** **

**UNITED STATES**

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

 

 

**FORM 10-Q**

** **

**(MarkOne)**

**x        QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(D) OF THE SECURITIES**

**            EXCHANGE ACT OF 1934**

 

                **For the quarterly****period****ended December 31,2007**

** **

                                                                                                            **OR**

 

**o        TRANSITION REPORT PURSUANT TO SECTION 13OR 15(D) OF THE SECURITIES**

**            EXCHANGE ACT OF 1934**

 

                **For the transition period from                                      to**

** **

**Commission File No. 001-31326**

 

**SENESCO TECHNOLOGIES, INC.**

(exact name of registrant as specified in its charter)

 

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

 

**303 GeorgeStreet, Suite 420**

**NewBrunswick, New Jersey 08901**

(Address of principalexecutive offices)

 

**(732)296-8400**

(Registrant’s telephone number, including area code)

 

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

 

Yes: x                                                                                                        No:o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 ofthe Exchange Act).

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

 

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

 

Yes: o                                                                                                         No:  x

 

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

 

 

 

----

 

 

SENESCO TECHNOLOGIES, INC.AND SUBSIDIARY

 

TABLE OF CONTENTS

 

|          |   |                                                                                                          |   | **Page** |
|---------------|--------|---------------------------------------------------------------------------------------------------------------|--------|----------|
|          |   |                                                                                                          |   |     |
| PART I.  |   | FINANCIAL  INFORMATION.                                                                                       |   |     |
|          |   |                                                                                                          |   |     |
| Item 1.       |   | Financial Statements  (Unaudited)                                                                             |   | 1        |
|          |   |                                                                                                          |   |     |
|          |   | CONDENSED CONSOLIDATED BALANCE SHEETS  as of December 31, 2007 and June 30, 2007                    |   | 2        |
|          |   |                                                                                                          |   |     |
|          |   | CONDENSED  CONSOLIDATED STATEMENTS OF OPERATIONS  For the Three Months Ended December 31, 2007 and 2006, |   |     |
|          |   | For the Six  Months Ended December 31, 2007 and 2006,                                                    |   |     |
|          |   | and From  Inception on July 1, 1998 through December 31, 2007                                       |   | 3        |
|          |   |                                                                                                          |   |     |
|          |   | CONDENSED  CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY                                                |   |     |
|          |   | From Inception  on July 1, 1998 through December 31, 2007                                           |   | 4        |
|          |   |                                                                                                          |   |     |
|          |   | CONDENSED  CONSOLIDATED STATEMENTS OF CASH FLOWS   For the Six Months Ended December 31, 2007 and 2006,  |   |     |
|          |   | and From  Inception on July 1, 1998 through December 31, 2007                                       |   | 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                                                                               |   | 28       |
|          |   |                                                                                                          |   |     |
|          |   | Changes to Critical Accounting Policies and Estimates                                                         |   | 32       |
|          |   |                                                                                                          |   |     |
|          |   | Results of Operations                                                                                         |   | 33       |
|          |   |                                                                                                          |   |     |
| Item 3.       |   | Quantitative  and Qualitative Disclosures about Market Risk                                                   |   | 41       |
|          |   |                                                                                                          |   |     |
| Item 4.       |   | Controls and Procedures                                                                                       |   | 41       |
|          |   |                                                                                                          |   |     |
| PART II. |   | OTHER INFORMATION.                                                                                            |   |     |
|          |   |                                                                                                          |   |     |
| Item  1A.     |   | Risk  Factors                                                                                                 |   | 42       |
|          |   |                                                                                                          |   |     |
| Item 2.       |   | Unregistered  Sales of Equity Securities and Use of Factors                                                   |   | 55       |
|          |   |                                                                                                          |   |     |
| Item 4.       |   | Submission of  Matters to a Vote of Security Holders                                                          |   | 58       |
|          |   |                                                                                                          |   |     |
| Item 6.       |   | Exhibits                                                                                                      |   | 60       |
|          |   |                                                                                                          |   |     |
| SIGNATURES    |   |                                                                                                          |   | 61       |
|               |        |                                                                                                               |        |          |  |  |  |  |  |  |  |  |

 

 

i

----

 

** **

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

 

**Item 1.  Financial Statements.**

 

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

 

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

 

1

----

 

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                     | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                     | ** ** | **2007**              | ** ** | **2007**          | ** ** |
|                                                                                                                           | ** ** | **(unaudited)**       | ** ** | ** **        | ** ** |
| ASSETS                                                                                                                         |       |                  |       |              |       |
|                                                                                                                           |       |                  |       |              |       |
| CURRENT  ASSETS:                                                                                                               |       |                  |       |              |       |
| Cash and  cash equivalents                                                                                                     |       | $                     | 5,135,644  |              | $          | 408,061 |   |
| Short-term  investments                                                                                                        |       | 500,000               |       | 250,000           |       |
| Prepaid  expenses and other current assets                                                                                     |       | 52,959                |       | 104,526           |       |
| Total Current Assets                                                                                                           |       | 5,688,603             |       | 762,587           |       |
|                                                                                                                           |       |                  |       |              |       |
| Property  and equipment, net                                                                                                   |       | 5,444                 |       | 7,526             |       |
| Intangibles,  net                                                                                                              |       | 2,896,958             |       | 2,544,447         |       |
| Deferred  financing costs                                                                                                      |       | 748,949               |       | —            |       |
| Security  deposit                                                                                                              |       | 7,187                 |       | 7,187             |       |
| TOTAL ASSETS                                                                                                                   |       | $                     | 9,347,141  |              | $          | 3,321,747 |   |
|                                                                                                                           |       |                  |       |              |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                      |       |                  |       |              |       |
|                                                                                                                           |       |                  |       |              |       |
| CURRENT  LIABILITIES:                                                                                                          |       |                  |       |              |       |
| Accounts  payable                                                                                                              |       | $                     | 552,026    |              | $          | 109,258 |   |
| Accrued  expenses                                                                                                              |       | 368,570               |       | 377,359           |       |
| Deferred  revenue                                                                                                              |       | 4,167                 |       | 16,667            |       |
| Total Current Liabilities                                                                                                      |       | 924,763               |       | 503,284           |       |
|                                                                                                                           |       |                  |       |              |       |
| Convertible  note, net of discount                                                                                             |       | 257,560               |       | —            |       |
| Grant  payable                                                                                                                 |       | 99,728                |       | 99,728            |       |
| Other  liability                                                                                                               |       | 26,129                |       | 29,196            |       |
| TOTAL LIABILITIES                                                                                                              |       | 1,308,180             |       | 632,208           |       |
|                                                                                                                           |       |                  |       |              |       |
| STOCKHOLDERS’  EQUITY:                                                                                                    |       |                  |       |              |       |
|                                                                                                                           |       |                  |       |              |       |
| Preferred  stock, $0.01 par value; authorized 5,000,000 shares, no shares issued                                               |       | —                |       | —            |       |
| Common stock, $0.01 par value; authorized  100,000,000 shares, issued and outstanding 17,581,852 and 17,473,694,  respectively |       | 175,819               |       | 174,737           |       |
| Capital  in excess of par                                                                                                      |       | 35,161,399            |       | 28,136,342        |       |
| Deficit  accumulated during the development stage                                                                              |       | (27,298,257           | )          | (25,621,540       | )          |
|                                                                                                                           |       |                  |       |              |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                |       | 8,038,961             |       | 2,689,539         |       |
|                                                                                                                           |       |                  |       |              |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                |       | $9,347,141            |       | $3,321,747        |       |

 

See Notes to Condensed Consolidated Financial Statements.

 

2

----

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                                              | ** ** | **For the Three Months Ended  December 31,** | ** ** | **For the Three Months Ended  December 31,** | ** ** | **For the Six Months Ended  December 31,** | ** ** | **For the Six Months Ended  December 31,** | ** ** | **From Inception on July 1,  1998 through   December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                          | ** ** | **2006**                                          | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007**                                                             | ** ** |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| Revenue                                                                 |       | $                                                 | 6,250      |                                              | $          | 181,250                                         |       | $                                               | 377,500    |                                                                 | $          | 262,500 |   | $ | 1,095,833 |   |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| Operating  Expenses:                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| General and administrative                                              |       | 585,851                                           |       | 1,103,594                                         |       | 974,910                                         |       | 1,486,879                                       |       | 20,409,103                                                           |       |
| Research and development                                                |       | 392,254                                           |       | 239,395                                           |       | 745,149                                         |       | 548,743                                         |       | 8,938,318                                                            |       |
| Total  Operating Expenses                                               |       | 978,105                                           |       | 1,342,989                                         |       | 1,720,059                                       |       | 2,035,622                                       |       | 29,347,421                                                           |       |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| Loss  From Operations                                                   |       | (971,855                                          | )          | (1,161,739                                        | )          | (1,342,559                                      | )          | (1,773,122                                      | )          | (28,251,588                                                          | )          |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| Sale of  state income tax loss, net                                     |       | —                                            |       | —                                            |       | —                                          |       | —                                          |       | 586,442                                                              |       |
| Other  noncash income                                                   |       | —                                            |       | —                                            |       | —                                          |       | —                                          |       | 321,259                                                              |       |
| Interest  income, net                                                   |       | 25,227                                            |       | 26,102                                            |       | 32,106                                          |       | 37,020                                          |       | 411,894                                                              |       |
| Amortization of debt discount and financing costs                       |       | (283,207                                          | )          | —                                            |       | (298,428                                        | )          | —                                          |       | (298,428                                                             | )          |
| Interest  expense on convertible notes                                  |       | (64,836                                           | )          | —                                            |       | (67,836                                         | )          | —                                          |       | (67,836                                                              | )          |
| Net Loss                                                                |       | $                                                 | (1,294,671 | )                                                 | $          | (1,135,637                                      | )          | $                                               | (1,676,717 | )                                                                    | $          | (1,736,102 | ) | $ | (27,298,257 | ) |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| Basic and Diluted Net Loss Per Common Share                             |       | $                                                 | (0.07      | )                                                 | $          | (0.07                                           | )          | $                                               | (0.10      | )                                                                    | $          | (0.11 | ) |   |   |
|                                                                    |       |                                              |       |                                              |       |                                            |       |                                            |       |                                                                 |       |
| Basic and Diluted Weighted Average Number of Common  Shares Outstanding |       | 17,474,870                                        |       | 17,257,791                                        |       | 17,474,282                                      |       | 16,369,220                                      |       |                                                                 |       |

