**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,****D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **x**      | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                               |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                 |
| ** ** | **For the quarterly****period ended  March 31, 2008**                                                                                                                                                                                                                                                           |
| ** ** | ** **                                                                                                                                                                                                                                                                                                           |
| **OR**     |
|       |                                                                                                                                                                                                                                                                                                                 |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                              |
|       |                                                                                                                                                                                                                                                                                                                 |
|       | **For  the transition period  from                        to                     ** |

 

**Commission File No. 001-31326**

 

**SENESCO TECHNOLOGIES, INC.**

(exact name of registrant as specified in itscharter)

 

| **Delaware**                                                   | ** ** | **84-1368850**                    |
|----------------------------------------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (IRS Employer Identification No.) |
|                                                           |       |                              |
| **303 George Street, Suite 420**                          |
| **New Brunswick, New Jersey 08901**                            |
| (Address of principal executive offices)                       |
|                                                           |
| **(732) 296-8400**                                             |
| (Registrant’s telephone number, including  area code)     |

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

----

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

 

TABLE OFCONTENTS

 
| ** **    | ** **             | ** **                                                           | **Page** |
|---------------|------------------------|----------------------------------------------------------------------|----------|
|          |                   |                                                                 |     |
| PART I.  | FINANCIAL INFORMATION. |                                                                 |
|          |                   |                                                                 |     |
|          | Item 1.                | Financial Statements (Unaudited)                                     | 1        |
|          |                   |                                                                 |     |
|          |                   | CONDENSED CONSOLIDATED BALANCE SHEETS                                |     |
|          |                   | as of March 31, 2008 and June 30,  2007                    | 2        |
|          |                   |                                                                 |     |
|          |                   | CONDENSED CONSOLIDATED STATEMENTS OF  OPERATIONS                     |     |
|          |                   | For the Three Months Ended March 31,  2008 and 2007,            |     |
|          |                   | For the Nine Months Ended March 31,  2008 and 2007,             |     |
|          |                   | and From Inception on July 1, 1998  through March 31, 2008 | 3        |
|          |                   |                                                                 |     |
|          |                   | CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’  EQUITY       |     |
|          |                   | From Inception on July 1, 1998 through  March 31, 2008     | 4        |
|          |                   |                                                                 |     |
|          |                   | CONDENSED CONSOLIDATED STATEMENTS OF CASH  FLOWS                     |     |
|          |                   | For the Nine Months Ended March 31,  2008 and 2007,             |     |
|          |                   | and From Inception on July 1, 1998  through March 31, 2008 | 8        |
|          |                   |                                                                 |     |
|          |                   | NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                | 9        |
|          |                   |                                                                 |     |
|          | Item 2.                | Management’s Discussion and Analysis of  Financial              |     |
|          |                   | Condition and Results of Operations                                  | 20       |
|          |                   |                                                                 |     |
|          |                   | Overview                                                             | 20       |
|          |                   |                                                                 |     |
|          |                   | Liquidity and  Capital Resources                                     | 29       |
|          |                   |                                                                 |     |
|          |                   | Changes to  Critical Accounting Policies and Estimates               | 33       |
|          |                   |                                                                 |     |
|          |                   | Results of Operations                                                | 34       |
|          |                   |                                                                 |     |
|          | Item 3.                | Quantitative and Qualitative Disclosures  about Market Risk          | 42       |
|          |                   |                                                                 |     |
|          | Item 4.                | Controls and Procedures                                              | 42       |
|          |                   |                                                                 |     |
| PART II. | OTHER INFORMATION.     |                                                                 |
|          |                   |                                                                 |     |
|          | Item 1A.               | Risk Factors                                                         | 43       |
|          |                   |                                                                 |     |
|          | Item 6.                | Exhibits                                                             | 56       |
|          |                   |                                                                 |     |
| SIGNATURES    |                   | 57                                                                   |
|               |                        |                                                                      |          |  |  |  |  |  |  |

 

i

----

 

**PART I.  FINANCIALINFORMATION.**

 

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

 

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

 

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

 

1

----

 

SENESCO TECHNOLOGIES, INC. ANDSUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                     | ** ** | **March 31,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                                                                     | ** ** | **2008**           | ** ** | **2007**          | ** ** |
| ** **                                                                                                                     | ** ** | **(unaudited)**    | ** ** | ** **        | ** ** |
|                                                                                                                           |       |               |       |              |       |
| ASSETS                                                                                                                         |       |               |       |              |       |
| CURRENT ASSETS:                                                                                                                |       |               |       |              |       |
| Cash and cash equivalents                                                                                                      |       | $                  | 4,049,233  |              | $          | 408,061 |   |
| Short-term investments                                                                                                         |       | 500,000            |       | 250,000           |       |
| Prepaid expenses and other  current assets                                                                                     |       | 57,695             |       | 104,526           |       |
| Total Current Assets                                                                                                           |       | 4,606,928          |       | 762,587           |       |
|                                                                                                                           |       |               |       |              |       |
| Property and equipment, net                                                                                                    |       | 6,880              |       | 7,526             |       |
| Intangibles, net                                                                                                               |       | 3,032,449          |       | 2,544,447         |       |
| Deferred financing costs                                                                                                       |       | 729,029            |       | —            |       |
| Security deposit                                                                                                               |       | 7,187              |       | 7,187             |       |
| TOTAL ASSETS                                                                                                                   |       | $                  | 8,382,473  |              | $          | 3,321,747 |   |
|                                                                                                                           |       |               |       |              |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                      |       |               |       |              |       |
|                                                                                                                           |       |               |       |              |       |
| CURRENT LIABILITIES:                                                                                                           |       |               |       |              |       |
| Accounts payable                                                                                                               |       | $                  | 168,525    |              | $          | 109,258 |   |
| Accrued expenses                                                                                                               |       |               | 509,619    |              |       | 377,359 |   |
| Deferred revenue                                                                                                               |       | —             |       | 16,667            |       |
| Total Current Liabilities                                                                                                      |       | 678,144            |       | 503,284           |       |
| Convertible note, net of discount                                                                                              |       | 819,525            |       | —            |       |
| Grant payable                                                                                                                  |       | 99,728             |       | 99,728            |       |
| Other liability                                                                                                                |       | 24,595             |       | 29,196            |       |
| TOTAL LIABILITIES                                                                                                              |       | 1,621,992          |       | 632,208           |       |
|                                                                                                                           |       |               |       |              |       |
| STOCKHOLDERS’ EQUITY:                                                                                                     |       |               |       |              |       |
|                                                                                                                           |       |               |       |              |       |
| Preferred stock, $0.01 par value;  authorized 5,000,000 shares, no shares issued                                               |       | —             |       | —            |       |
| Common stock, $0.01 par value;  authorized 100,000,000 shares, issued and outstanding 17,728,314 and  17,473,694, respectively |       | 177,283            |       | 174,737           |       |
| Capital in excess of par                                                                                                       |       | 35,925,622         |       | 28,136,342        |       |
| Deficit accumulated during the  development stage                                                                              |       | (29,342,424        | )          | (25,621,540       | )          |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                |       | 6,760,481          |       | 2,689,539         |       |
|                                                                                                                           |       |               |       |              |       |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                               |       | $                  | 8,382,473  |              | $          | 3,321,747 |   |

 

See Notesto Condensed Consolidated Financial Statements.

 

2

----

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                                              | ** ** | **For the Three  Months Ended  March 31,** | ** ** | **For the Three  Months Ended  March 31,** | ** ** | **For the Nine  Months Ended  March 31,** | ** ** | **For the Nine  Months Ended  March 31,** | ** ** | **From Inception on  July 1, 1998  through  March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                                       | ** ** | **2007**                                                       | ** ** | **2008**                                                      | ** ** | **2007**                                                      | ** ** | **2008**                                                                         | ** ** |
|                                                                    |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| Revenue                                                                 |       | $                                                              | 79,167     |                                                           | $          | 6,250                                                         |       | $                                                             | 456,667    |                                                                             | $          | 268,750 |   | $ | 1,175,000 |   |
|                                                                    |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| Operating Expenses:                                                     |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| General and administrative                                              |       | 876,966                                                        |       | 514,189                                                        |       | 1,851,876                                                     |       | 2,001,068                                                     |       | 21,286,069                                                                       |       |
| Research and development                                                |       | 474,176                                                        |       | 314,294                                                        |       | 1,219,325                                                     |       | 863,037                                                       |       | 9,412,494                                                                        |       |
| Total Operating Expenses                                                |       | 1,351,142                                                      |       | 828,483                                                        |       | 3,071,201                                                     |       | 2,864,105                                                     |       | 30,698,563                                                                       |       |
|                                                                    |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| Loss From Operations                                                    |       | (1,271,975                                                     | )          | (822,233                                                       | )          | (2,614,534                                                    | )          | (2,595,355                                                    | )          | (29,523,563                                                                      | )          |
|                                                                    |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| Sale of state income tax loss,  net                                     |       | —                                                         |       | —                                                         |       | —                                                        |       | —                                                        |       | 586,442                                                                          |       |
| Other noncash income                                                    |       | —                                                         |       | —                                                         |       | —                                                        |       | —                                                        |       | 321,259                                                                          |       |
| Interest income, net                                                    |       | 43,907                                                         |       | 20,916                                                         |       | 76,013                                                        |       | 57,936                                                        |       | 455,801                                                                          |       |
| Amortization of debt discount and  financing costs                      |       | (628,626                                                       | )          | —                                                         |       | (927,054                                                      | )          | —                                                        |       | (927,054                                                                         | )          |
| Interest expense on convertible  notes                                  |       | (187,473                                                       | )          | —                                                         |       | (255,309                                                      | )          | —                                                        |       | (255,309                                                                         | )          |
| Net Loss                                                                |       | $                                                              | (2,044,167 | )                                                              | $          | (801,317                                                      | )          | $                                                             | (3,720,884 | )                                                                                | $          | (2,537,419 | ) | $ | (29,342,424 | ) |
|                                                                    |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| Basic and Diluted Net Loss Per  Common Share                            |       | $                                                              | (0.12      | )                                                              | $          | (0.05                                                         | )          | $                                                             | (0.21      | )                                                                                | $          | (0.15 | ) |   |   |
|                                                                    |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |                                                                             |       |
| Basic and Diluted Weighted  Average Number of Common Shares Outstanding |       | 17,583,461                                                     |       | 17,473,694                                                     |       | 17,510,410                                                    |       | 16,732,003                                                    |       |                                                                             |       |

 

See Notesto Condensed Consolidated Financial Statements.

