Global financing, as further discussed elsewhere in this Form 10-Q,or the Stanford financing can also have a dilutive effect and a possiblematerial adverse effect on our stock price. The conversion price of the convertible debentures is subject toadjustment if certain milestones are not met, and the warrants are also subjectto certain anti-dilution adjustments. The agreements with YA Global and Stanford provide for the potentialissuance of up to 62,388,888 shares of our common stock.

 

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**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.**

** **

On August 1, 2007 and August 29,2007, we entered into binding Securities Purchase Agreements with YA GlobalInvestments L.P., referred to herein as YA Global and Stanford Venture CapitalHoldings, Inc., referred to herein as Stanford, respectively, to sell toeach of YA Global and Stanford up to $5,000,000 of secured convertible notes andaccompanying warrants for an aggregate gross proceeds of $10,000,000.  The convertible notes convert into our commonstock at a fixed price of $0.90 per share subject to certain adjustments,referred to herein as the Fixed Conversion Price, for a period of two yearsimmediately following the signing date, provided that we have achieved thefollowing milestones by January 31, 2008: (i) successful completionof animal studies, other than toxicology studies, necessary for the advancementof factor 5A1 in human clinical trials; (ii) the engagement of a contractresearch organization for human clinical studies of factor 5A1; and (iii) thesigning of at least one (1) corporate partnership or license agreementafter August 1, 2007 with an agricultural company utilizing ourproprietary platform.  As of January 31,2008, we have met all of the required milestones.  After the second anniversary of the signingdate, the convertible notes may convert into shares of our common stock at thelower of the fixed conversion price or 80% of the lowest daily volume-weightedaverage price, referred to herein as the VWAP, of the common stock during thefive trading days prior to the conversion date. The maturity date of each ofthe convertible notes for YA Global and Stanford is December 30, 2010 and December 31,2010, respectively.  Currently, at thefixed conversion price, the number of shares of common stock issuable uponconversion of the convertible notes issued and to be issued and exercise ofwarrants issued and to be issued represents, in the aggregate, 24,994,445shares, plus an estimated additional 2,000,000 shares for the payment ofinterest in stock under the convertible notes.

 

The convertible notes accrue interest ontheir outstanding principal balances at an annual rate of 8%.  We have the option to pay interest in cashor, upon certain conditions, common stock. If we pay interest in common stock, the stock will be valued at a 10%discount to the average daily VWAP for the five day trading period prior to theinterest payment date, referred to herein as the Interest Shares

 

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

 

If there is an effective registrationstatement for the resale of the shares underlying the convertible notes or ifsuch shares become 144(k) eligible, we will have the option to force the 

 

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investors to convert 50% and 100% of itsthen-outstanding convertible notes if our common stock price exceeds 150% and175% of the Fixed Conversion Price, respectively, for any 20 out of 30 tradingdays; provided that such forced conversion meets certain conditions, referredto herein as the Call Option.  If weexercise our Call Option prior to the third anniversary of the signing date, wewill 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.

 

Our obligations under the convertible notesare secured by all of our and our subsidiary’s assets and intellectualproperty, as evidenced by certain Security Agreements and certain PatentSecurity Agreements by and between us and each of YA Global and Stanford.  Pursuant to a subordination agreement, YAGlobal is the senior secured creditor.

 

YA Global and Stanford have been or will beissued warrants to purchase an aggregate of 5,550,000 and 8,333,333,respectively, of our Common Stock, exercisable six months and one day from thedate of issuance until their expiration on the date that is five years from thedate of issuance.  The warrants are beingissued in two series, Series A warrants and Series B warrants.  The exercise price of the Series Awarrants is $1.01 per share, and the exercise price of the Series Bwarrants is $0.90 per share, subject to certain adjustments.  The warrants provide a right of cashlessexercise if, at the time of exercise, there is no effective registrationstatement registering the resale of the shares underlying the warrants.

 

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

 

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

 

Pursuant to the Registration RightsAgreement, we filed an initial registration statement on October 12, 2007to register 3,333,333 shares of common stock issuable to YA Global, and suchregistration statement became effective on November 1, 2007.  On January 22, 2008, we filed anotherregistration statement to register 891,667 shares of common stock issuable toYA Global.  If the shares issuable to YAGlobal remain outstanding after all shares under the registration statementshave been sold, we may be required to file additional registration statementsfor those shares.  These registrationrights will cease once the shares issuable to YA Global are eligible for saleby the investor without restriction under Rule 144(k).  Upon certain events, we have agreed to pay aspartial liquidated damages an amount equal to 1.0% of the aggregate purchaseprice paid by the investors for any convertible debentures then held by theinvestors, but these payments may not exceed 12% of the aggregate purchaseprice paid by the investors.  The maximumliquidated damages payable under the Registration Rights Agreement is$600,000.  We have not recorded anestimated registration rights liability as we anticipate that we will fulfillour obligations under the Registration Rights Agreement.