 

See Notesto Condensed Consolidated Financial Statements.

 

3

----

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY

FROMINCEPTION ON JULY 1, 1998 THROUGH DECEMBER 31, 2007

(unaudited)

 
| ** **                                                                              | ** ** | **Common Stock** | ** ** | **Capital in Excess of** | ** ** | **Deficit Accumulated During the  Development** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------|------------|--------------------------|------------|-------------------------------------------------|------------|------------|------------|
| ** **                                                                              | ** ** | **Shares**       | ** ** | **Amount**               | ** ** | **Par Value**                                   | ** ** | **Stage**  | ** ** | **Total** | ** ** |
|                                                                                    |       |             |       |                     |       |                                            |       |       |       |   |   |
| 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, 1998 THROUGH DECEMBER 31,2007

(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

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SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY

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

(unaudited)

 
| ** **                                                                                                              | ** ** | ** **       | ** ** | ** **    | ** ** | ** **      | ** ** | **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     |       |
|                                                                                                                    |       |             |       |          |       |            |       |            |       |        |       |
|                                                                                                                    |       |             |       |          |       |            |       |            |       | (continued) |       |
|                                                                                                                         |            |                  |            |               |            |                 |            |                 |            |             |            |  |  |  |  |  |

 

See Notes to Condensed ConsolidatedFinancial Statements.

 

6

----

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY

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

(unaudited)

 
| ** **                                                                                                                           | ** ** | ** **       | ** ** | ** **    | ** ** | ** **      | ** ** | **Deficit**     | ** **  | ** ** | ** **  |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------|------------|-----------------|------------|-----------------|-------------|------------|-------------|
| ** **                                                                                                                           | ** ** | ** **       | ** ** | ** **    | ** ** | ** **      | ** ** | **Accumulated** | ** **  | ** ** | ** **  |
| ** **                                                                                                                           | ** ** | ** **       | ** ** | ** **    | ** ** | **Capital in**  | ** ** | **During the**  | ** **  | ** ** | ** **  |
| ** **                                                                                                                           | ** ** | **Common Stock** | ** ** | **Excess of** | ** ** | **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 six months ended December 31, 2007                                 |       | —           |       | —        |       | 408,303         |       | —          |        | 408,303    |        |
|                                                                                                                                 |       |             |       |          |       |            |       |            |        |       |        |
| Allocation of proceeds from issuance of convertible  notes and warrants from September 21, 2007 through December 20,  2007 |       | —           |       | —        |       | 6,550,000       |       | —          |        | 6,550,000  |        |
|                                                                                                                                 |       |             |       |          |       |            |       |            |        |       |        |
| Issuance of common stock on December 31, 2007  in lieu of cash payment                                                          |       | 108,158          |       | 1,082         |       | 66,754          |       | —          |        | 67,836     |        |
|                                                                                                                                 |       |             |       |          |       |            |       |            |        |       |        |
| Net loss                                                                                                                             |       | —           |       | —        |       | —          |       | $               | (27,298,257 | )          | (27,298,257 | ) |
|                                                                                                                                 |       |             |       |          |       |            |       |            |        |       |        |
| Balance at December 31, 2007                                                                                                    |       | 17,581,852       |       | $             | 175,819    |            | $          | 35,161,399      |        | $          | (27,298,257 | ) | $ | 8,038,961 |   |

 

See Notesto Condensed Consolidated Financial Statements.

 

7

----

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
| ** **                                                                               | ** ** | ** **                   | ** ** | **From Inception**       | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| ** **                                                                               | ** ** | ** **                   | ** ** | **on July 1, 1998** | ** ** |
| ** **                                                                               | ** ** | **For the Six Months Ended** | ** ** | **through**              | ** ** |
| ** **                                                                               | ** ** | **December 31,**        | ** ** | **December 31,**    | ** ** |
| ** **                                                                               | ** ** | **2007**                     | ** ** | **2006**                 | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                                    |       |                         |       |                     |       |   |   |
| Net loss                                                                                 |       | $                            | (1,676,717 | )                        | $          | (1,736,102 | ) | $ | (27,298,257 | ) |
| Adjustments to reconcile net loss to net cash (used  in) operating activities:           |       |                         |       |                     |       |   |   |
| Noncash capital contribution                                                             |       | —                       |       | —                   |       | 85,179 |   |
| Noncash conversion of accrued expenses into equity                                       |       | —                       |       | —                   |       | 131,250 |   |
| Noncash income related to change in fair value of  warrant liability                     |       | —                       |       | —                   |       | (321,259 | ) |
| Issuance of common stock and warrants for interest                                       |       | 67,836                       |       | —                   |       | 77,152 |   |
| Issuance of stock options and warrants for services                                      |       | 146,189                      |       | 847,000                  |       | 8,944,964 |   |
| Depreciation and amortization                                                            |       | 44,042                       |       | 15,595                   |       | 407,883 |   |
| Amortization of convertible note discount and  deferred financing costs                  |       | 298,427                      |       | —                   |       | 298,427 |   |
| (Increase) decrease in operating assets:                                                 |       |                         |       |                     |       |   |   |
| Accounts receivable                                                                      |       | —                       |       | (75,000                  | )          | — |   |
| Prepaid expense and other current assets                                                 |       | 51,567                       |       | 74,765                   |       | (52,959 | ) |
| Security deposit                                                                         |       | —                       |       | —                   |       | (7,187 | ) |
| Increase (decrease) in operating liabilities:                                            |       |                         |       |                     |       |   |   |
| Accounts payable                                                                         |       | 442,768                      |       | 52,882                   |       | 552,026 |   |
| Accrued expenses                                                                         |       | (24,656                      | )          | (88,603                  | )          | 352,703 |   |
| Deferred revenue                                                                         |       | (12,500                      | )          | (12,500                  | )          | 4,167 |   |
| Other liability                                                                          |       | (3,067                       | )          | (2,611                   | )          | 26,129 |   |
| Net cash (used in) operating activities                                                  |       | (666,111                     | )          | (924,574                 | )          | (16,799,782 | ) |
|                                                                                     |       |                         |       |                     |       |   |   |
| Cash flows from investing activities:                                                    |       |                         |       |                     |       |   |   |
| Patent costs                                                                             |       | (394,471                     | )          | (281,937                 | )          | (3,140,178 | ) |
| Redemption (purchase) of investments, net                                                |       | (250,000                     | )          | (750,000                 | )          | (500,000 | ) |
| Purchase of property and equipment                                                       |       | —                       |       | (1,482                   | )          | (170,107 | ) |
| Net cash (used in) investing activities                                                  |       | (644,471                     | )          | (1,033,419               | )          | (3,810,285 | ) |
|                                                                                     |       |                         |       |                     |       |   |   |
| Cash flows from financing activities:                                                    |       |                         |       |                     |       |   |   |
| Proceeds from grant                                                                      |       | —                       |       | —                   |       | 99,728 |   |
| Proceeds from issuance of bridge notes                                                   |       | —                       |       | —                   |       | 525,000 |   |
| Proceeds from issuance and exercises of common  stock and warrants                       |       | —                       |       | 2,019,108                |       | 19,082,818 |   |
| Proceeds from issuance of convertible note and  warrants, net of $450,000 paid to holder |       | 6,550,000                    |       | —                   |       | 6,550,000 |   |
| Deferred financing costs                                                                 |       | (511,835                     | )          | —                   |       | (511,835 | ) |
| Net cash provided by financing activities                                                |       | 6,038,165                    |       | 2,019,108                |       | 25,745,711 |   |
|                                                                                     |       |                         |       |                     |       |   |   |
| Net increase in cash and cash equivalents                                                |       | 4,727,583                    |       | 61,115                   |       | 5,135,644 |   |
|                                                                                     |       |                         |       |                     |       |   |   |
| Cash and cash equivalents at beginning of period                                         |       | 408,061                      |       | 318,473                  |       | — |   |
|                                                                                     |       |                         |       |                     |       |   |   |
| Cash and cash equivalents at end of period                                               |       | $                            | 5,135,644  |                     | $          | 379,588 |   | $ | 5,135,644 |   |
|                                                                                     |       |                         |       |                     |       |   |   |
| Supplemental disclosure of cash flow information:                                        |       |                         |       |                     |       |   |   |
| Cash paid during the period for interest                                                 |       | $                            | —     |                     | $          | — |   | $ | 22,317 |   |
| Supplemental schedule of noncash financing  activity:                                    |       |                         |       |                     |       |   |   |
| Conversion of bridge notes into stock                                                    |       | $                            | —     |                     | $          | — |   | $ | 534,316 |   |
| Allocation of convertible debt proceeds to warrants  and beneficial conversion feature   |       | $                            | 6,550,000  |                     | $          | — |   | $ | 6,550,000 |   |
| Warrants issued for financing costs                                                      |       | $                            | 277,979    |                     | $          | — |   | $ | 277,979 |   |

 

See Notes to Condensed Consolidated Financial Statements.