 

3

----

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

(unaudited)

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

 

(continued)

See Notes to Condensed Consolidated FinancialStatements.

 

4

----

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

(unaudited)

 
| ** **                                                                                                         | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                         | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Par Value**                                     | ** ** | **Stage**  | ** ** | **Total** | ** ** |
|                                                                                                               |       |                  |       |                                |       |                                                   |       |       |       |   |   |
| Commissions, legal and bank fees  associated with 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.

 

5

----

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

(unaudited)

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

 

(cotinued)

See Notesto Condensed Consolidated Financial Statements

 

6

----

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

(unaudited)

 
| ** **                                                                                                                           | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Deficit  Accumulated  During the  Development** | ** ** | ** ** | ** **  |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|--------------------------------------------------------|------------|------------|-------------|
| ** **                                                                                                                           | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Par Value**                                     | ** ** | **Stage**  | ** **  | **Total** | ** ** |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Fair market value of options and  warrants granted and vested during the year ended June 30, 2006                               |       | —                |       | —                              |       | $                                                      | 677,000    |       | —      |   | $ | 677,000 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Warrants exercised during the  year ended June 30, 2006 at an exercise price of $0.01                                           |       | 10,000                |       | $                                   | 100        |                                                   | —     |       | —      |   | 100 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Issuance of common stock and  warrants for cash on October 11, 2006 at $1.135 per unit                                          |       | 1,986,306             |       | 19,863                              |       | 2,229,628                                              |       | —     |        | 2,249,491 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Commissions, legal and bank fees  associated with issuance on October 11, 2006                                                  |       | —                |       | —                              |       | (230,483                                               | )          | —     |        | (230,483 | ) |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Fair market value of options and  warrants vested during the year ended June 30, 2007                                           |       | —                |       | —                              |       | 970,162                                                |       | —     |        | 970,162 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Warrants exercised during the  year ended June 30, 2007 at an exercise price of $0.01                                           |       | 10,000                |       | 100                                 |       | —                                                 |       | —     |        | 100 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Fair market value of options and  warrants vested during the nine months ended March 31, 2008                                   |       | —                |       | —                              |       | 986,517                                                |       | —     |        | 986,517 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Allocation of proceeds from  issuance of convertible notes and warrants from September 21, 2007  through December 20, 2007 |       | —                |       | —                              |       | 6,550,000                                              |       | —     |        | 6,550,000 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Issuance of common stock in lieu  of cash payment for interest during the nine months ended March 31, 2008                      |       | 254,620               |       | 2,546                               |       | 252,763                                                |       | —     |        | 255,309 |   |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Net loss                                                                                                                             |       | —                |       | —                              |       | —                                                 |       | $          | (29,342,424 | ) | (29,342,424 | ) |
|                                                                                                                                 |       |                  |       |                                |       |                                                   |       |       |        |   |   |
| Balance at March 31, 2008                                                                                                       |       | 17,728,314            |       | $                                   | 177,283    |                                                   | $          | 35,925,622 |        | $ | (29,342,424 | ) | $ | 6,760,481 |   |

 

See Notesto Condensed Consolidated Financial Statements.

 

7

----

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
| ** **                                                                               | ** ** | **For the Nine Months Ended  March 31,** | ** ** | **From Inception  on July 1, 1998 through  March 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2008**                                                          | ** ** | **2007**                                                                        | ** ** | **2008** | ** ** |
| Cash flows from operating  activities:                                                   |       |                                                              |       |                                                                            |       |   |   |
| Net loss                                                                                 |       | $                                                                 | (3,720,884 | )                                                                               | $          | (2,537,419 | ) | $ | (29,342,424 | ) |
| 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                                      |       | 255,309                                                           |       | —                                                                          |       | 264,625 |   |
| Issuance of stock options and  warrants for services                                     |       | 708,537                                                           |       | 908,000                                                                         |       | 9,507,312 |   |
| Depreciation and amortization                                                            |       | 67,179                                                            |       | 117,094                                                                         |       | 431,020 |   |
| Amortization of convertible note  discount and deferred financing costs                  |       | 927,054                                                           |       | —                                                                          |       | 927,054 |   |
| (Increase) decrease in operating  assets:                                                |       |                                                              |       |                                                                            |       |   |   |
| Prepaid expense and other current  assets                                                |       | 46,831                                                            |       | 36,585                                                                          |       | (57,695 | ) |
| Security deposit                                                                         |       | —                                                            |       | —                                                                          |       | (7,187 | ) |
| Increase (decrease) in operating  liabilities:                                           |       |                                                              |       |                                                                            |       |   |   |
| Accounts payable                                                                         |       | 59,267                                                            |       | 9,846                                                                           |       | 168,525 |   |
| Accrued expenses                                                                         |       | 132,260                                                           |       | (92,870                                                                         | )          | 509,619 |   |
| Deferred revenue                                                                         |       | (16,667                                                           | )          | (18,750                                                                         | )          | — |   |
| Other liability                                                                          |       | (4,601                                                            | )          | (3,917                                                                          | )          | 24,595 |   |
| Net cash used in operating  activities                                                   |       | (1,545,715                                                        | )          | (1,581,431                                                                      | )          | (17,679,386 | ) |
|                                                                                     |       |                                                              |       |                                                                            |       |   |   |
| Cash flows from investing activities:                                                    |       |                                                              |       |                                                                            |       |   |   |
| Patent costs                                                                             |       | (551,752                                                          | )          | (390,381                                                                        | )          | (3,297,459 | ) |
| Purchase of investments, net                                                             |       | (250,000                                                          | )          | (100,000                                                                        | )          | (500,000 | ) |
| Purchase of property and  equipment                                                      |       | (2,783                                                            | )          | (1,482                                                                          | )          | (172,890 | ) |
| Net cash used in investing  activities                                                   |       | (804,535                                                          | )          | (291,863                                                                        | )          | (3,970,349 | ) |
|                                                                                     |       |                                                              |       |                                                                            |       |   |   |
| Cash flows from financing  activities:                                                   |       |                                                              |       |                                                                            |       |   |   |
| Proceeds from grant                                                                      |       | —                                                            |       | —                                                                          |       | 99,728 |   |
| Proceeds from issuance of bridge  notes                                                  |       | —                                                            |       | —                                                                          |       | 525,000 |   |
| Proceeds from issuance and  exercises of common stock and warrants                       |       | —                                                            |       | 2,019,108                                                                       |       | 19,082,818 |   |
| Proceeds from issuance of  convertible note and warrants, net of $450,000 paid to holder |       | 6,550,000                                                         |       | —                                                                          |       | 6,550,000 |   |
| Deferred financing costs                                                                 |       | (558,578                                                          | )          | —                                                                          |       | (558,578 | ) |
| Net cash provided by financing  activities                                               |       | 5,991,422                                                         |       | 2,019,108                                                                       |       | 25,698,968 |   |
|                                                                                     |       |                                                              |       |                                                                            |       |   |   |
| Net increase in cash and cash  equivalents                                               |       | 3,641,172                                                         |       | 145,814                                                                         |       | 4,049,233 |   |
|                                                                                     |       |                                                              |       |                                                                            |       |   |   |
| Cash and cash equivalents at  beginning of period                                        |       | 408,061                                                           |       | 318,473                                                                         |       | — |   |
|                                                                                     |       |                                                              |       |                                                                            |       |   |   |
| Cash and cash equivalents at end  of period                                              |       | $                                                                 | 4,049,233  |                                                                            | $          | 464,287 |   | $ | 4,049,233 |   |
|                                                                                     |       |                                                              |       |                                                                            |       |   |   |
| Supplemental disclosure of cash  flow information:                                       |       |                                                              |       |                                                                            |       |   |   |
| Cash paid during the period for  interest                                                |       | $                                                                 | —     |                                                                            | $          | — |   | $ | 22,317 |   |
| Supplemental schedule of noncash  financing activity:                                    |       |                                                              |       |                                                                            |       |   |   |
| Conversion of bridge notes into  stock                                                   |       | $                                                                 | —     |                                                                            | $          | — |   | $ | 534,316 |   |
| Allocation of convertible debt  proceeds to warrants and beneficial conversion feature   |       | $                                                                 | 6,550,000  |                                                                            | $          | — |   | $ | 6,550,000 |   |
| Warrants issued for financing  costs                                                     |       | $                                                                 | 277,979    |                                                                            | $          | — |   | $ | 277,979 |   |

 

See Notes to Condensed Consolidated FinancialStatements

 

8

----

 

SENESCO TECHNOLOGIES, INC.AND SUBSIDIARY

(A DEVELOPMENT STAGECOMPANY)

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

**Note 1 - Basis of Presentation:**

** **

Thefinancial statements included herein have been prepared by Senesco Technologies, Inc.(the “Company”), without audit, pursuant to the rules and regulations ofthe Securities and Exchange Commission. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith United States generally accepted accounting principles have been condensedor omitted pursuant to such rules and regulations. These unauditedcondensed consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year ended June 30,2007.

 

Inthe opinion of the Company’s management, the accompanying unaudited condensedconsolidated financial statements contain all adjustments, consisting solely ofthose which are of a normal recurring nature, necessary to present fairly itsfinancial position as of March 31, 2008, the results of its operations forthe three-month and nine-month periods ended March 31, 2008 and 2007, cashflows for the nine-month periods ended March 31, 2008 and 2007, and theresults of its operations and cash flows for the period from inception on July 1,1998 through March 31, 2008.

 

Interimresults are not necessarily indicative of results for the full fiscal year.

 

**Note 2 – Liquidity:**

** **

The operations of theCompany to date have required significant cash expenditures. As shown in theaccompanying financial statements, the Company has a history of losses with adeficit accumulated during the development stage from inception through March 31,2008 of $29,342,424. The future capital requirements of the Company will dependon the results of its research and development activities, preclinical studiesand competitive and technological advances.