 

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The total gross proceeds from the issuance ofthe convertible notes and warrants will be $10,000,000 before payment of 3.25%of the purchase price in commissions to Wainwright & Co., Inc.,referred to herein as the Placement Agent. We will issue to the Placement Agent warrants to purchase 7% of thepurchase price, or 777,777 shares, of our Common Stock with similar terms tothe warrants that will be issued to the investors.  We have paid YA Global and will pay Stanforda non-refundable structuring/ due diligence fee of $30,000 each.  We have also agreed to pay YA Global andStanford a commitment fee of 5% and 7%, respectively, of its purchase price,which is paid proportionately at each closing.

 

*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities PurchaseAgreement, we have issued three convertible notes in the aggregate amount of$5,000,000 and Series A warrants in the amount of 2,775,000 shares underlyingthe warrants and Series B warrants in the amount of 2,775,000 sharesunderlying the warrants.

 

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

 

*Specifics of Stanford Financing*

* *

Pursuant to the Stanford Securities PurchaseAgreement, we have issued a convertible note in the amount of $2,000,000 and Series Awarrants in the amount of 2,500,000 shares underlying the warrants and Series Bwarrants in the amount of 2,500,000 shares underlying the warrants.

 

We will issue and sell to Stanford anadditional:

 

(1)   A convertible note and warrants in the amount of$1,500,000 on the date we enter into a supply agreement with a third partymanufacturer for sufficient quantity and quality of nano-particle forencapsulation of Factor 5A gene to be used in toxicology and proof of concepthuman studies under a FDA accepted IND application;

 

(2)   A convertible note and warrants in the amount of$1,500,000 on the date we enter into a supply agreement with a third partymanufacturer to provide sufficient quantity and quality of Factor 5A DNA tocarry out toxicology and proof of concept human studies under a FDA acceptedIND application.

 

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

 

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**Item 4.**            **Submissionof Matters to a Vote of Security Holders.**

 

(a)   Our annual meeting of stockholders was held on December 13,2007.

 

(b)   The following is a complete list of our directors asof December 13, 2007, each of whom was elected to a one-year term at themeeting, and whose term of office continued after the meeting.

 

Ruedi Stalder

Bruce C.Galton

John E.Thompson, Ph.D.

ChristopherForbes

Thomas C.Quick

David Rector

John Braca

Jack VanHulst

 

(c)   There were 14,827,680 shares of common stock presentat the meeting in person or by proxy, out of a total number of 17,473,694shares of common stock issued and outstanding and entitled to vote at themeeting.

 

The proposals and results of the vote of thestockholders taken at the meeting by ballot and by proxy as solicited by us onbehalf of our Board of Directors were as follows:

 

(A)          For theelection of the nominees for our Board of Directors:

 
| **Nominee**             | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|-------------------------|------------|------------|------------|--------------|------------|
|                    |       |       |       |         |       |
| Ruedi Stalder           |       | 14,110,291 |       | 717,388      |       |
| Bruce C. Galton         |       | 13,880,432 |       | 947,247      |       |
| John E. Thompson, Ph.D. |       | 14,304,049 |       | 523,630      |       |
| Christopher Forbes      |       | 14,160,049 |       | 667,630      |       |
| Thomas C. Quick         |       | 12,914,691 |       | 1,912,988    |       |
| David Rector            |       | 14,230,049 |       | 597,630      |       |
| John Braca              |       | 14,184,249 |       | 643,430      |       |
| Jack Van Hulst          |       | 14,141,689 |       | 685,990      |       |

 

(B)           To approvethe issuance and sale of up to $2,000,000 of secured convertible notes in thethird closing of the financing and the issuance and sale of up to an additional$5,000,000 of the secured convertible notes and warrants in the secondfinancing:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 10,773,600 |       | 574,087     |       | 23,621      |       | 3,456,372                 |       |

 

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(C)           To approvethe potential issuance of 62,388,888 shares of our common stock resulting from:(i) certain adjustments to the exercise price of the Series Bwarrants and to the conversion price of the secured convertible notes pursuantto the antidilution adjustment provisions of the respective securities and themilestone adjustment provision of the secured convertible notes; and (ii) pursuantto the interest shares provision of the secured convertible notes:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 10,649,566 |       | 697,720     |       | 24,022      |       | 3,456,372                 |       |

 

(D)          To approve anamendment to our Certificate of Incorporation, as amended, to increase thetotal authorized shares of our common stock, $0.01 par value per share, fromsixty million shares to one hundred million shares:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 10,708,202 |       | 632,117     |       | 30,989      |       | 3,456,372                 |       |

 

(E)           For theproposal to ratify the appointment of McGladrey & Pullen, LLP as ourindependent registered public accounting firm for the fiscal year ending June 30,2008:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| ** ** | ** ** | ** **  | ** ** | ** **  | ** ** |
| 14,742,415 |       | 51,342      |       | 33,923      |       |

 

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

 

Exhibits.

 
| 31.1 |   | Certification of principal  executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. (filed herewith)                                    |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of principal  financial and accounting officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. (filed herewith)                     |
| 32.1 |   | Certification of principal  executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002, 18 U.S.C. 1350. (furnished herewith)                |
| 32.2 |   | Certification of principal  financial and accounting officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350. (furnished herewith) |

 

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**SIGNATURES**

** **

In accordance with the requirements of the Securities Exchange Act of1934, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

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

 

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