 

8

----

 

SENESCOTECHNOLOGIES, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED 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 footnote disclosures normally included infinancial statements prepared in accordance with United States generallyaccepted accounting principles have been condensed or omitted pursuant to such rules andregulations.  These unaudited condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year ended June 30,2007.

 

In theopinion 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 December 31, 2007, the results of its operationsfor the three-month and six-month periods ended December 31, 2007 and2006, cash flows for the six-month periods ended December 31, 2007 and2006, and the results of its operations and cash flows for the period frominception on July 1, 1998 through December 31, 2007.

 

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

 

**Note 2 — Liquidity:**

** **

       The operations of the Company to datehave required significant cash expenditures.  As shown in the accompanying financialstatements, the Company has a history of losses with a deficit accumulatedduring the development stage from inception through December 31, 2007 of$27,298,257.  The future capitalrequirements of the Company will depend on the results of its research anddevelopment activities, preclinical studies and competitive and technologicaladvances.

 

OnAugust 1, 2007 and August 29, 2007, the Company entered intoagreements to issue convertible notes and warrants which will provide workingcapital in the gross amount of up to $10,000,000 to fund its operations forapproximately two years. On September 21, 2007, October 16, 2007 and December 20,2007 the Company issued a convertible notes in the aggregate gross amount of$7,000,000 and 10,550,000 five year warrants, one-half at an exercise price of$1.01 and one-half at an exercise price of $0.90.  The Company will issue convertible notes andwarrants and will receive $1,500,000 on the date the Company enters into asupply agreement with a third party manufacturer for sufficient quantity andquality of nano-particle for encapsulation of Factor 5A gene to be used intoxicology and proof of concept human studies under a United States Food andDrug Administration, (the “FDA”), accepted Investigational New Drugapplication, (an “IND Application, and $1,500,000 on the date the Companyenters into a supply agreement with a third party manufacturer to providesufficient quantity and quality of 

 

9

----

 

Factor5A DNA to carry out toxicology and proof of concept human studies under a FDAaccepted IND Application.

 

Asof December 31, 2007, the Company has cash and investments in the amountof $5,635,644, which the Company estimates will cover its expenses forapproximately the next thirteen months.

 

The American Stock Exchangerequires the Company to meet minimum financial requirements in order tomaintain its listing.  Specifically, theCompany is required to maintain a minimum net worth of $6,000,000 under thecontinued listing requirements of the American Stock Exchange. The Company hadpreviously received a notice of noncompliance from the American StockExchange.  The Company submitted a planto the American Stock Exchange discussing how it intends to regain compliancewith the continued listing requirements. The American Stock Exchange has accepted the Company’s plan and hasgiven the Company until March 1, 2008 to effectuate the plan and regaincompliance with the continued listing requirements.  As of December 31, 2007, the Companybelieves that it has regained compliance with the American Stock Exchange’scontinued listing requirements.

 

**Note 3 — Intangible Assets:**

** **

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

 

The length of time that it takes for an initial patentapplication to be approved is generally between four to six years, however, dueto the unique nature of each patent application, the actual length of time mayvary.  If a patent application is denied,the associated cost of that application would be written off.  However, the Company has not had any patentapplications denied as of the date of this Report on Form 10-Q.  Additionally, should a patent applicationbecome impaired during the application process, the Company would write down orwrite off the associated cost of that patent application.

 

Issued patents and agricultural patents pending are beingamortized over a period of 17 years, the life of the patent.

 

The Company assesses the impairment in value of intangibleassets whenever events or circumstances indicate that their carrying value maynot be recoverable.  Factors the Companyconsiders important which could trigger an impairment review include thefollowing:

 

·                  significant negative industry trends;

 

·                  significant underutilization of the assets;

 

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

 

·                  changes in technology and the emergence of competing technology.

 

If theCompany’s review determines that the future discounted cash flows related tothese assets will not be sufficient to recover their carrying value, theCompany will reduce the carrying values of these assets down to its estimate offair value and continue amortizing them over their 

 

10

----

 

remaining usefullives.  To date, the Company has notrecorded any impairment of intangible assets.

 

**Note 4 — Loss Per Share:**

** **

                Netloss per common share is computed by dividing the net loss by the weightedaverage number of common shares outstanding during the period.  As of December 31, 2007, shares to beissued upon the exercise of options and warrants aggregating 19,281,261 at anaverage price of $1.55, and as December 31, 2006, shares to be issued uponthe exercise of options and warrants aggregating 9,100,877 at an average priceof $2.62 are not included in the computation of diluted loss per share as theeffect is anti-dilutive.  Additionally,at December 31, 2007, 7,777,777 shares to be issued upon the conversion ofconvertible notes at a fixed conversion rate of $0.90 are not included in thecomputation of diluted loss per share as the effect 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 vest based upon time-based conditions.

 

                Thefair value of each stock option and warrant granted has been determined usingthe 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** | ** ** | **Six Months Ended**  | ** ** |
|------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **December 31,**  | ** ** | **December 31,** | ** ** |
|                         |       | **2007**               | ** ** | **2006**              | ** ** | **2007** | ** ** | **2006** |   |
|                         |       |                   |       |                  |       |   |   |   |   |
| Estimated  life in years     |       | 6                      |       | 6-10                  |       | 6 |   | 6-10 |   |
| Risk-free  interest rate (1) |       | 3.4%-4.1               | %          | 4.2%-4.7              | %          | 3.4%-4.1 | % | 4.2%-4.7 | % |
| Volatility                   |       | 100                    | %          | 70%-148               | %          | 100 | % | 70%-148 | % |
| Dividend  paid               |       | None                   |       | None                  |       | None |   | None |   |

----

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

 

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

 

                A summary of changes in thestock option plan for the six month period ended December 31, 2007 is asfollows:

 

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

 

 

11

----

 

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

 

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

 

                As of December 31, 2007,the aggregate intrinsic value of stock options outstanding was $0, with aweighted-average remaining term of 6.5 years. The aggregate intrinsic value of stock options exercisable at that samedate was $0, with a weighted-average remaining term of 5.4 years.  As of December 31, 2007, the Company has1,856,700 shares available for future stock option grants.

 

                As of December 31, 2007,total compensation expense not yet recognized related to stock option grantsamounted to approximately $428,000**,**which will be recognized over the next 24 months and an additional $418,000which may be recognized  as certaintarget goal undet the Companys Long-Term Incentive Program are met over thenext 36 months.

 

*Short-TermIncentive Program*

* *

                On December 13, 2007, uponrecommendation of the Company’s Compensation Committee, the Board adopted aShort-Term Equity Incentive Program for each of Bruce C. Galton, John E. Thompson,Ph.D, Joel Brooks, Richard Dondero and Sascha Fedyszyn.  The Programs are intended to ensure theachievement of certain goals of the Company, continuity of the Company’sexecutive management, and to align the interests of the executive management withthose of the shareholders.

 

                Pursuant to and as defined inthe Short-Term Equity Incentive Program, each executive would be awarded sharesof the Company’s Common Stock, or options to acquire shares of the Company’sCommon Stock, if the Company achieves certain target goals relating toresearch, financing, licensing, investor relations and other administrativeitems during the fiscal year ending June 30, 2008.

 

                The number of eligible sharesand options to be awarded to the executive is based upon the followingweightings:

 

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 the Company, theexecutive officers would be awarded the following number of shares and optionsfor the Fiscal year ended June 30, 2008:

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

----

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

 

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

 

*Long-TermIncentive Program*

* *

                On December 13, 2007, uponrecommendation of the Company’s Compensation Committee, the Board adopted aLong-Term Equity Incentive Program for each of Bruce C. Galton, John E.Thompson, Ph.D, Joel Brooks, Richard Dondero and Sascha P. Fedyszyn.  The Programs are intended to ensure theachievement of certain goals of the Company, continuity of the Company’sexecutive management, and to align the interests of the executive managementwith those of the shareholders.