 

As of March 31, 2008, the Company had cash andinvestments in the amount of $4,549,233, which the Company estimates will coverits expenses for approximately the next twelve months.

 

In connection with agreements entered into on August 29,2007, the Company will issue convertible notes and warrants and will receive$1,500,000 on the date the Company enters into a supply agreement with a thirdparty manufacturer 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 United States Food and Drug Administration, (the “FDA”),accepted Investigational New Drug application, (an “IND Application), and$1,500,000 on the date the Company enters into a supply agreement with a thirdparty manufacturer to provide sufficient quantity and quality of Factor 5A DNAto carry out toxicology and proof of concept human studies under a FDA acceptedIND Application (see Note 7). If the Company receives the additional grossproceeds from the issuance of $3,000,000 of convertible notes and warrants, 

 

9

----

 

thenthe Company estimates that it will have enough cash and investments to coverits expenses for approximately the next 18 months.

 

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

 

**Note 3 – IntangibleAssets:**

** **

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 the basis of the Company’s future revenue,certain patent costs are capitalized. The capitalized patent costs representthe outside legal fees incurred by the Company to submit and undertake allnecessary efforts to have such patent applications issued as patents.

 

The length of time that it takes for an initialpatent application to be approved is generally between four to six years,however, due to the unique nature of each patent application, the actual lengthof time may vary. If a patent application is denied, the associated cost ofthat application would be written off. However, the Company has not had anypatent applications denied as of the date of this Report on Form 10-Q. Additionally,should a patent application become impaired during the application process, theCompany would write down or write off the associated cost of that patentapplication.

 

Issued patents and agricultural patents pending arebeing amortized over a period of 17 years, the expected economic life of thepatent.

 

The Company assesses the impairment in value ofintangible assets whenever events or circumstances indicate that their carryingvalue may not be recoverable. Factors the Company considers important whichcould trigger an impairment review include the following:

 

•            significantnegative industry trends;

•            significantunderutilization of the assets;

•            significantchanges in how the Company uses the assets or its plans for their use; and

•            changes intechnology and the emergence of competing technology.

 

If the Company’s review determines that the future discounted cashflows related to these assets will not be sufficient to recover their carryingvalue, the Company will reduce the carrying values of these assets down to itsestimate of fair value and continue amortizing them over their remaining usefullives. To date, the Company has not recorded any impairment of intangibleassets.

 

10

----

** **

**Note 4 - Loss PerShare:**

** **

Net loss per common share is computed by dividingthe net loss by the weighted average number of common shares outstanding duringthe period. As of March 31, 2008, shares to be issued upon the exercise ofoptions and warrants aggregating 19,955,861 at an average exercise price of$1.47, and as of March 31, 2007, shares to be issued upon the exercise ofoptions and warrants aggregating 9,007,877 at an average price of $2.47 are notincluded in the computation of diluted loss per share as the effect isanti-dilutive. Additionally, at March 31, 2008, 7,777,777 shares to beissued upon the conversion of convertible notes at a fixed conversion rate of$0.90 are not included in the computation of diluted loss per share as theeffect is anti-dilutive.

 

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

** **

The terms and vesting schedules for share-based awards vary by type ofgrant and the employment status of the grantee. Generally, the awards vestbased upon time-based conditions.

 

The fair value of each stock option andwarrant granted has been determined using the Black-Scholes model. The materialfactors incorporated in the Black-Scholes model in estimating the value of theoptions and warrants include the following:

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

 

----

(1) Represents the interest rateon a U.S. Treasury security with a maturity date corresponding to that of theoption term.

 

The economic values of the options will dependon the future price of the Company’s common stock, par value $0.01 ( the “CommonStock”), which cannot be forecast with reasonable accuracy.

 

A summary of changes in the stock option planfor the nine month period ended March 31, 2008 is as follows:

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

 

11

----

 

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

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

 

As of March 31, 2008, the aggregateintrinsic value of stock options outstanding was $372,084, with aweighted-average remaining term of 6.2 years. The aggregate intrinsic value ofstock options exercisable at that same date was $107,967, with aweighted-average remaining term of 5.1 years. As of March 31, 2008, theCompany has 1,856,700 shares available for future stock option grants.

 

As of March 31, 2008, total compensationexpense not yet recognized related to stock option grants and restricted stockunits amounted to approximately $357,000**,**which will be recognized over the next 21 months and an additional $640,000which may be recognized as achievement of certain target goals under theCompany’s Long-Term Incentive Program become probable over the next 33 months.

 

*Short-Term Incentive Program*

* *

On December 13, 2007, uponrecommendation of the Company’s Compensation Committee, the Board adopted aShort-Term Equity Incentive Program for the members of the executive managementteam. 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-TermEquity Incentive 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 tobe awarded to the executive is based upon the following weightings:

 

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

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

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

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

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;

 

12

----

 

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 theCompany, the executive officers would be awarded the following number of sharesand options for the Fiscal year ended June 30, 2008:

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

 

----

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

 

As of March 31, 2008, the Company hasdetermined that the achievement of the target goals is probable. The totalamount of compensation expense in connection with the short-term incentiveprogram in the amount of $206,269 is being recorded ratably over the six andone-half month period from December 13, 2007 through June 30, 2008. Suchcompensation expense was determined under a black-scholes model on the date ofadoption of the Short-Term Equity Incentive Program. For the nine month periodended March 31, 2008, the Company recorded $111,068 of such expense.

 

*Long-Term Incentive Program*

* *

On December 13, 2007, uponrecommendation of the Company’s Compensation Committee, the Board adopted aLong-Term Equity Incentive Program for the members of the executive managementteam. 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 Long-TermEquity Incentive Program, each executive would be awarded shares of the Company’sCommon Stock and options to acquire shares of the Company’s Common Stock if theCompany achieves certain target goals relating to its Multiple Myeloma researchproject over the next three fiscal years.

 

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

 

1.                 20% of theeligible shares upon the execution of a research agreement to conduct a phaseI/II clinical trial at a research facility;

2.                 20% of theeligible shares upon the filing and acceptance by the FDA of an investigationalnew drug application; and

3.                 60% of theeligible shares upon the successful completion of a FDA approved phase I/IIclinical trial .

 

13

----

 

If the target goals are achieved by theCompany, the executive officers would be awarded the following number of sharesand options :

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

 

----

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

 

Asof March 31, 2008, the Company is not able to determine if the achievementof the target goals under the Long-Term Equity Incentive Program are probableand, therefore, has not yet begun to recognize any of the $640,000 compensationexpense that was computed on the date of adoption of the program. The Companywill begin recognizing such compensation expense ratably over the remainingterm of the plan at such time that the Company is able to determine that theachievement of the target goals are probable.

 

**Note 6** – **Revenue Recognition:**

** **

The Company receives certain nonrefundable upfrontfees in exchange for the transfer of its technology to licensees. Upon deliveryof the technology, the Company has no further obligations to the licensee withrespect to the basic technology transferred and, accordingly, recognizesrevenue at that time. The Company may, however, receive additional paymentsfrom its licensees in the event such licensees achieve certain development orcommercialization milestones in their particular field of use. Othernonrefundable upfront fees and milestone payments, where the milestone paymentsare a function of time as opposed to achievement of specific achievement-basedmilestones, are deferred and amortized ratably over the estimated researchperiod of the license.

 

14

----

** **

**Note 7 – Convertible Note and Stockholders Equity:**

** **

On August 1, 2007 and August 29, 2007, theCompany entered into binding Securities Purchase Agreements with YA GlobalInvestments L.P. (“YA Global”) and Stanford Venture Capital Holdings, Inc.(“Stanford”), respectively, to sell to each of YA Global and Stanford up to$5,000,000 of secured convertible notes and accompanying warrants for anaggregate gross proceeds of $10,000,000. The convertible notes convert into theCompany’s common stock at a fixed price of $0.90 per share subject to certainadjustments (the “Fixed Conversion Price”), for a period of two yearsimmediately following the signing date, provided that the Company has achievedthe 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 of Factor 5A1, and (iii) thesigning of at least one (1) corporate partnership or license agreementafter August 1, 2007 with an agricultural company utilizing the Company’sproprietary platform. As of January 31, 2008, the Company has completedall of the three required milestones. After the second anniversary of thesigning date, the convertible notes may convert into shares of the Company’scommon stock at the lower of the fixed conversion price or 80% of the lowestdaily volume-weighted average price (the “VWAP”), of the common stock duringthe five trading days prior to the conversion date. The maturity date of eachof the convertible notes for YA Global and Stanford is December 30, 2010and December 31, 2010, respectively. Currently, at the fixed conversionprice, the number of shares of common stock issuable upon conversion of the$7,000,000 of convertible notes outstanding and shares of common stock to beissued upon exercise of the warrants outstanding at March 31, 2008represents, in the aggregate, 18,327,777 shares, plus an estimated additional1,400,000 shares for the payment of interest in stock under the convertiblenotes.

 

The convertible notes accrue interest on theiroutstanding principal balances at an annual rate of 8%. The Company has theoption to pay interest in cash or, upon certain conditions, common stock. Ifthe Company pays 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 (the “Interest Shares”)

 

At the Company’s option, it can redeem a portion of,or all 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 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 registration statement forthe resale of the shares underlying the convertible notes or if such sharesbecome 144(k) eligible, the Company will have the option to force theinvestors to convert 50% and 100% of its then-outstanding convertible notes ifits 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 (the 

 

15

----

 

“CallOption”). If the Company exercises its Call Option prior to the thirdanniversary of the signing date, it will issue additional warrants to theinvestor equal to 50% of the number of shares underlying the convertible notesubject to the forced conversion. These warrants will be exercisable at thefixed conversion price and will have the same maturity as the other warrantsissued under the YA Global financing.

 

The Company’s obligations under the convertiblenotes are secured by all of its and its subsidiary’s assets and intellectualproperty, as evidenced by certain Security Agreements and certain PatentSecurity Agreements by and between the Company and each of YA Global andStanford. Pursuant to a subordination agreement, YA Global is the seniorsecured creditor.