 

                Pursuant to and as defined inthe Long-Term Equity Incentive Program, each executive would be awarded sharesof the Company’s Common Stock and options to acquire shares of the Company’sCommon Stock if the Company achieves certain target goals relating to itsMultiple Myeloma research project over the next three fiscal years.

 

                The number of eligible sharesand options to be awarded to the executive is based upon the followingweightings:

 

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

 

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

 

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

 

13

----

 

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

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

----

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

 

**Note 6** — **Revenue Recognition:**

** **

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

 

**Note 7 — Convertible Note and StockholdersEquity:**

** **

On August 1, 2007 and August 29, 2007, the Company enteredinto binding Securities Purchase Agreements with YA Global Investments L.P. (“YAGlobal”) and Stanford Venture Capital Holdings, Inc. (“Stanford”),respectively, to sell to each of YA Global and Stanford up to $5,000,000 ofsecured convertible notes and accompanying warrants for an aggregate grossproceeds of $10,000,000.  The convertiblenotes convert into the Company’s common stock at a fixed price of $0.90 pershare subject to certain adjustments (the “Fixed Conversion Price”), for aperiod of two years immediately following the signing date, provided that theCompany has achieved the following milestones by January 31, 2008: (i) successfulcompletion of animal 

 

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studies, other than toxicology studies, necessary for the advancementof Factor 5A1 in human clinical trials, (ii) the engagement of a contractresearch organization for human clinical studies of Factor 5A1, and (iii) thesigning of at least one (1) corporate partnership or license agreementafter August 1, 2007 with an agricultural company utilizing the Company’sproprietary platform. As of January 31, 2008, the Company has completedall of the three required milestones. After the second anniversary of the signing date, the convertible notesmay convert into shares of the Company’s common stock at the lower of the fixedconversion price or 80% of the lowest daily volume-weighted average price (the “VWAP”),of the common stock during the five trading days prior to the conversion date.The maturity date of each of the convertible notes for YA Global and Stanfordis December 30, 2010 and December 31, 2010, respectively.  Currently, at the fixed conversion price, thenumber of shares of common stock issuable upon conversion of the convertiblenotes outstanding and to be issued and exercise of warrants outstanding and tobe issued represents, in the aggregate, 24,994,445 shares, plus an estimatedadditional 2,000,000 shares for the payment of interest in stock under theconvertible notes.

 

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

 

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

 

If there is an effective registration statement for the resale of theshares underlying the convertible notes or if such shares become 144(k) eligible,the Company will have the option to force the investors to convert 50% and 100%of its then-outstanding convertible notes if its common stock price exceeds150% and 175% of the Fixed Conversion Price, respectively, for any 20 out of 30trading days; provided that such forced conversion meets certain conditions(the “Call Option”).  If the Companyexercises its Call Option prior to the third anniversary of the signing date,it will issue additional warrants to the investor equal to 50% of the number ofshares underlying the convertible note subject to the forced conversion.  These warrants will be exercisable at thefixed conversion price and will have the same maturity as the other warrantsissued under the YA Global financing.

 

The Company’s obligations under the convertible notes are secured byall of its and its subsidiary’s assets and intellectual property, as evidencedby certain Security Agreements and certain Patent Security Agreements by andbetween the Company and each of YA Global and Stanford.  Pursuant to a subordination agreement, YAGlobal is the senior secured creditor.

 

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YA Global and Stanford will also be issued warrants to purchase anaggregate of 5,550,000 and 8,333,333, respectively, of the Company’s CommonStock, exercisable six months and one day from the date of issuance until theirexpiration on the date that is five years from the date of issuance.  The warrants will be issued in two series.Generally, the Series A warrants may be issued prior to stockholderapproval, while the Series B warrants are only issued after stockholderapproval.  The exercise price of the Series Awarrants is $1.01 per share, and the exercise price of the Series Bwarrants is $0.90 per share, subject to certain adjustments.  The warrants provide a right of cashlessexercise if, at the time of exercise, there is no effective registrationstatement registering the resale of the shares underlying the warrants.

 

The conversion rate of each convertible note and the exercise price ofthe Series B warrants are subject to adjustment for certain events,including dividends, stock splits, combinations and the sale of the Company’sCommon Stock or securities convertible into or exercisable for the Company’sCommon Stock at a price less than the then applicable conversion or exerciseprice.

 

The investors have a right of first refusal on any future funding thatinvolves the issuance of the Company’s capital stock for so long as a portionof the convertible notes is outstanding.

 

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

 

The total gross proceeds from the issuance of the convertible notes andwarrants will be $10,000,000 before payment of 3.25% of the purchase price incommissions to Wainwright & Co., Inc. (the “Placement Agent”).  The Company will issue to the Placement Agentwarrants to purchase 7% of the purchase price, or 777,777 shares, of theCompany’s Common Stock with similar terms to the warrants that will be issuedto the investors.  The Company paid YAGlobal and Stanford a non-refundable structuring/due diligence fee of $30,000each.  The Company has also agreed to payYA Global and Stanford a commitment fee of 5% and 7%, respectively, of itspurchase price, which is paid proportionately at each closing.

 

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*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities Purchase Agreement, the Companyhas issued three convertible notes in the aggregate amount of $5,000,000 andtwo Series A warrants in the amount of 1,387,500 shares each on September 21,2007 and October 16, 2007 and a Series B warrant in the amount of2,775,000 shares on December 20, 2007.

 

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

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

 

At December 31, 2007, net proceeds of $4,720,000were allocated to the warrants and beneficial conversion feature and recordedas equity.

 

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

 

*Specifics of Stanford Financing*

* *

On December 20, 2007, the Company issued a convertible note in theamount of $2,000,000 and Series A warrants in the amount of 2,500,000shares and Series B warrants in the amount of 2,500,000 shares.

 

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

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

 

At December 31, 2007, net proceeds of $1,830,000were allocated to the warrants and beneficial conversion feature and recordedas equity.

 

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Pursuant to the Stanford Securities Purchase Agreement, the Companywill 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; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 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 to Stanford will be subjectto a maximum cap of 31,888,888 on the number of shares of common stock that canbe issued upon the conversion of the convertible notes and the exercise of thewarrants.

 

As of December 31, 2007, the outstanding balance of theConvertible Notes were $257,560, which is comprised of notes with an aggregateface amount of $7,000,000 less unamortized debt discount of $6,742,440.

 

Debt discount associated with the Convertible Notes is amortized tointerest expense over the remaining life of the Convertible Notes.  Upon conversion of the Convertible Notes intoCommon Stock, any unamortized debt discount relating to the portion convertedwill be charged to equity.  Total chargesto interest for amortization of debt discount were $244,837 and $257,560 for thethree month and six month periods ended December 31, 2007.

 

The costs associated with the issuances in the amountof $789,817 have been recorded as deferred financing costs and are beingamortized ratably over the term of the convertible notes.

 

**Note 8 — Income Taxes:**

** **

                Noprovision for income taxes has been made in the three months and six monthperiods ended December 31, 2007 and 2006 given the Company’s losses in2007 and 2006 and available net operating loss carryforwards.  A benefit has not been recorded as therealization of the net operating losses is not assured and the timing in whichthe Company can utilize its net operating loss carryforwards in any year or intotal may be limited by provisions of the Internal Revenue Code regardingchanges in ownership of corporations.

 

                InJuly 2006, the Financial Accounting Standards Board issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an entity’s financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes”.  FIN 48 prescribes a recognition threshold andmeasurement attribute for financial statement disclosure of tax positions takenor expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.  The Company adopted FIN 48effective July 1, 2007 and there was no material effect on our results ofoperations or financial position.

 

 

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**Note 9**—**Subsequent Event:**

 

                On February 14**,** 2008,the Company amended its non-exclusive financial advisory agreement withStanford Group Company, which was originally entered into on October 11,2006.  The amendment extended the term ofthe agreement through June 30, 2012 and expanded the services to be provided tothe Company.  As compensation for the termextension and expansion of services, previously issued warrants wereamended.  The exercise prices of the1,500,000 shares of Common Stock underlying the warrants, 750,000 of which hadan exercise price of $2.00 and 750,000 of which had an exercise price of $1.50,were reduced to $1.00.  Additionally, theexpiration dates of December 2009 and January 2010 were each extended through June30**,** 2012. The agreement may be terminated by either party upon sixty days writtennotice.

 

 

 

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| **Item 2.** | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations.** |
|-------------|--------------------------------------------------------------------------------------------------|

 

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

 

**Overview**

** **

*Our Business*

* *

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

 

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

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

 

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

 

*Human Health Applications*

* *

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

 

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

 

Certain preclinical humanhealth results to date include:

 

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

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

 

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

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

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

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

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

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

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

 

Inhibiting Apoptosis

 

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

 

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an in-vivo rat model; and the inhibition of viralreplication in a human cell line infected with HIV-1.

 

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

 

Accelerating Apoptosis

 

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

 

*Human Health Research Program*

* *

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

 

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

 

 

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

 

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

 

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potential delivery systems for our technology in the animalmodel, contracting for the supply of pharmaceutical grade materials to be usedin toxicology and human studies, and ultimately filing an investigational newdrug application, or IND application, with the U.S. Food and DrugAdministration, or FDA, for their review and consideration in order to initiatea clinical trial.  We estimate that itwill take approximately eighteen to twenty four months to complete thisprogram.