 

The agreements with YA Global and Stanford providesfor the issuance of warrants to purchase an aggregate of 5,550,000 and8,333,333, respectively, of the Company’s Common Stock, exercisable six monthsand one day from the date of issuance until their expiration on the date thatis five years from the date of issuance. The warrants will be issued in twoseries. Generally, the Series A warrants may be issued prior tostockholder approval, while the Series B warrants are only issued afterstockholder approval, which has been received. 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 warrantsprovide a right of cashless exercise if, at the time of exercise, there is noeffective registration statement registering the resale of the sharesunderlying the warrants.

 

The conversion rate of each convertible note and theexercise price of the Series B warrants are subject to adjustment forcertain events, including dividends, stock splits, combinations and the sale ofthe Company’s Common Stock or securities convertible into or exercisable forthe Company’s Common Stock at a price less than the then applicable conversion orexercise price.

 

The investors have a right of first refusal on anyfuture funding that involves the issuance of the Company’s capital stock for solong as a portion of the convertible notes is outstanding.

 

Pursuant to the Registration Rights Agreement, theCompany filed an initial registration statement on October 12, 2007 toregister 3,333,333 shares of common stock, underlying the convertible notes,issuable to YA Global, and such registration statement became effective on November 1,2007. The Company is required to register an additional 891,667 shares ofcommon stock issuable to YA Global. However, YA Global has amended itsRegistration Rights Agreement deferring its right to have such additionalshares registered. If the shares issuable to YA Global remain outstanding afterall shares under the registration statements have been sold, the Company may berequired to file additional registration statements 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 agreed to pay as partial liquidateddamages an amount equal to 1.0% of the aggregate purchase price paid by theinvestors for any convertible debentures then held by the investors, but thesepayments may not exceed 12% of the aggregate purchase price paid by theinvestors. The maximum liquidated damages payable under the Registration RightsAgreement is $600,000. The Company has not recorded an estimated registrationrights liability as the Company anticipates that it will fulfill itsobligations under the Registration Rights Agreement.

 

16

----

 

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

 

*Specifics of YA Global Financing*

* *

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

 

The gross proceeds, less $280,000 paid to YAGlobal, of $4,720,000 from the issuance of convertible notes and warrants havebeen allocated between the convertible notes and warrants based upon their fairvalues using the Black-Scholes model. Additional amounts were allocated to thebeneficial conversion feature based upon the effective conversion pricecompared to the fair value of the common stock on the date of issuance of theconvertible notes and warrants.The material factorsincorporated in the Black-Scholes model in estimating the value of the warrantsinclude the following:

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

 

As of March 31, 2008, net proceeds of$4,720,000 were allocated to the warrants and beneficial conversion feature andrecorded as equity.

 

The convertible notes and warrants issued to YAGlobal 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 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.

 

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

 

17

----

 

material factors incorporated in the Black-Scholes model in estimatingthe value of the warrants include the following:

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

 

As of March 31, 2008, net proceeds of$1,830,000 were allocated to the warrants and beneficial conversion feature andrecorded as equity.

 

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

 
| 1.     | a convertible note and warrants in the amount of $1,500,000 on the  date the Company enters into a supply agreement with a third party  manufacturer for sufficient quantity and quality of nano-particle for  encapsulation of Factor 5A gene to be used in toxicology and proof of concept  human studies under an FDA accepted IND Application; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                   |
| 2.     | a convertible note and warrants in the amount of $1,500,000 on the  date the Company enters into a supply agreement with a third party  manufacturer to provide sufficient quantity and quality of Factor 5A DNA to  carry out toxicology and proof of concept human studies under a FDA accepted  IND Application.                                    |

 

The convertible notes and warrants issuable toStanford will be subject to a maximum cap of 31,888,888 on the number of sharesof common stock that can be issued upon the conversion of the convertible notesand the exercise of the warrants.

 

As of March 31, 2008, the outstanding balanceof the Convertible Notes were $819,525, which is comprised of notes with an aggregateface amount of $7,000,000 less unamortized debt discount of $6,180,475. On April 29,2008, YA Global converted $500,000 of the Convertible Notes into 555,556 sharesof the Company’s common stock.

 

Debt discount associated with the Convertible Notesis amortized to interest expense over the remaining life of the ConvertibleNotes. Upon conversion of the Convertible Notes into Common Stock, anyunamortized debt discount relating to the portion converted will be charged toequity. Total charges to interest for amortization of debt discount were$561,965 and $819,525 for the three month and nine month periods ended March 31,2008.

 

The costs associated with the issuances in theamount of $836,558 have been recorded as deferred financing costs and are beingamortized ratably over the term of the convertible notes. The balance ofdeferred financing costs as of March 31, 2008 amounted to $729,029.

 

18

----

** **

**Note 8 – Income Taxes:**

** **

No provision for incometaxes has been made in the three months and nine month periods ended March 31,2008 and 2007 given the Company’s losses in 2008 and 2007 and available netoperating loss carryforwards. A benefit has not been recorded as therealization of the net operating losses is not assured and the timing in whichthe Company can utilize its net operating loss carryforwards in any year or intotal may be limited by provisions of the Internal Revenue Code regardingchanges in ownership of corporations.

 

In July 2006, theFinancial Accounting Standards Board issued FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in an entity’s financial statements in accordance with FASBStatement No. 109, “Accounting for 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 on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. TheCompany adopted FIN 48 effective July 1, 2007 and there was no materialeffect on our results of operations or financial position.

 

**Note 9 – Effects of New Accounting PronouncementsApplicable to the Company**

** **

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

* *

This pronouncement statesthat nonrefundable advance payments for future research and developmentactivities should be deferred and capitalized. This pronouncement is effectivefor financial statements issued for fiscal years beginning after December 15,2007, and interim periods within those fiscal years. Early application is notpermitted. The Company does not believe that this pronouncement will have anymaterial effect on its financial statements.

 

**Note 10 – Financial Advisory Agreement:**

** **

On February 14**,** 2008, theCompany amended its non-exclusive financial advisory agreement with StanfordGroup Company, which was originally entered into on October 11, 2006. Theamendment extended the term of the agreement through June 30, 2012 andexpanded the services to be provided to the Company. As compensation for theterm extension and expansion of services, previously issued warrants wereamended. 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 $1.01. Additionally, theexpiration dates of December 2009 and January 2010 were each extendedthrough June 30**,** 2012. Acompensation charge in the amount of $384,500 was recorded during the threemonth period ended March 31, 2008 in connection with extension andrepricing of the warrants. The agreement may be terminated by either party uponsixty days written notice.

 

19

----

 

**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 andanalysis may contain forward-looking statements that are based upon currentexpectations and entail various risks and uncertainties. Our actual results andthe timing of events could differ materially from those anticipated in theforward-looking statements as a result of various factors, including those setforth under “Factors That May Affect Our Business, Future OperatingResults and Financial Condition” and elsewhere in this report.

 

**Overview**

** **

*Our Business*

* *

Weare a development stage biotechnology company whose primary business is todevelop and license our patented and patent-pending genes, primarilyeucartyotic translation initiation Factor 5A, or Factor 5A, and deoxyhypusinesynthase, or DHS, and related technologies for inhibition, i.g. siRNA, in humanhealth applications, to:

 

•                  develop novelapproaches to treat inflammatory and/or apoptotic related diseases in humans;and

 

•                  develop novelapproaches to treat cancer, a group of diseases in which apoptosis does notoccur 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*

* *

Webelieve that our gene technology could have broad applicability in the humanhealth field, by either inhibiting or accelerating apoptosis. Inhibitingapoptosis may be useful in preventing or treating a wide range of inflammatoryand ischemic diseases attributed to premature apoptosis. Accelerating apoptosismay be useful in treating certain forms of cancer because the body’s immunesystem is not able to force cancerous cells to undergo apoptosis via normalmechanisms.

 

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

 

Certain preclinical humanhealth results to date include:

 

•                  demonstratedsignificant tumor regression and diminished rate of tumor growth of multiplemyeloma tumors in SCID mice treated with Factor 5A technology encapsulated innanoparticles.

 

•                  increasing themedian survival by approximately 250% in a tumor model of mice injected withmelanoma cancer cells;

 

20

----

 

•                  inducingapoptosis in both human cancer cell lines derived from tumors and in lungtumors in mice;

 

•                  inducingapoptosis of cancer cells in a human multiple myeloma cell line;

 

•                  measuring VEGFreduction in mouse lung tumors as a result of treatment with our genes;

 

•                  reducing theamounts of p24 and IL-8 by approximately 50 percent in a HIV-1 infected humancell line;

 

•                  increased thesurvival, while maintaining functionality, of mouse pancreatic islet cellsisolated for transplantation, using intraperitaneal administration of eIF-5AsiRNA. Initial animal studies have shown that siRNA to Factor 5A administeredprior to harvesting beta islet cells from a mouse has a significant impact notonly on the survival of the beta islet cells, but also on the retention of thecells functionality when compared to the untreated beta islet cells. Additionalstudies have shown that the treated beta islet cells survive a pro-inflammatorycytokine challenge, while maintaining their functionality with respect toinsulin production. These further studies also revealed eIF-5A’s modulation ofinducible nitric oxide synthase (iNOS), an important indicator of inflammation;

 

•                  demonstratingthat the efficacy of our technology is comparable to that of existing approvedanti-inflammatory prescription drugs in reducing certain inflammatory cytokinesin mice; and

 

•                  increasing thesurvival rate of mice in a lethal challenge sepsis model. Additionally, a broadspectrum of systemic pro-inflammatory cytokines were down-regulated, while noteffecting the anti-inflammatory cytokine IL-10.

 

Inhibiting Apoptosis

 

We believe that down-regulation of our proprietaryFactor 5A gene may have potential application as a means for controlling theeffect of a broad range of diseases that are attributable to prematureapoptosis, ischemia, or inflammation. Apoptotic diseases include glaucoma,heart disease, and certain inflammatory diseases such as Crohn’s disease,sepsis and diabetic retinopathy, among many others. We are engaged inpreclinical research on certain inflammatory diseases. Using small inhibitoryRNA’s, or siRNA’s, against Factor 5A to inhibit its expression, we have reducedpro-inflammatory cytokine formation and formation of receptors forliposolysaccharide, or LPS, interferon-gamma and TNF-alpha. We have alsodetermined that by inhibiting Factor 5A iNOS, MAPK, NFkB and JAK1 aredownregulated, which decreases the inflammatory cytokines formed through thesepathways. Additionally, we have shown in a mouse study that our siRNA iscomparable to a steroid and to a prescription anti-TNF drug in its ability toreduce cytokine response to LPS. *In-vivo*mouse studies have shown that 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, an anti-inflammatorycytokine. The siRNA’s against Factor 5A are currently being tested in severalpreclinical *in-vivo* inflammatorydisease models. Other experiments utilizing siRNA to Factor 5A includeinhibition of cell death, or 

 

21

----

 

apoptosis,during the processing of mouse pancreatic beta islet cells for transplantation;the inhibition of early inflammatory changes associated with type-2 diabetes inan in-vivo rat model; and the inhibition of viral replication in a human cellline infected with HIV-1.