·                  PancreaticIslets isolated for transplantation. Additional in-vitro experiments will test human beta islet cells.  The human cells will be tested for survivaland functionality, insulin activity post processing and cytokine challenge.

·                  HIV-1.  We will continue in-vitro studies utilizingdifferent siRNA delivery systems in order to increase the transfectionefficiency of the siRNA to Factor 5A to determine further decreases in HIVreplication and may seek animal models to test.

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

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

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

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

 

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

 

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

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

 

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

 

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

 

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

 

*Agricultural Applications*

* *

Ouragricultural research focuses on the discovery and development of certain gene technologies,which are designed to confer positive traits on fruits, flowers, vegetables,forestry species and agronomic crops.  Todate, we have isolated and characterized the senescence-induced Lipase gene,DHS, and Factor 5A in certain species of plants.  Our goal is to modulate the expression ofthese genes in order to achieve such traits as extended shelf life, increasedbiomass, increased yield and increased resistance to environmental stress anddisease, thereby demonstrating proof of concept in each category of crop.

 

Certainagricultural results to date include:

 

·                  longer shelf life of perishable produce;

·                  increased biomass and seed yield;

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

·                  greater tolerance to certain fungal and bacterial pathogens;

·                  more efficient use of fertilizer; and

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

 

We havelicensed this technology to various strategic partners and have entered into ajoint venture, and we intend to continue to license this technology, as theopportunities present themselves, to additional strategic partners and/or enterinto additional joint ventures.  Togetherwith our commercial partners, we are currently working with lettuce, turfgrass,canola, corn, soybean, cotton, banana, alfalfa, rice and certain species oftrees and bedding plants, and we have obtained proof of concept for enhancedpost harvest shelf life, seed yield, biomass, and resistance to disease inseveral of these plant species.  We haveongoing field trials of certain trees and bananas with our respectivepartners.  The first and second round ofbanana field trials have shown that our technology extends the shelf life ofbanana fruit by 100%.  In addition to thepost harvest shelf life benefits, an additional field trial generatedencouraging disease tolerance data, specific to Black Sigatoka (Black LeafStreak Disease), for banana plants. Additional field trials for banana plantsare ongoing for Black Sigatoka.  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-term research and developmentinitiatives include modulating the expression of DHS and Factor 5A genes inthese plants and propagation and then propagation and phenotype testing of suchplants.

 

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

 

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

 

*Commercialization Strategy*

* *

In order to address the complexities associated withmarketing and distribution in the worldwide market, we have adopted amulti-faceted commercialization strategy, in which we have entered into andplan to enter into, as the opportunities present themselves, additionallicensing agreements or other strategic relationships with a variety of companiesor other entities on a crop-by-crop basis. We anticipate revenues from these relationships in the form of licensingfees and royalties from our partners, usage fees in the case of the agreementwith Poet, or sharing gross profits in the case of the joint venture with RahanMeristem.  In addition, we anticipatepayments from our partners upon our achievement of certain research anddevelopment benchmarks.  Thiscommercialization strategy allows us to generate revenue at various stages ofproduct development, while ensuring that our technology is incorporated into awide variety of crops.  Our optimalpartners combine the technological expertise to incorporate our technology intotheir product line along with the ability to successfully market the enhanced finalproduct, thereby eliminating the need for us to develop and maintain a salesforce.

 

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

 

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

 

Generally, projects with our license and joint venturepartners begin by our partners transforming seed or germplasm to incorporateour technology.  Those seeds or germplasmare then grown in our partners’ greenhouse. After successful greenhouse trials, our partners will transfer theplants to the field for field trials. After completion of successful field trials, our partners may have toapply for and receive regulatory approval prior to initiation of anycommercialization activities.

 

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Generally, the approximate time to complete each sequentialdevelopment step is as follows:

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

 

The actual amount of time spent on each development phasedepends on the crop, its growth cycle and the success of the transformationachieving the desired results.  As such,the amount of time for each phase of development could vary, or the time framesmay change.

 

The development of our technology with Poet is differentthan our other licenses in that we are modifying certain production inputs forethanol.  That process involves modifyingthe inputs, testing such inputs in Poet’s production process and, ifsuccessful, implementing such inputs in Poet’s production process on a plant byplant basis.

 

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

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

 

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

 

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

 

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

 

*Patent and Patent Applications*

* *

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

 

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

 

27

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**Liquidity and Capital Resources**

** **

*Overview*

* *

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

 

*Contractual Obligations*

* *

The following table lists our cash contractual obligationsas of December 31, 2007:

 
| ** **                                                           | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                           | ** ** | ** **                 | ** ** | **Less than** | ** ** | ** ** | ** ** | ** ** | ** ** | **More than** | ** ** |
| **Contractual  Obligations**                                         | ** ** | **Total**                  | ** ** | **1 year** | ** ** | **1 - 3 years** | ** ** | **4 - 5 years** | ** ** | **5 years** | ** ** |
| Research and Development Agreements (1)                              |       | $                          | 663,485    |   | $ | 663,485 |   | $ | — |   | $ | — |   | $ | — |   |
| Facility, Rent and Operating Leases (2)                              |       | $                          | 270,332    |   | $ | 78,052 |   | $ | 158,840 |   | $ | 33,440 |   | $ | — |   |
| Employment, Consulting and Scientific Advisory  Board Agreements (3) |       | $                          | 571,380    |   | $ | 531,996 |   | $ | 39,384 |   | $ | — |   | $ | — |   |
| Total Contractual Cash Obligations                                   |       | $                          | 1,505,197  |   | $ | 1,273,533 |   | $ | 198,224 |   | $ | 33,440 |   | $ | — |   |

----

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

 

28

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

 

*Capital Resources*

 

Sinceinception, we have generated revenues of $1,095,833 in connection with theinitial fees and milestone payments received under our license and developmentagreements.  We have not been profitablesince inception, we will continue to incur additional operating losses in thefuture, and we will require additional financing to continue the developmentand subsequent commercialization of our technology.  While we do not expect to generate significantrevenues from the licensing of our technology for the next one to three years,or longer, we may enter into additional licensing or other agreements withmarketing and distribution partners that may result in additional license fees,receive revenues from contract research, or other related 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 Capital Holdings, Inc.,referred to herein as Stanford, respectively, to sell to each of YA Global andStanford up to $5,000,000 of secured convertible notes and accompanyingwarrants for an aggregate gross proceeds of $10,000,000.  The convertible notes convert into our commonstock at a fixed price of $0.90 per share subject to certain adjustments,referred to herein as the Fixed Conversion Price, for a period of two yearsimmediately following the signing date, provided that we have achieved thefollowing milestones by January 31, 2008: (i) successful completionof animal studies, other than toxicology studies, necessary for the advancementof Factor 5A1 in human clinical trials, (ii) the engagement of a contractresearch organization for human clinical studies of Factor 5A1, and (iii) thesigning of at least one (1) corporate partnership or license agreementafter August 1, 2007 with an agricultural company utilizing ourproprietary platform. As of January 31, 2008, we have completed all of thethree required milestones.  After thesecond anniversary of the signing date, the convertible notes may convert intoshares of our common stock at the lower of the fixed conversion price or 80% ofthe lowest daily volume-weighted average price, referred to herein as the VWAP,of our common stock during the five trading days prior to the conversion date.The maturity date of each of the convertible notes for YA Global and Stanfordis December 30, 2010 and December 31, 2010, respectively.  Currently, at the fixed conversion price, thenumber of shares of our common stock issuable upon conversion of theconvertible notes and exercise of warrants represents, in the aggregate,24,994,445 shares, plus an estimated additional 2,000,000 shares for thepayment of interest in stock under the convertible notes.

 

29

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

 

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

 

If there is an effective registration statement for the resale of theshares underlying the convertible notes or if such shares become 144(k) eligible,we will have the option to force the investors to convert 50% and 100% of ourthen-outstanding convertible notes if our common stock price exceeds 150% and175% of the Fixed Conversion Price, respectively, for any 20 out of 30 tradingdays; provided that such forced conversion meets certain conditions, referredto herein as the Call Option.  If we exerciseour Call Option prior to the third anniversary of the signing date, we willissue additional warrants to the investors equal to 50% of the number of sharesunderlying the convertible notes subject to the forced conversion.  These warrants will be exercisable at thefixed conversion price and will have the same maturity as the other warrantsissued under the YA Global Financing.

 

Our obligations under the convertible notes are secured by all of ourand our subsidiary’s assets and intellectual property, as evidenced by theSecurity Agreements and the Patent Security Agreements.  Pursuant to a subordination agreement, YAGlobal is the senior secured creditor.

 

YA Global and Stanford have been and will  be issued warrants to purchase an aggregateof 5,550,000 and 8,333,333, respectively, of our common stock, exercisable sixmonths and one day from the date of issuance until their expiration on the datethat is five years from the date of issuance. The warrants have been and will be issued in two series. The exerciseprice of the Series A warrants is $1.01 per share, and the exercise priceof the Series B warrants is $0.90 per share, subject to certainadjustments.  The warrants provide aright of cashless exercise if, at the time of exercise, there is no effectiveregistration statement registering the resale of the shares underlying thewarrants.