 

Proteins required for celldeath include p53, interleukins, TNF-a and other cytokines, and caspases. Expressionof these cell death proteins is required for the execution of apoptosis. Wehave found that downregulating Factor 5A by treatment with siRNA, inhibits theexpression of p53, a major cell death transcription factor that in turncontrols the formation of a suite of other cell death proteins. In addition,down-regulation of Factor 5A up-regulates Bcl-2, a major suppressor ofapoptosis.

 

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-vitro studies, we have found that up-regulatingFactor 5A results in: (i) the up-regulation of p53; (ii)  increasesinflammatory cytokine production; (iii) increases cell death receptorformation; and (iv) increases caspase activity. These features, coupledwith a simultaneous down-regulation Bcl-2, result in apoptosis of cancer cells.  In addition, in-vitro studies have shown thatup-regulation of Factor 5A also down-regulates VEGF, a growth factor whichallows tumors to develop additional vascularization needed for growth beyond asmall mass of cells.

** **

*Human Health Research Program*

* *

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

 

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

 

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

 

•                  MultipleMyeloma. Advance our technology for the potential treatment of multiple myelomawith the goal of initiating a clinical trial. In connection with the potentialclinical trial, we have engaged a clinical research organization, or CRO, toassist us 

 

22

----

 

through the process. Together with the CRO, we willalso be finalizing our evaluation of potential delivery systems for ourtechnology in the animal model, contracting for the supply of pharmaceuticalgrade materials to be used in toxicology and human studies, and ultimatelyfiling an investigational new drug application, or IND application, with theU.S. Food and Drug Administration, or FDA, for their review and considerationin order to initiate a clinical trial. We estimate that it will take less thantwentyfour months to complete these objectives.

 

•                  HIV-1. We willcontinue in-vitro studies utilizing different siRNA delivery systems in orderto increase the transfection efficiency of the siRNA to Factor 5A to determinefurther decreases in HIV replication and may seek animal models to testdelivery systems. A nanoparticle has been identified for the delivery of Factor5A.

 

23

----

 

•            Lung Inflammation. Optimizationof the delivery and dose of the siRNA against Factor 5A to the lungs may be thedirection of future lung inflammation experiments. Mouse model systems may beused to illustrate the siRNA to Factor 5A’s ability to reduce morbidity andmortality in lung inflammation, caused by the up-regulation of pro-inflammatorycytokines induced by flu.

 

•            Diabetic Retinopathy. Wehave received encouraging results from our initial studies, which have shown adecrease in key proteins related to retinopathy, such as TNF, VEGF, and iNOS.

 

•            Other. We may look at otherdisease states in order to determine the role of Factor 5A.

 

In order to pursue the above researchinitiatives, as well as other research initiatives that may arise, we haverecently completed private placements of $10 million of convertible notes andcommon stock warrants. We have already issued and received the net proceedsfrom $7 million of the convertible notes and common stock warrants. Theremaining $3 million from the private placements will be received upon theoccurrence of the following development milestones:

 

•            $1.5 million on the datethat we enter 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; and

 

•            $1.5 million on the datethat 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 an FDA accepted INDapplication.

 

However, it may be necessary for us to raisea significant amount of additional working capital in the future to continue topursue some of the above and new initiatives. If we are unable to raise thenecessary funds or meet the corporate and scientific milestones provided for inthe private placements, we may be required to significantly curtail the futuredevelopment of some of our research initiative and we will be unable to pursueother 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 andcharacterized the senescence-induced lipase gene, DHS, and Factor 5A in certainspecies of plants. Our goal is to modulate the expression of these genes in orderto achieve such traits as extended shelf life, increased biomass, increasedyield and increased resistance to environmental stress and disease, therebydemonstrating proof of concept in each category of crop.

 

24

----

 

Certainagricultural results to date include:

 

•                  longer shelflife of perishable produce;

•                  increasedbiomass and seed yield;

•                  greatertolerance to environmental stresses, such as drought and soil salinity;

•                  greatertolerance to certain fungal and bacterial pathogens;

•                  more efficientplant utilization of fertilizer; and

•                  advancement tofield trials in banana, lettuce, and trees.

 

Wehave licensed this technology to various strategic partners and have enteredinto a joint venture. We may continue to license this technology, as theopportunities present themselves, to additional strategic partners and/or enterinto additional joint ventures. Together with our commercial partners, we arecurrently working with lettuce, turfgrass, canola, corn, soybean, cotton,banana, alfalfa, rice and certain species of trees and bedding plants, and wehave obtained proof of concept for enhanced post harvest shelf life, seedyield, biomass, and resistance to disease in several of these plant species.

 

Wehave ongoing field trials of certain trees and bananas with our respectivepartners. The initial field trials conducted with ArborGen over a three yearperiod in certain species of trees have concluded and the trees have beenharvested for wood quality assessment. Preliminary data from our joint fieldtrials show significantly enhanced growth rates in some of the trees relativeto controls. Through these studies and further research and development, wehave selected promising genetic lines which are now being prepared fro thefield.

 

Thefirst and second round of banana field trials have shown that our technologyextends the shelf life of banana fruit by 100%. In addition to the post harvestshelf life benefits, an additional field trial generated encouraging diseasetolerance data, specific to Black Sigatoka (Black Leaf Streak Disease), forbanana plants. Additional field trials for banana plants are ongoing for BlackSigatoka.

 

Commercializationby our partners may require a combination of traits in a crop, such as bothpost harvest shelf life and disease resistance, or other traits. Our near-termresearch and development initiatives include modulating the expression of DHSand Factor 5A genes in these plants and propagation and then propagation andphenotype testing of such plants.

 

25

----

 

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

 

•            further develop andimplement the DHS and Factor 5A gene technology in lettuce, melon, banana,canola, cotton, turfgrass, bedding plants, rice, alfalfa, corn, soybean andtrees; and

 

•            test the resultant crops fornew beneficial traits such as increased yield, increased tolerance toenvironmental stress, disease resistance and more efficient use of fertilizer.

 

*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 revenuesfrom these relationships in the form of licensing fees and royalties from ourpartners, usage fees in the case of the agreement with Poet, or sharing grossprofits in the case of the joint venture with Rahan Meristem. In addition, weanticipate payments from our partners upon our achievement of certain researchand development benchmarks. This commercialization strategy allows us togenerate revenue at various stages of product development, while ensuring thatour technology is incorporated into a wide variety of crops. Our optimalpartners combine the technological expertise to incorporate our technology intotheir product line along with the ability to successfully market the enhancedfinal product, thereby eliminating the need for us to develop and maintain asales force.

 

Through April 30, 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 byprivately held companies or subsidiaries of foreign owned companies, marketsize and market share data for the crops under our license and developmentagreements is not readily available. Additionally, because we have entered intoconfidentiality agreements with our license and development partners, we areunable to report the specific financial terms of the agreements as well as anymarket size and market share data that our partners may have disclosed to usregarding their companies.

 

Generally, projects with our license and joint venture partners beginby our partners transforming seed or germplasm to incorporate our technology. Thoseseeds or germplasm are then grown in our partners’ greenhouse. After successfulgreenhouse trials, our partners will transfer the plants to the field for fieldtrials. After completion of successful field trials, our partners may have toapply for and receive regulatory approval prior to initiation of anycommercialization activities.

 

26

----

 

Generally, the approximate time to complete each sequential developmentstep is as follows:

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

 

The actual amount of time spent on each development phase depends onthe crop, its growth cycle and the success of the transformation achieving thedesired results. As such, the amount of time for each phase of developmentcould vary, or the time frames may change.

 

The development of our technology with Poet is different than our otherlicenses in that we are modifying certain production inputs for ethanol. Thatprocess involves modifying the inputs, testing such inputs in Poet’s productionprocess and, if successful, implementing such inputs in Poet’s productionprocess on a plant by plant basis.

 

The current status of each of our projects with our partners is asfollows:

** **
| **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 acombination of traits in a crop, such as both shelf life and diseaseresistance, or other traits.

 

Basedupon our commercialization strategy, we anticipate that there may be asignificant period of time before plants enhanced using our technology reachconsumers and we begin to receive royalties. Thus, we have not begun toactively market our technology directly to consumers, but rather, we havesought to establish ourselves within the industry through 

 

27

----

 

presentations at industry conferences, our website and directcommunication with prospective licensees.

 

Weplan to employ the same partnering strategy in both the human health andagricultural target markets. Our preclinical research has yielded data that wehave presented to various biopharmaceutical companies that may be prospectivelicensees for the development and marketing of potential applications of ourtechnology. 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 multiplemyeloma as a target indication to develop and bring into clinical trials andmay select additional human health indications to bring into clinical trials onour own. Successful future operations will depend on our ability to transformour research and development activities into commercially feasible technology.

 

*Patent and Patent Applications*

* *

To date, we have been granted seventeen patents bythe United States Patent and Trademark Office, or PTO, and nineteen patentsfrom foreign countries, twenty-eight of which are for use of our technology inagricultural applications and eight of which relates to human healthapplications.

 

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

 

28

----

** **

**Liquidityand Capital Resources**

** **

*Overview*

* *

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

 

*ContractualObligations*

* *

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

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

 

----

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

 

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

 

29

----

 

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

 

*Capital Resources*

 

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

 

*Financings*

* *

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

 

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

 

30

----

 

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 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 the principalbeing redeemed plus accrued interest.

 

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

 

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

 

We have issued warrants to purchase anaggregate of 5,550,000 shares of our common stock to YA Global and warrants topurchase an aggregate of 5,000,000 of our common stock to Stanford.  We will issue to Stanford an additional3,333,333 warrants to purchase shares of our common stock upon the subsequentclosings.  Such warrants are exercisablesix months and one day from the date of issuance until their expiration on thedate 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.

 

31

----

 

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

 

*Specifics of YA Global Financing*

* *

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

 

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

 

*Specifics of Stanford Financing*

* *

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

 

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

 

1.              A convertible noteand warrants in the amount of $1,500,000 on the date we enter into a 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 the issuances to YAGlobal and Stanford in the amount of $836,558 have been recorded as deferredfinancing costs and are being amortized ratably over the term of theconvertible notes.

 

32

----

 

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

 

•                  utilizing ourcurrent cash balance and investments;

•                  achieving someof the milestones set forth in our current licensing agreements;

•                  through theexecution of additional licensing agreements for our technology; and

•                  through theissuance of convertible notes under the recently completed transaction with YAGlobal 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 to CriticalAccounting Policies and Estimates**

** **

There have been no changes to our criticalaccounting policies and estimates as set forth in our Annual Report on Form 10-Kfor the fiscal year ended June 30, 2007.

 

33

----

 

**Results of Operations**

** **

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

 

The net loss for the three-month period endedMarch 31, 2008 was $2,044,167.  Thenet loss for the three-month period ended March 31, 2007 was$801,317.  Such a change represents anincrease in net loss of $1,242,850**,**or155.1%.  This increase in net loss wasprimarily the result of an increase in expenses associated with the outstandingconvertible notes that were issued during the current fiscal year, and anincrease in operating expenses.

** **

*Revenue*

* *

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

 

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

 

*Operating Expenses*

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

 

We expect operating expenses to increase overthe next twelve months as we anticipate that research and development expenseswill increase as we continue to expand our research and development activities.

 

34

----

 

*General and Administrative Expenses*

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

 

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

 

Stock-based compensation for the three monthsended March 31, 2007 consists of the amortized portion of the Black-Scholesvalue of options and warrants previously granted to directors, employees andconsultants.

 

·                 Payroll and benefits increasedprimarily as a result of salary and health insurance rate increases.

 

·                 Investor relations decreased primarilyas a result of an one-time costs incurred during the three month period endedMarch 31, 2007 in connection with the redesign of our corporate logo.

 

·                 Professional fees decreased primarilyas a result of a decrease in legal fees, which was partially offset by anincrease in accounting fees primarily due to an increase in the fees related tothe review and filing of our securities filings and the implementation of SOX404.

 

·                 Depreciation and amortizationdecreased primarily as a result of a decrease in amortization of patentcosts.  During three month period endedMarch 31, 2007, we began amortizing the cost of our pending patentapplications.  During the three monthperiod ended March 31, 2007, we recognized an amortization charge for the ninemonth period from July 1, 2006 through March 31, 2007.

 

We expect stock based general andadministrative expenses to decrease over the next twelve months as we do notexpect to amend the financial advisory agreement and therefore do not expect tofurther amend the warrants associated with such agreement.  We expect other general and administrativeexpenses to modestly increase over the next twelve months primarily

 

35

----

 

due to an increase in legal and accounting fees related to theincreased regulatory environment surrounding our business.

 

*Research and Development Expenses*

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

 

·                                Stock-basedcompensation consists primarily of the amortized portion of Black-Scholes valueof options and warrants granted to research and development consultants andemployees.

 

·                                Other research anddevelopment costs increased primarily as a result of an expansion of our humanhealth programs, including our cancer research program, and the weakness of theUnited States currency against the Canadian currency.

 

The breakdown of our research and developmentexpenses between our agricultural and human health research programs is asfollows:

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

 

Our human health expenses increased duringthe three-month period ended March 31, 2008 as we have initiated certainresearch projects that were not in progress during the three month period endedMarch 31, 2007.

 

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 financingcosts and interest expense on convertible notes*

 

From September 2007 through December 2007, weissued convertible notes in the aggregate face amount of $7 million andwarrants.  The net proceeds from theconvertible notes and warrants were recorded as equity and the discount on suchconvertible notes is being amortized over the term of the convertible notes.

 

36

----

 

The convertible notes bear interest at a rateof 8% per annum, payable quarterly in cash or common stock.

 

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

 
| ** **           | ** ** | ** **           | ** ** | **Unamortized** | ** ** | ** **             | ** ** | **Future Quarterly** | ** ** |
|----------------------|------------|----------------------|------------|-----------------|------------|------------------------|------------|---------------------------|------------|
| **Date Issued** | ** ** | **Face Amount** | ** ** | **Amount**      | ** ** | **Maturity Date** | ** ** | **Amortization**          | ** ** |
| Sept. 21, 2007       |       | $                    | 1,500,000  |            | $          | 1,258,397              |       | Dec. 30,  2010            |       | $ | 114,504 |   |
| Oct. 16, 2007        |       | $                    | 1,500,000  |            | $          | 1,285,714              |       | Dec. 30,  2010            |       | $ | 116,883 |   |
| Dec. 20, 2007        |       | $                    | 2,000,000  |            | $          | 1,818,182              |       | Dec. 30,  2010            |       | $ | 165,289 |   |
| Dec. 20, 2007        |       | $                    | 2,000,000  |            | $          | 1,818,182              |       | Dec. 31,  2010            |       | $ | 165,289 |   |
|                 |       |                 |       |            |       |                   |       |                      |       |   |   |   |
| Total                |       | $                    | 7,000,000  |            | $          | 6,180,475              |       |                      |       | $ | 561,965 |   |

 

Costs related to the issuance of theconvertible notes and warrants in the amount of $836,558, which include$277,979 of non-cash charges for warrants issued to the placement agent, havebeen recorded as deferred financing costs and are being amortized over the termof the convertible notes.  The expectedfuture quarterly amortization of the deferred financing costs will be $66,273.

 

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

 

The net loss for the nine-month period endedMarch 31, 2008 was $3,720,884.  The netloss for the nine-month period ended March 31, 2007 was $2,537,419. Such achange represents an increase in net loss of $1,183,465, or 46.6%.  This increase in net loss was primarily theresult of an increase in operating expenses, and expenses associated with theoutstanding convertible notes that were issued during the current fiscal year.

 

*Revenue*

 

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

 

We anticipate that we will continue toreceive milestone payments in connection with our current agricultural licenseagreements.  Additionally, we anticipatethat we will receive royalty payments from our license agreements if ourpartners commercialize 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.

 

37

----

 

*OperatingExpenses*

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

 

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

 

*Generaland Administrative Expenses*

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

* *

•                 Stock-basedcompensation for the nine months ended March 31, 2008 consists primarilyof the Black-Scholes value of $384,000 of warrants extended and repriced inconnection with an amendment to a financial advisory agreement entered into February 14,2008, the amortized portion of the compensation charge in connection with ourshort-term stock incentive plan and the amortized portion of the Black-Scholesvalue of options and warrants previously granted to directors, employees andconsultants. During the nine month period ended March 31, 2008, there were351,000 options and warrants granted to such directors, employees andconsultants.

 

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

 

•                 Payroll andbenefits increased primarily as a result of salary and health insurance rateincreases and a payments to certain employees for vacation time not used duringthe calendar year ended December 31, 2007.

 

38

----

 

•                 Investorrelations increased as a result of an increase in the cost of the annual reportdue to additional required disclosures. Also, during the nine month periodended March 31, 2008, a proxy solicitor was retained to assist with thevoting for our 2007 annual meeting.

 

•                 Professionalfees increased primarily as a result of an increase in legal and accountingfees primarily due to an increase in the fees related to the audit, review andfiling of our securities filings and the implementation of SOX 404.

 

Depreciation andamortization decreased primarily as a result of a decrease in amortization ofpatent costs. We expect stock based general and administrative expenses todecrease over the next twelve months as we do not expect to amend the financialadvisory agreement and therefore do not expect to further amend the warrantsassociated with such agreement. We expect other general and administrativeexpenses to modestly increase over the next twelve months primarily due to anincrease in legal and accounting fees related to the increased regulatoryenvironment surrounding our business.

 

*Researchand Development Expenses*

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

 
| • |   | Stock-based compensation  consists primarily of the amortized portion of Black-Scholes value of options  and warrants granted to research and development consultants and employees.  During the nine-month periods ended March 31, 2008 and 2007 there were  45,000 and 88,000 options granted to such consultants and employees. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| • |   | Other research and  development costs increased primarily as a result of an expansion of our  human health programs, including our cancer research program, the banana  field trials and the weakness of the United States. currency against the  Canadian currency.                                                                    |

 

39

----

 

The breakdown of ourresearch and development expenses between our agricultural and human healthresearch programs is as follows:
| ** **                     | ** ** | **Nine Months Ended March 31,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                            | ** ** | **%** | ** ** | **2007** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(in thousands, except% values)**   | ** ** |
| ** **                     | ** ** | ** **                                          | ** ** |
| Agricultural                   |       | $                                                   | 572        |   | 47 | % | $ | 526 |   | 61 | % |
| Human health                   |       | 647                                                 |       | 53 | % | 337 |   | 39 | % |
|                           |       |                                                |       |   |   |   |   |   |   |
| Total research and development |       | $                                                   | 1,219      |   | 100 | % | $ | 863 |   | 100 | % |

 

Our human health researchexpenses increased during the nine-month period ended March 31, 2008 as wehave initiated certain research projects that were not in progress during thenine month period ended March 31, 2007.

 

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

 

*Amortizationof debt discount and financing costs and interest expense on convertible notes*

*** ***

FromSeptember 2007 through December 2007, we issued convertible notes inthe aggregate face amount of $7 million and warrants. The proceeds from theconvertible notes and warrants were recorded as equity and the discount on suchconvertible notes is being amortized over the term of the convertible notes.

** **

Theconvertible notes bear interest at a rate of 8% per annum, payable quarterly incash or common stock.

 

OnApril 29, 2008, YA Global converted $500,000 of the above convertiblenotes into 555,556 shares of our common stock.

 

Costsrelated to the issuance of the convertible notes and warrants in the amount of$836,558, which include $277,979 of non-cash charges for warrants issued to theplacement agent, have been recorded as deferred financing costs and are beingamortized over the term of the convertible notes. The expected future quarterlyamortization of the deferred financing costs will be $66,273.