 

The conversion rate of each convertible note and the exercise price ofthe Series B warrants are subject to adjustment for certain events,including dividends, stock splits, combinations and the sale of our commonstock or securities convertible into or exercisable for our common stock at aprice less than the then applicable conversion or exercise price.

 

The investors have a right of first refusal on any future funding thatinvolves the issuance of our capital stock for so long as a portion of theconvertible notes are outstanding.

 

30

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The total gross proceeds from the issuance of the convertible notes andwarrants will be $10,000,000 before payment of 3.25% of the purchase price incommissions to Wainwright & Co., Inc., referred to herein as thePlacement Agent.  We will issue to thePlacement Agent warrants to purchase 7% of the purchase price, or 777,777shares, of our common stock with similar terms to the warrants that have beenand will be issued to the investors.  Wehave paid YA Global and Stanford a non-refundable structuring/due diligence feeof $30,000 each.  hawse have also agreedto pay YA Global and Stanford a commitment fee of 5% and 7%, respectively, ofits purchase price, which is paid proportionately at each closing.

 

*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities Purchase Agreement, wse haveissued three convertible notes in the aggregate amount of $5,000,000 and two Series Awarrants in the amount of 1,387,500 shares each on September 21, 2007 and October 16,2007 and a Series B warrant in the amount of 2,775,000 shares on December 20,2007.

 

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

 

*Specifics of Stanford Financing*

* *

On December 20, 2007, we issued a convertible note in the amountof $2,000,000 and Series A warrants in the amount of 2,500,000 shares and Series Bwarrants in the amount of 2,500,000 shares.

 

Pursuant to the Stanford Securities Purchase Agreement, we will issueand sell to Stanford:

 

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

 

The convertible notes and warrants issuable to Stanford will be subjectto a maximum cap of 31,888,888 on the number of shares of our common stock thatcan be issued upon the conversion of the convertible notes and the exercise ofthe warrants.

 

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

 

31

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We anticipate that, based upon our current cash andinvestments and the additional $3,000,000 proceeds from the issuance ofconvertible notes and warrants, we will be able to fund our operations for thenext twenty-one months. If we are unable to issue the additional $3,000,000 ofconvertible notes and warrants, we will be able to fund our operations for thenext thirteen months.  Over the nexttwelve months, we plan to fund our research and development andcommercialization activities by:

 

·                  utilizing our current cash balance and investments;

·                  achieving some of the milestones set forth in our current licensingagreements;

·                  through the execution of additional licensing agreements for ourtechnology; and

·                  through the issuance ofconvertible notes under the recently completed transaction with YA Global andStanford Financial.

 

We cannot assure you that we will be able to raise moneythrough any of the foregoing transactions, or on favorable terms, if at all.

 

 

**Changes to Critical AccountingPolicies and Estimates**

** **

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

 

32

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**Results of Operations**

** **

ThreeMonths Ended December 31, 2007 andThree Months Ended December 31, 2006

 

The net loss for the three-month period ended December 31,2007 and 2006 was $1,294,671 and $1,135,637, respectively, an increase of$159,034**,**or 14.0%.  This increase in net loss was primarily theresult of a decrease in revenue and an increase in expenses associated with theoutstanding convertible notes that were issued during the current fiscal year,which was partially offset by a decrease in operating expenses.

** **

*Revenue*

* *

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

 

We anticipate that we will continue to receive milestonepayments in connection with our current agricultural license agreements whilewe continue to pursue our goal of attracting other companies to license ourtechnologies in various other crops. 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  December 31,** | ** ** |
|-----------------------------|------------|-------------------------------------------|------------|
| ** **                  | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                  | ** ** | **(in thousands, except % values)**       | ** ** |
| General  and administrative |       | $                                         | 586        |   | $ | 1,104 |   | $ | (518 | ) | (46.9 | )% |
| Research  and development   |       | 392                                       |       | 239 |   | 153 |   | 64.0 |  % |
| Total  operating expenses   |       | $                                         | 978        |   | $ | 1,343 |   | $ | (365 | ) | (27.2 | )% |
|                             |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |

 

We expect operatingexpenses to increase over the next twelve months as we anticipate that researchand development expenses will increase as we continue to expand our researchand development activities.

 

33

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* *

*General and Administrative Expenses*

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

 

 

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

 

Stock-based compensation for the three months ended December 31,2006 consists 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 three-month period ended December 31,2006, there were 242,500 options or warrants granted to such directors,employees and consultants

 

·                  Payroll and benefits increased primarily as a result of salary and healthinsurance rate increases and a payments to certain employees for vacation timenot used during the calendar year ended December 31, 2007.

 

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

 

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

 

·                  Depreciation and amortization increased primarily as a result of anincrease in amortization of patent costs. We began amortizing the cost of our pending patent applications duringthe three month period ended March 31, 2007.  Therefore such amortization was not includedin depreciation and amortization during the three month period ended December 31,2006.

 

34

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We expect general andadministrative expenses to modestly increase over the next twelve monthsprimarily due to an increase in legal and accounting fees related to theincreased regulatory environment surrounding our business.

 

*Research and Development Expenses*

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

 

 

·                  Stock-based compensation consists primarily of the amortized portion ofBlack-Scholes value of options and warrants granted to research and developmentconsultants and employees. During the three-month periods ended December 31,2007 and 2006 there were 45,000 and 88,000 options granted to such consultantsand employees.

 

·                  Other research and development costs increased primarily as a result of anexpansion of our human health programs, including our cancer research program,the banana field trials and the weakness of the United States currency againstthe Canadian currency.

 

The breakdown of ourresearch and development expenses between our agricultural and human healthresearch programs is as follows:

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

 

Our agricultural researchexpenses increased during the three-month period ended December 31, 2007primarily as a result of an increase in the budget for the banana field trialsand an unfavorable exchange rate variance in connection with our researchagreement at the University of Waterloo.

 

Our human health expensesincreased during the three-month period ended December 31, 2007 as we haveinitiated certain research projects that were not in progress during the threemonth period ended December 31, 2006. We expect the percentage of human health research programs to continueto increase as a percentage of the total research and development expenses aswe continue our current research projects and begin new human healthinitiatives.

 

35

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* *

*Amortization ofdebt discount and financing costs and interest expense on convertible notes*

* *

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

 

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

 

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

 
| ** **          | ** ** | ** **      | ** ** | **Unamortized** | ** ** | ** **        | ** ** | **Future Quarterly** | ** ** |
|---------------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|----------------------|------------|
| **Date Issued**     | ** ** | **Face Amount** | ** ** | **Amount**      | ** ** | **Maturity Date** | ** ** | **Amortization**     | ** ** |
| Sept.  21, 2007     |       | $               | 1,500,000  |            | $          | 1,372,901         |       | Dec. 30, 2010   |       | $ | 114,504 |   |
| Oct. 16,  2007 |       | $               | 1,500,000  |            | $          | 1,402,597         |       | Dec. 30, 2010   |       | $ | 116,883 |   |
| Dec. 20,  2007 |       | $               | 2,000,000  |            | $          | 1,983,471         |       | Dec. 30, 2010   |       | $ | 165,289 |   |
| Dec. 20,  2007 |       | $               | 2,000,000  |            | $          | 1,983,471         |       | Dec. 31, 2010   |       | $ | 165,289 |   |
| Total               |       | $               | 7,000,000  |            | $          | 6,742,440         |       |                 |       | $ | 561,965 |   |

 

Costsrelated to the issuance of the convertible notes and warrants in the amount of$789,817, 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 quarterly amortization ofthe deferred financing costs will be $62,409.

 

 

Six MonthsEnded December 31, 2007 andSix Months Ended December 31, 2006

 

The net loss for the six-month period ended December 31,2007 and 2006 was $1,676,717 and $1,736,102, respectively, a decrease of$59,385**,**or 3.4%.  This decrease in net loss was primarily the resultof an increase in revenue and a decrease in operating expenses, which waspartially offset by an increase in expenses associated with the outstandingconvertible notes that were issued during the current fiscal year.

** **

*Revenue*

* *

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

 

We anticipate that we will continue to receive milestonepayments in connection with our current agricultural license agreements whilewe continue to pursue our goal of attracting other companies to license ourtechnologies in various other crops. Additionally, we anticipate that we 

 

36

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will receive royalty payments from our licenseagreements if our partners 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.

 

                *Operating Expenses*

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

 

We expect operatingexpenses to increase over the next twelve months as we anticipate that researchand development expenses will increase as we continue to expand our researchand development activities.

 

*General and Administrative Expenses*

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

 

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

 

Stock-based compensation for the six months ended December 31,2006 consists 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 six-month period ended December 31,2006, there were 242,500 options or warrants granted to such directors,employees and consultants.

 

37

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·                  Payroll and benefits increased primarily as a result of salary and healthinsurance rate increases and a payments to certain employees for vacation timenot used during the calendar year ended December 31, 2007.