 

40

----

 

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

 

Frominception of operations on July 1, 1998 through March 31, 2008, wehad revenues of $1,175,000, which consisted of the initial license fees andmilestone payments in connection with our various development and licenseagreements. We do not expect to generate significant revenues for approximatelythe next one to three years, during which time we will continue to engage insignificant research and development efforts.

 

Wehave incurred losses each year since inception and have an accumulated deficitof $29,342,424 at March 31, 2008. We expect to continue to incur losses asa result of expenditures on research and development and administrativeactivities.

 

41

----

 

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

** **

*Foreign Currency Risk*

* *

Our financial statementsare denominated in United States dollars and, except for our agreement with theUniversity of Waterloo, which is denominated in Canadian dollars, all of ourcontracts are denominated in United States dollars. Therefore, we believe thatfluctuations in foreign currency exchange rates will not result in any materialadverse effect on our financial condition or results of operations. In theevent we derive a greater portion of our revenues from international operationsor in the event a greater portion of our expenses are incurred internationallyand denominated in a foreign currency, then changes in foreign currencyexchange rates could effect our results 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 twelve months, and no security with an effective duration in excess of one year, which we believe are subject to limited credit risk. We currently do not hedge our interest rate exposure. Due to the short-term nature of our investments, which we plan to hold until maturity, we do not believe that we have any material exposure to interest rate risk arising from our investments.

 

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

 

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

 

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

 

42

----

 

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

 

**Item 1A. Risk Factors.**

** **

The more prominent risks and uncertainties inherentin our business are described below. However, additional risks anduncertainties may also impair our business operations. If any of the followingrisks actually occur, our business, financial condition or results ofoperations may suffer.

 

**Risks Related to Our Business**

 

***We have a limited operating historyand have incurred substantial losses and expect future losses****.*

* *

We are a development stage biotechnology companywith a limited operating history and limited assets and capital. We haveincurred losses each year since inception and have an accumulated deficit of$29,342,424 at March 31, 2008. We have generated minimal revenues bylicensing our technology for certain crops to companies willing to share in ourdevelopment costs. However, our technology may not be ready forcommercialization for several years. We expect to continue to incur losses forthe next several years because we anticipate that our expenditures on researchand development, and administrative activities will significantly exceed ourrevenues during that period. We cannot predict when, if ever, we will becomeprofitable.

 

***Our independent auditors have expressed substantialdoubt 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 preparedour financial statements on a going concern basis, which contemplates therealization of assets and the satisfaction of liabilities and commitments inthe normal course of business. The consolidated financial statements do notinclude any adjustments that might be necessary should we be unable to continuein existence.

 

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

*** ***

Our operations to date have required significantcash expenditures. Our future capital requirements will depend on the resultsof our research and development activities, preclinical studies and competitiveand technological advances.

 

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

 

43

----

 

The remaining $3,000,000 of convertible notes andwarrants to be issued pursuant to the Stanford financing will be issued asfollows: (i) $1,500,000 on the date we enter into a supply agreement witha third party manufacturer for sufficient quantity and quality of nano-particlefor encapsulation of Factor 5A gene to be used in toxicology and proof ofconcept 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 that we will meet the fundingmilestones. In addition, the YA Global financing and the Stanford financing aresecured by all of our assets. If we default under the convertible debentures,the investors may foreclose on our assets and our business. As a result, we mayneed to obtain more funding in the future through collaborations or otherarrangements with research institutions and corporate partners or public andprivate offerings of our securities, including debt or equity financing. We maynot be able to obtain adequate funds for our operations from these sources whenneeded 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 additionalcapital by issuing additional equity or securities convertible into equity, ourstockholders may experience dilution and our share price may decline. Any debtfinancing may result in restrictions on our spending.

 

If we are unable to raise additional funds, we willneed to do one or more of the following:

 

•                 delay, scale-back oreliminate some or all of our research and product development programs;

•                 license third parties todevelop and commercialize products or technologies that we would otherwise seekto develop and commercialize ourselves;

•                 attempt to sell our company;

•                 cease operations; or

•                 declare bankruptcy.

 

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

 

***We depend on a single principaltechnology and, if our technology is not commercially successful, we will haveno alternative source of revenue****.*

* *

Our primary business is the development and licensingof technology to identify, isolate, characterize and promote or silence geneswhich control the death of cells in humans and plants. Our future revenue andprofitability critically depend upon our ability to successfully developapoptosis and senescence gene technology and later license or market suchtechnology. We have conducted experiments on certain crops with favorableresults and have conducted certain 

 

44

----

 

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. Our failure to obtain market acceptance ofour technology or of our current or potential licensees to successfullycommercialize such technology would have a material adverse effect on ourbusiness.

 

***We outsource all of our research anddevelopment activities and, if we are unsuccessful in maintaining our allianceswith these third parties, our research and development efforts may be delayedor curtailed.***

*** ***

We rely on third parties to perform all of ourresearch and development activities. Our research and development efforts takeplace at the University of Waterloo in Ontario, Canada, where our technologywas discovered, the University of Colorado, Mayo Clinic, the University ofVirginia, and with our commercial partners. At this time, we do not have theinternal capabilities to perform our research and development activities.Accordingly, the failure of third-party research partners to perform underagreements entered into with us, or our failure to renew important researchagreements with these third parties, may delay or curtail our research anddevelopment efforts.

 

***We have significant future capitalneeds and may be unable to raise capital when needed, which could force us todelay or reduce our research and development efforts.***

* *

As of March 31, 2008, we had cash and highly-liquidinvestments valued at $4,549,233 and working capital of $3,928,784. Using ouravailable reserves as of March 31, 2008, we believe that we can operateaccording to our current business plan for the next 12 months. However, withthe potential additional gross proceeds of $3,000,000 from the issuance ofadditional convertible notes and warrants, we believe that we can operateaccording to our current business plan for the next 18 months. To date, we havegenerated minimal revenues and anticipate that our operating costs will exceedany revenues generated over the next several years. Therefore, we will berequired to raise additional capital in the future in order to operateaccording to our current business plan, and this funding may not be available onfavorable terms, if at all. If we are unable to raise additional funds, we willneed to do one or more 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 weneed to issue more equity securities than our certificate of incorporationcurrently authorizes, or more than 20% of the shares of our common stockoutstanding, we may need stockholder approval. If stockholder approval is not 

 

45

----

 

obtainedor if adequate funds are not available, we may be required to curtailoperations significantly or to obtain funds through arrangements withcollaborative partners or others that may require us to relinquish rights tocertain of our technologies, product candidates, products or potential markets.Investors may experience dilution in their investment from future offerings ofour common stock. For example, if we raise additional capital by issuing equitysecurities, such an issuance would reduce the percentage ownership of existingstockholders. In addition, assuming the exercise of all options and warrantsoutstanding and the conversion of the notes into common stock, as of March 31,2008, we had 8,282,537 shares of common stock authorized but unissued andunreserved, which may be issued from time to time by our board of directorswithout 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 securities that have rights, preferences andprivileges senior to our common stock. Failure to obtain financing onacceptable terms would have a material adverse effect on our liquidity.

 

Since our inception, we have financed all of ouroperations through private equity and debt financings. Our future capitalrequirements depend on numerous 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 upon ourpatents and proprietary rights and the enforcement of these rights. Our failureto obtain and maintain patent protection may increase competition and reducedemand for our technology.***

*** ***

As a result of the substantial length of time andexpense associated with developing products and bringing them to themarketplace in the biotechnology and agricultural industries, obtaining andmaintaining patent and trade secret protection for technologies, products andprocesses is of vital importance. Our success will depend in part on severalfactors, including, without limitation:

 

•                 our ability to obtain patentprotection 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 March 31, 2008, we have been issuedseventeen patents by the PTO and nineteen patents from foreign countries. Wehave also filed numerous patent applications for our technology in the UnitedStates and in several foreign countries, which technology is vital to our primarybusiness, as well as several Continuations in Part on these patentapplications. Our success depends in part upon the grant of patents from ourpending patent applications.

 

46

----

 

Although we believe that our technology is uniqueand will not violate or infringe upon the proprietary rights of any thirdparty, we cannot assure you that these claims will not be made or if made,could be successfully defended against. If we do not obtain and maintain patent protection, we may faceincreased competition in the United States and internationally, which wouldhave a material adverse effect on our business.

 

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

 

In addition, among other things, we cannot assureyou that:

 

•                 our patent applications willresult in the issuance 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 may allege that weare infringing upon their intellectual property rights, forcing us to incursubstantial costs and expenses in resulting litigation, the outcome of whichwould be uncertain.***

*** ***

Patent law is still evolving relative to the scopeand enforceability 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 firmly established.  In addition, if issued, our patents may notcontain claims sufficiently broad to protect us against third parties withsimilar technologies or products, or provide us with any competitive advantage.

 

The PTO and the courts have not established aconsistent policy regarding the breadth of claims allowed in biotechnologypatents.  The allowance of broader claimsmay increase the incidence and cost of patent interference proceedings and therisk of infringement litigation.  On theother hand, the allowance of narrower claims may limit the value of ourproprietary rights.

 

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

 

We could become involved in infringement actions toenforce and/or protect our patents. Regardless of the outcome, patent litigation is expensive and timeconsuming and would distract 

 

47

----

 

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

 

***If our technology infringes theintellectual property of our competitors or other third parties, we may berequired to pay license fees or damages.***

*** ***

If any relevant claims of third-party patents thatare adverse to us are upheld as valid and enforceable, we could be preventedfrom commercializing our technology or could be required to obtain licensesfrom the owners of such patents.  Wecannot assure you that such licenses would be available or, if available, wouldbe on acceptable terms.  Some licensesmay be non-exclusive and, therefore, our competitors may have access to thesame technology licensed to us.  Inaddition, if any parties successfully claim that the creation or use of ourtechnology infringes upon their intellectual property rights, we may be forcedto pay damages, including treble damages.