 

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

 

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

 

·                  Depreciation and amortization increased primarily as a result of anincrease in amortization of patent costs. We began amortizing the cost of our pending patent applications duringthe three month period ended March 31, 2007.  Therefore such amortization was not includedin depreciation and amortization during the six month period ended December 31,2006.

 

We expect general andadministrative expenses to modestly increase over the next twelve monthsprimarily due to an increase in legal and accounting fees related to theincreased regulatory environment surrounding our business.

 

*Research and Development Expenses*

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

 

·                  Stock-based compensation consists primarily of the amortized portion ofBlack-Scholes value of options and warrants granted to research and developmentconsultants and employees. During the six-month periods ended December 31,2007 and 2006 there were 45,000 and 88,000 options granted to such consultantsand employees.

 

·                  Other research and development costs increased primarily as a result of anexpansion of our human health programs, including our cancer research program,the banana field trials and the weakness of the United States. currency againstthe Canadian currency.

 

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The breakdown of ourresearch and development expenses between our agricultural and human healthresearch programs is as follows:

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

 

Our agricultural researchexpenses increased during the six-month period ended December 31, 2007 primarilyas a result of an increase in the budget for the banana field trials and anunfavorable exchange rate variance in connection with our research agreement atthe University of Waterloo.

 

Our human health expensesincreased during the six-month period ended December 31, 2007 as we haveinitiated certain research projects that were not in progress during the threemonth period ended December 31, 2006. We expect the percentage of human health research programs to continueto increase as a percentage of the total research and development expenses aswe continue our current research projects and begin new human healthinitiatives.

 

*Amortization ofdebt discount and financing costs and interest expense on convertible notes*

* *

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

 

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

 

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

 
| ** **          | ** ** | ** **      | ** ** | **Unamortized** | ** ** | ** **        | ** ** | **Future Quarterly** | ** ** |
|---------------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|----------------------|------------|
| **Date Issued**     | ** ** | **Face Amount** | ** ** | **Amount**      | ** ** | **Maturity Date** | ** ** | **Amortization**     | ** ** |
| Sept.  21, 2007     |       | $               | 1,500,000  |            | $          | 1,372,901         |       | Dec. 30, 2010   |       | $ | 114,504 |   |
| Oct. 16,  2007 |       | $               | 1,500,000  |            | $          | 1,402,597         |       | Dec. 30, 2010   |       | $ | 116,883 |   |
| Dec. 20,  2007 |       | $               | 2,000,000  |            | $          | 1,983,471         |       | Dec. 30, 2010   |       | $ | 165,289 |   |
| Dec. 20,  2007 |       | $               | 2,000,000  |            | $          | 1,983,471         |       | Dec. 31, 2010   |       | $ | 165,289 |   |
| Total               |       | $               | 7,000,000  |            | $          | 6,742,440         |       |                 |       | $ | 561,965 |   |

 

Costsrelated to the issuance of the convertible notes and warrants in the amount of$789,817, 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 quarterly amortization ofthe deferred financing costs will be $62,409.

 

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

 

Frominception of operations on July 1, 1998 through December 31, 2007, wehad revenues of $1,095,833, which consisted of the initial license fees and milestonepayments in connection with our various development and licenseagreements.  We do not expect to generatesignificant revenues for approximately the next one to three years, duringwhich time we will continue to engage in significant research and developmentefforts.

 

We haveincurred losses each year since inception and have an accumulated deficit of$27,298,257 at December 31, 2007. We expect to continue to incur losses as a result of expenditures onresearch and development and administrative activities.

 

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| **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 that fluctuations inforeign currency exchange rates will not result in any material adverse effecton our financial condition or results of operations.  In the event we derive a greater portion ofour revenues from international operations or in the event a greater portion ofour expenses are incurred internationally and denominated in a foreign currency,then changes in foreign currency exchange rates could effect our results ofoperations and financial condition.

 

*Interest Ra**teRisk*

* *

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

 
| **Item 4.** | **Controls and Procedures.** |
|-------------|------------------------------|

 

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

 

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

 

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

 

**Item 1A.  Risk Factors.**

** **

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

 

**Risks Related to Our Business**

 

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

* *

We are a development stage biotechnology company with alimited operating history and limited assets and capital.  We have incurred losses each year sinceinception and have an accumulated deficit of $27,298,257 at December 31,2007. We have generated minimal revenues by licensing our technology forcertain crops to companies willing to share in our development costs. However,our technology may not be ready for commercialization for several years. Weexpect to continue to incur losses for the next several years because weanticipate that our expenditures on research and development, andadministrative activities will significantly exceed our revenues during thatperiod. We cannot predict when, if ever, we will become profitable.

 

***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 prepared our financial statements ona going concern basis, which contemplates the realization of assets and thesatisfaction of liabilities and commitments in the normal course ofbusiness.  The consolidated financialstatements do not include any adjustments that might be necessary should we beunable to continue in existence.

 

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

*** ***

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

 

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

 

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

 

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

 

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

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

·                  attempt to sell our company;

·                  cease operations; or

·                  declare bankruptcy.

 

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

 

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

* *

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

 

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

 

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

 

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

*** ***

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

 

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

* *

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

 

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

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

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

·                  cease operations.

 

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

 

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obtainedor if adequate funds are not available, we may be required to curtailoperations significantly or to obtain funds through arrangements withcollaborative partners or others that may require us to relinquish rights tocertain of our technologies, product candidates, products or potential markets.Investors may experience dilution in their investment from future offerings ofour common stock. For example, if we raise additional capital by issuing equitysecurities, such an issuance would reduce the percentage ownership of existingstockholders.  In addition, assuming theexercise of all options and warrants outstanding and the conversion of thenotes into common stock, as of December 31, 2007, we had 8,428,999 sharesof common stock authorized but unissued and unreserved, which may be issuedfrom time to time by our board of directors without stockholder approval.  The total number of shares that may be issuedunder the financing is subject to certain caps as more fully described in this Form 10-Q.  Furthermore, we may need to issue securitiesthat have rights, preferences and privileges senior to our common stock.  Failure to obtain financing on acceptableterms would have a material adverse effect on our liquidity.

 

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

 

·                  the scope of our researchand development;

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

·                  our ability to successfullycommercialize our technology;

·                  competing technological andmarket developments;

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

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

 

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

*** ***

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

 

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

·                  our ability to preserve ourtrade secrets; and

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

 

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

 

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

 

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

 

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

 

·      our patent applications will result in theissuance of patents;

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

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

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

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

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

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

 

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

*** ***

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

 

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

 

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

 

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

 

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

 

***If our technologyinfringes the intellectual property of our competitors or other third parties,we may be required to pay license fees or damages.***

*** ***

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

 

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

*** ***

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

 

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

 

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

*** ***

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

 

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

 

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

*** ***

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

 

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

*** ***

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

 

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

* *

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

 

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

 

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

*** ***

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

 

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

 

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

 

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

 

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

 

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

*** ***

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

 

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

*** ***

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

 

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*** ***

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

*** ***

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

 

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

*** ***

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

 

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

 

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

 

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

*** ***

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

 

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** **

**Risks Related to Our Common Stock**

** **

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

* *

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

 

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

* *

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

 

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

*** ***

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

 

 

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*** ***

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

*** ***

The American Stock Exchange requires us to meet minimumfinancial requirements in order to maintain our listing.  We have received notices from the AmericanStock Exchange that we do not meet each of Section 1003(a)(ii) of theAmerican Stock Exchange Company Guide with shareholders’ equity of less than$4,000,000 and losses from continuing operations and/or net losses in three outof our four most recent fiscal years and Section 1003(a)(iii) of theAmerican Stock Exchange Company Guide with shareholders’ equity less than$6,000,000 and losses from continuing operations and/or net losses in the fivemost recent fiscal years.  We havesubmitted a plan to the American Stock Exchange discussing how we intend toregain compliance with the continued listing requirements.  The American Stock Exchange has accepted ourplan and has given us until March 1, 2008 to effectuate the plan andregain compliance with the continued listing requirements.  As of December 31, 2007, we believe thatwe are in compliance with the continued listing requirements.  However, if we are unable to continue to bein compliance with the continued listing requirements, it is possible that wewill be delisted.  If we are delistedfrom the American Stock Exchange, our common stock likely will become a “pennystock.”  In general, regulations of theSEC define a “penny stock” to be an equity security that is not listed on anational securities exchange or the NASDAQ Stock Market and that has a marketprice of less than $5.00 per share or with an exercise price of less than $5.00per share, subject to certain exceptions. If our common stock becomes a penny stock, additional sales practicerequirements would be imposed on broker-dealers that sell such securities topersons other than certain qualified investors. For transactions involving a penny stock, unless exempt, a broker-dealermust make a special suitability determination for the purchaser and receive thepurchaser’s written consent to the transaction prior to the sale.  In addition, the rules on penny stocksrequire delivery, prior to and after any penny stock transaction, ofdisclosures required by the SEC.

 

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

 

We believe that the listing of our common stock on arecognized national trading market, such as the American Stock Exchange, is animportant part of our business and strategy. Such a listing helps our stockholders by providing a readily availabletrading market with current quotations. Without that, stockholders may have a difficult time getting a quote forthe sale or purchase of our stock, the sale or purchase of our stock wouldlikely be made more difficult and the trading volume and liquidity of our stockwould likely decline.  The absence ofsuch a listing may adversely affect the acceptance of our common stock 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 use in licensingagreements, joint ventures, the development of strategic relationships and 

 

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acquisitions, which are critical to our business and strategy and noneof which is currently the subject of any agreement, arrangement orunderstanding, with respect to any future financing or strategic relationshipit may undertake. The delisting from the American Stock Exchange would resultin negative publicity and would negatively impact our ability to raise capitalin the future.

 

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

*** ***

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

 

·      quarterly variations in operating results;

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

·      changes in accounting treatments orprinciples;

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

·      additions or departures of key personnel;

·      future offerings or resales of our commonstock or other securities;

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

·      general political, economic and marketconditions.

 

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

*** ***

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

 

***Our stockholders may experience substantialdilution as a result of the conversion of outstanding convertible debentures,or the exercise of options and warrants to purchase our common stock.***

 

Asof December 31, 2007, 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 December 31,2007, 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.  Theconversion price of the convertible debentures is subject to adjustment ifcertain milestones are not met, and the warrants are also subject to certainanti-dilution adjustments.  Theagreements with YA Global and Stanford provide for the potential issuance of upto 62,388,888 shares of our common stock.

 

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**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

** **

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

 

The convertible notes accrue interest on their outstanding principalbalances at an annual rate of 8%.  Wehave the option to pay interest in cash or, upon certain conditions, commonstock.  If we pay interest in commonstock, the stock will be valued at a 10% discount to the average daily VWAP forthe five day trading period prior to the interest payment date, referred toherein as the Interest Shares

 

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

 

If there is an effective registration statement for the resale of theshares underlying the convertible notes or if such shares become 144(k) eligible,we will have the option to force the 

 

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investors to convert 50% and 100% of its then-outstanding convertiblenotes if our common stock price exceeds 150% and 175% of the Fixed ConversionPrice, respectively, for any 20 out of 30 trading days; provided that suchforced conversion meets certain conditions, referred to herein as the CallOption.  If we exercise our Call Optionprior to the third anniversary of the signing date, we will issue additionalwarrants to the investor equal to 50% of the number of shares underlying theconvertible note subject to the forced conversion.  These warrants will be exercisable at thefixed conversion price and will have the same maturity as the other warrantsissued under the YA Global financing.

 

Our obligations under the convertible notes are secured by all of ourand our subsidiary’s assets and intellectual property, as evidenced by certainSecurity Agreements and certain Patent Security Agreements by and between usand each of YA Global and Stanford. Pursuant to a subordination agreement, YA Global is the senior securedcreditor.

 

YA Global and Stanford have been or will be issued warrants to purchasean aggregate of 5,550,000 and 8,333,333, respectively, of our Common Stock,exercisable six months and one day from the date of issuance until theirexpiration on the date that is five years from the date of issuance.  The warrants are being issued in two series, Series Awarrants and Series B warrants.  Theexercise price of the Series A warrants is $1.01 per share, and theexercise price of the Series B warrants is $0.90 per share, subject tocertain 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 the exercise price ofthe Series B warrants are subject to adjustment for certain events,including dividends, stock splits, combinations and the sale of our commonstock or securities convertible into or exercisable for our Common Stock at aprice less than the then applicable conversion or exercise price.

 

The investors have a right of first refusal on any future funding thatinvolves the issuance of our capital stock for so long as a portion of theconvertible notes is outstanding.

 

Pursuant to the Registration Rights Agreement, we filed an initialregistration statement on October 12, 2007 to register 3,333,333 shares ofcommon stock issuable to YA Global, and such registration statement becameeffective on November 1, 2007.  On January 22,2008, we filed another registration statement to register 891,667 shares ofcommon stock issuable to YA Global.  Ifthe shares issuable to YA Global remain outstanding after all shares under theregistration statements have been sold, we may be required to file additionalregistration statements for those shares. These registration rights will cease once the shares issuable to YAGlobal are eligible for sale by the investor without restriction under Rule 144(k).  Upon certain events, we have agreed to pay aspartial liquidated damages an amount equal to 1.0% of the aggregate purchaseprice paid by the investors for any convertible debentures then held by the investors,but these payments may not exceed 12% of the aggregate purchase price paid bythe investors.  The maximum liquidateddamages payable under the Registration Rights Agreement is $600,000.  We have not recorded an estimatedregistration rights liability as we anticipate that we will fulfill ourobligations under the Registration Rights Agreement.

 

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The total gross proceeds from the issuance of the convertible notes andwarrants will be $10,000,000 before payment of 3.25% of the purchase price incommissions to Wainwright & Co., Inc., referred to herein as thePlacement Agent.  We will issue to thePlacement Agent warrants to purchase 7% of the purchase price, or 777,777shares, of our Common Stock with similar terms to the warrants that will beissued to the investors.  We have paid YAGlobal and will pay Stanford a non-refundable structuring/ due diligence fee of$30,000 each.  We have also agreed to payYA Global and Stanford a commitment fee of 5% and 7%, respectively, of itspurchase price, which is paid proportionately at each closing.

 

*Specifics of YA Global Financing*

* *

Pursuant to the YA Global Securities Purchase Agreement, we have issuedthree convertible notes in the aggregate amount of $5,000,000 and Series Awarrants in the amount of 2,775,000 shares underlying the warrants and Series Bwarrants in the amount of 2,775,000 shares underlying the warrants.

 

The convertible notes and warrants issued to YA Global will be subjectto a maximum cap of 30,500,000 on the number of shares of common stock that canbe issued upon the conversion of the convertible notes and the exercise of thewarrants.

 

*Specifics of Stanford Financing*

* *

Pursuant to the Stanford Securities Purchase Agreement, we have issued aconvertible note in the amount of $2,000,000 and Series A warrants in theamount of 2,500,000 shares underlying the warrants and Series B warrantsin the amount of 2,500,000 shares underlying the warrants.

 

We will issue and sell to Stanford an additional:

 

(1)               A convertible note andwarrants 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 a FDA accepted IND application;

 

(2)               A convertible note andwarrants 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 issued and issuable to Stanford willbe subject to a maximum cap of 31,888,888 on the number of shares of commonstock that can be issued upon the conversion of the convertible notes and theexercise of the warrants.

 

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**Item 4.  Submission of Matters to a Vote of SecurityHolders.**

** **

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

 

(b)         Thefollowing is a complete list of our directors as of December 13, 2007,each of whom was elected to a one-year term at the meeting, and whose term ofoffice continued after the meeting.

 

Ruedi Stalder

Bruce C. Galton

John E. Thompson, Ph.D.

Christopher Forbes

Thomas C. Quick

David Rector

John Braca

Jack Van Hulst

 

(c)          There were14,827,680 shares of common stock present at the meeting in person or by proxy,out of a total number of 17,473,694 shares of common stock issued andoutstanding and entitled to vote at the meeting.

 

The proposals and results of the vote of the stockholderstaken at the meeting by ballot and by proxy as solicited by us on behalf of ourBoard of Directors were as follows:

 

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

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

 

(B)                                To approve the issuance and sale of up to $2,000,000 of secured convertiblenotes in the third closing of the financing and the issuance and sale of up toan additional $5,000,000 of the secured convertible notes and warrants in thesecond financing:

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

 

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

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

 

(D)                               To approve an amendment to our Certificate of Incorporation, as amended, toincrease the total authorized shares of our common stock, $0.01 par value pershare, from sixty million shares to one hundred million shares:

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

 

(E)                                 For the proposal to ratify the appointment of McGladrey & Pullen,LLP as our independent registered public accounting firm for the fiscal yearending June 30, 2008:

 

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

 

59

 

**Item 6.  Exhibits.**

** **

               Exhibits.

 
| 3.1  |   | Certificate of Amendment to the Amended and  Restated Certificate of Incorporation (filed herewith).                                                               |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1 |   | Amendment No. 1 to financial advisory agreement by  and between Stanford Group Company and Senesco Technologies, Inc. dated  Febraury 14, 2008 (filed herewith)    |
| 31.1 |   | Certification of principal executive officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed  herewith)                                    |
| 31.2 |   | Certification of principal financial and accounting  officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (filed herewith)                     |
| 32.1 |   | Certification of principal executive officer pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.  (furnished herewith)                |
| 32.2 |   | Certification of principal financial and accounting  officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18  U.S.C. 1350. (furnished herewith) |

 

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**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: February 14, 2008 | By:                        | /s/ Bruce C. Galton |   |
|                         |                       | Bruce C. Galton, President |
|                         |                       | and Chief Executive Officer |
|                         |                       | (Principal Executive  Officer) |
|                         |                       |   |
|                         |                       |   |
| DATE: February 14, 2008 | By:                        | /s/ Joel Brooks |   |
|                         |                       | Joel Brooks, Chief Financial Officer |
|                         |                       | and Treasurer |
|                         |                       | (Principal Financial and Accounting Officer) |

 

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