 

***Our security measures may notadequately protect our unpatented technology and, if we are unable to protectthe confidentiality of our proprietary information and know-how, the value ofour technology may be adversely affected.***

*** ***

Our success depends upon know-how, unpatentabletrade secrets, 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 a companyprimarily involved in the research and development of our technology into onethat is also involved in the commercialization of our technology, we may havedifficulty managing our growth and expanding our operations.***

*** ***

As our business grows, we may need to add employeesand enhance our management, systems and procedures.  We may need to successfully integrate ourinternal operations with the operations of our marketing partners, manufacturers,distributors and suppliers to produce and market commercially viableproducts.  We may also need to manageadditional relationships with various collaborative partners, suppliers andother organizations.  Although we do notpresently 

 

48

----

 

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

 

***We have no marketing or saleshistory 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 orselling biotechnology products and we are relying on our ability tosuccessfully establish marketing partners or other arrangements with thirdparties to market, distribute and sell a commercially viable product both hereand abroad.  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 if qualified,these marketing partners may not be able to successfully market agriculturalproducts or human health applications developed with our technology If ourcurrent or potential future marketing partners fail to provide adequate levelsof sales, our commercialization efforts will be delayed or limited and we maynot be able to generate revenue.

 

***We will depend on joint ventures andstrategic alliances to develop and market our technology and, if thesearrangements are not successful, our technology may not be developed and theexpenses to commercialize our technology will increase.***

*** ***

In its current state of development, our technologyis not ready to be marketed to consumers. We intend to follow a multi-faceted commercialization strategy thatinvolves the licensing of our technology to business partners for the purposeof further technological 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 human health andagricultural biotechnology industries is intense and technology is changingrapidly.  If our competitors market theirtechnology faster than we do, we may not be able to generate revenues from thecommercialization of our technology.***

* *

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

 

49

----

 

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

 

***Our business is subject to variousgovernment regulations and, if we are unable to obtain regulatory approval, wemay not be able to continue our operations.***

*** ***

At present, the U.S. federal government regulationof biotechnology is divided among three agencies:

 

•                  the USDA regulates theimport, field testing and interstate movement of specific types of geneticengineering that may be used in the creation of transgenic plants;

•                  the EPA regulates activityrelated to the invention of plant pesticides and herbicides, which may includecertain kinds of transgenic plants; and

•                  the FDA regulates foodsderived from new plant varieties.

 

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

 

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

 

We believe that our current activities, which todate have been confined to research and development efforts, do not requirelicensing or approval by any governmental regulatory agency. However, federal,state and foreign regulations relating to crop protection products and humanhealth applications developed through biotechnology are subject to publicconcerns and political circumstances, and, as a result, regulations havechanged and may change substantially in the 

 

50

----

 

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 clinicaltrials of our human health applications may be unsuccessful, which could delayor prevent regulatory approval.***

*** ***

Preclinical studies may reveal that our human healthtechnology is ineffective or harmful, and/or clinical trials may beunsuccessful in demonstrating efficacy and safety of our human healthtechnology, which would significantly limit the possibility of obtainingregulatory approval for any drug or biologic product manufactured with ourtechnology.  The FDA requires submissionof extensive preclinical, clinical and manufacturing data to assess theefficacy and safety of potential products. Furthermore, the success 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 cannot guarantee that consumers will acceptagricultural products containing our technology.  Recently, there has been consumer concern andconsumer advocate activism with respect to genetically engineered agriculturalconsumer products.  The adverseconsequences from heightened consumer concern in this regard could affect themarkets for agricultural products developed with our technology and could alsoresult in increased government regulation in response to that concern. If thepublic or potential customers perceive our technology to be geneticmodification or genetic engineering, agricultural products grown with ourtechnology may not gain market acceptance.

 

51

----

 

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

*** ***

We are highly dependent on our scientific advisors,consultants and third-party research partners. Our success will also depend in part on the continued service of our keyemployees and our ability to identify, hire and retain additional qualifiedpersonnel in an intensely competitive market. Although we have employment agreements with all of our key employees anda research agreement with Dr. Thompson, these agreements may be terminatedupon short or no notice.  We do notmaintain key person life insurance on any member of management.  The failure to attract and retain keypersonnel could limit our growth and hinder our research and developmentefforts.

 

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

*** ***

Certain provisions of our certificate of incorporationand by-laws could make it more difficult for a third party to acquire controlof us, 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 BusinessCombination Act of the Delaware General Corporation Law which, subject to certainexceptions, restricts certain transactions and business combinations between acorporation and a stockholder owning 15% or more of the corporation’soutstanding voting stock for a period of three years from the date suchstockholder becomes a 15% owner.  Theseprovisions may have the effect of delaying or preventing a change of control ofus without action by our stockholders and, therefore, could adversely affectthe value of our common stock.

 

Furthermore, in the event of our merger orconsolidation with or into another corporation, or the sale of all orsubstantially all of our assets in which the successor corporation does notassume outstanding options or issue equivalent options, our board of directorsis required to provide accelerated vesting of outstanding options.

 

***Increasing political and socialturmoil, such as terrorist and military actions, increase the difficulty for usand our strategic partners to forecast accurately and plan future businessactivities.***

*** ***

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

 

52

----

** **

**Risks Related to Our Common Stock**

** **

***Our management and other affiliateshave significant control of our common stock and could significantly influenceour actions in a manner that conflicts with our interests and the interests ofother stockholders.***

* *

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

 

***A significant portion of our totaloutstanding shares of common stock may be sold in the market in the nearfuture, which could cause the market price of our common stock to drop significantly.***

* *

As of March 31, 2008, we had 17,728,314 sharesof our 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.  Consequently, sales ofsubstantial amounts of our common stock in the public market, or the perceptionthat such sales could occur, may have a material adverse effect on our stockprice.

 

***Our common stock has a limitedtrading market, which could limit your ability to resell your shares of commonstock at or above your purchase price.***

*** ***

Our common stock is quoted on the American StockExchange and currently has a limited trading market.  The American Stock Exchange requires us tomeet minimum financial requirements in order to maintain our listing.  We currently believe that we meet thecontinued listing requirements of the American Stock Exchange. However, wecannot assure you that we will continue to meet such standards.  If we do not meet the continued listingstandards, we could be delisted.  Wecannot assure you that an active trading market will develop or, if developed,will be maintained.  As a result, ourstockholders may find it difficult to dispose of shares of our common stockand, as a result, may suffer a loss of all or a substantial portion of theirinvestment.

 

53

----

 

***If our common stock is delisted fromthe American Stock Exchange, we may not be able to list on any other stockexchange, and our common stock may be subject to the “penny stock” regulationswhich may affect the ability of our stockholders to sell their shares.***

*** ***

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

 

If our stock is not accepted for listing on theAmerican Stock Exchange, we will make every possible effort to have it listedon 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 common stock on arecognized national trading market, such as the American Stock Exchange, is animportant part of our business and strategy. Such a listing helps our stockholders by providing a readily availabletrading market with current quotations. Without that, stockholders may have a difficult time getting a quote forthe sale or purchase of our stock, the sale or purchase of our stock wouldlikely be made more difficult and the trading volume and liquidity of our stockwould likely decline.  The absence ofsuch a listing may adversely affect the acceptance of our common stock ascurrency or the value accorded it by other parties.  In that regard, the absence of a listing on arecognized national trading market will also affect our ability to benefit fromthe use of our operations and expansion plans, including for 

 

54

----

 

usein licensing agreements, joint ventures, the development of strategicrelationships and acquisitions, which are critical to our business and strategyand none of which is currently the subject of any agreement, arrangement orunderstanding, with respect to any future financing or strategic relationshipit may undertake.  The delisting from theAmerican Stock Exchange would result in negative publicity and would negativelyimpact our ability to raise capital in the future.

 

***The market price of our common stockmay fluctuate and may drop below the price you paid.***

*** ***

We cannot assure you that you will be able to resellthe shares 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 inoperating results;

•                 the progress or perceivedprogress of our research and development efforts;

•                 changes in accountingtreatments or principles;

•                 announcements by us or ourcompetitors of new technology, product and service offerings, significantcontracts, acquisitions or strategic relationships;

•                 additions or departures ofkey personnel;

•                 future offerings or resalesof our common stock or other securities;

•                 stock market price andvolume fluctuations of publicly-traded companies in general and developmentcompanies in particular; and

•                 general political, economicand market conditions.

 

***Because we do not intend to pay, andhave not paid, any cash dividends on our shares of common stock, ourstockholders will not be able to receive a return on their shares unless thevalue of our common stock appreciates and they sell their shares.***

*** ***

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

 

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

 

Asof March 31, 2008, we have granted options outside of our stock optionplan to purchase 10,000 shares of our common stock and outstanding warrants topurchase 16,230,261 shares of our common stock.  In addition, as of March 31,2008, we have reserved 6,000,000 shares of our common stock for issuance uponthe exercise of options granted pursuant to our stock option plan, 3,805,600 ofwhich have been granted, 90,000 of which have been exercised since inception,3,715,600 of which are outstanding, and 2,194,400 of which may be granted inthe future.  The exercise of these options and warrants will result indilution to our existing stockholders and could have a material adverse effecton our stock price. In addition, any shares issued in connection with the YAGlobal financing, as further discussed elsewhere in this Form 10-Q, or theStanford financing can also have a dilutive effect and a possible materialadverse effect on our stock price.  The conversionprice of the warrants are also subject to certain anti-dilutionadjustments.  The agreements with YAGlobal and Stanford provide for the potential issuance of up to 62,388,888shares of our common stock.

 

55

----

 
| **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) |

 

56

----

 

**SIGNATURES**

** **

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

 
|                                     | SENESCO TECHNOLOGIES, INC. |                                         |
|------------------------------------------|----------------------------|----------------------------------------------|
|                                     |                       |                                         |
|                                     |                       |
| DATE:   May 15, 2008 | By:                        |  /s/ Bruce C. Galton                    |
|                                     |                       | Bruce C. Galton, President                   |
|                                     |                       | and Chief Executive Officer                  |
|                                     |                       | (Principal Executive  Officer)               |
|                                     |                       |                                         |
|                                     |                       |                                         |
| DATE:   May 15, 2008 | By:                        |   /s/ Joel Brooks                       |
|                                     |                       | Joel Brooks, Chief Financial Officer         |
|                                     |                       | and Treasurer                                |
|                                     |                       | (Principal Financial and Accounting Officer) |
|                                          |                            |                                              |  |

 

57

----