Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
 
x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934
 
           For the quarterly period ended December 31, 2010
 
or
 
¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934
 
           For the transition period from ________________ to ________________
 
Commission File No. 001-31326
 
SENESCO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
84-1368850
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

303 George Street, Suite 420
New Brunswick, New Jersey 08901
(Address of principal executive offices)
(732) 296-8400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes: x
No: ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes: ¨
No: ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
Accelerated filer ¨
   
Smaller reporting company x
Non-accelerated filer ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes: ¨
No: x
 
74,766,237 shares of the issuer’s common stock, par value $0.01 per share, were outstanding as of January 31, 2011.

 
 

 

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, 2010 and June 30, 2010
2
 
         
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended December 31, 2010 and 2009, and From Inception on July 1, 1998 through December 31, 2010
3
 
         
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Months Ended December 31, 2010
4
 
         
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 2010 and 2009, and From Inception on July 1, 1998 through December 31, 2010
5
 
         
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
 
         
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
 
         
 
Overview
14
 
         
 
Liquidity and Capital Resources
18
 
         
 
Changes to Critical Accounting Policies and Estimates
20
 
         
 
Results of Operations
21
 
         
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
31
 
         
 
Item 4T.
Controls and Procedures
31
 
         
PART II.          OTHER INFORMATION.
   
         
 
Item 1.
Legal Proceedings.
32
 
         
 
Item 1A.
Risk Factors.
32
 
         
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
48
 
         
 
Item 3.
Defaults Upon Senior Securities
48
 
         
 
Item 4.
[REMOVED AND RESERVED]
48
 
         
 
Item 5.
Other Information.
48
 
         
 
Item 6.
Exhibits.
48
 
         
SIGNATURES
49
 

 
i

 

PART I.  FINANCIAL INFORMATION.
 
Item 1.
Financial Statements (Unaudited).
 
Certain information and footnote disclosures required under United States generally accepted accounting principles have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.  However, Senesco Technologies, Inc., a Delaware corporation, and its wholly owned subsidiary, Senesco, Inc., a New Jersey corporation (collectively, “Senesco” or the “Company”), believe that the disclosures are adequate to assure that the information presented is not misleading in any material respect.
 
The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the entire fiscal year.
 
1

 
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

   
December 31,
   
June 30,
 
   
2010
   
2010
 
             
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 4,837,477     $ 8,026,296  
Prepaid research supplies and expenses
    1,307,976       1,304,795  
                 
Total Current Assets
    6,145,453       9,331,091  
                 
Equipment, furniture and fixtures, net
    5,179       4,554  
Intangibles, net
    4,759,268       4,568,895  
Deferred income tax assets, net
    -       -  
Security deposit
    7,187       7,187  
                 
TOTAL ASSETS
  $ 10,917,087     $ 13,911,727  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 625,995     $ 557,420  
Accrued expenses
    371,467       576,857  
Line of credit
    2,194,844       2,194,844  
Deferred rent
    4,030       -  
                 
Total Current Liabilities
    3,196,336       3,329,121  
                 
Warrant liabilities ($0 and $490,438 to related parties, respectively)
    902,675       2,493,794  
Deferred rent
    -       8,060  
Grant payable
    99,728       99,728  
                 
TOTAL LIABILITIES
    4,198,739       5,930,703  
                 
STOCKHOLDERS' EQUITY:
               
                 
Preferred stock, $0.01 par value, authorized 5,000,000 shares
               
Series A 10,297 shares issued and 4,125 and 8,035 shares outstanding, respectively (liquidation preference of $4,228,125 and $8,235,875 at December 31, 2010 and June 30, 2010, respectively)
    41       80  
Series B 1,200 shares issued and outstanding (liquidation preference of $1,230,000 and $1,210,000 at December 31, 2010 and June 30, 2010, respectively)
    12       12  
Common stock, $0.01 par value, authorized 250,000,000 shares, issued and outstanding 69,255,399 and 50,092,204, at December 31, 2010 and June 30, 2010, respectively
    692,554       500,922  
Capital in excess of par
    61,700,953       58,321,169  
Deficit accumulated during the development stage
    (55,675,212 )     (50,841,159 )
                 
Total Stockholders' Equity
    6,718,348       7,981,024  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 10,917,087     $ 13,911,727  

See Notes to Condensed Consolidated Financial Statements
 
2

 
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

                           
Cumulative
 
   
Three months ended December 31,
   
Six months ended December 31,
   
Amounts from
 
   
2010
   
2009
   
2010
   
2009
   
Inception
 
                               
Revenue
  $ -     $ 140,000     $ -     $ 140,000     $ 1,590,000  
                                         
Operating expenses:
                                       
General and administrative
    706,685       685,409       1,375,569       1,180,364       27,655,880  
Research and development
    798,352       467,544       2,334,859       956,303       17,283,823  
Total operating expenses
    1,505,037       1,152,953       3,710,428       2,136,667       44,939,703  
                                         
Loss from operations
    (1,505,037 )     (1,012,953 )     (3,710,428 )     (1,996,667 )     (43,349,703 )
                                         
Other non-operating income (expense)
                                       
                                         
Grant income
    244,479       -       244,479       -       244,479  
                                         
Fair value – warrant liability
    149,910       451,208       469,386       2,339,341       7,717,814  
                                         
Sale of state income tax loss – net
    -       -       -       -       586,442  
                                         
Other noncash (expense) income, net
    (4,604 )     -       (115,869 )     -       205,390  
                                         
Loss on extinguishment of debt
    -       -       -       (86,532 )     (361,877 )
                                         
Amortization of debt discount and financing costs
    -       (959,946 )     -       (1,767,860 )     (11,227,870 )
                                         
Interest expense – convertible notes
    -       (182,653 )     -       (382,269 )     (2,027,930 )
                                         
Interest (expense) income - net
    (21,311 )     679       (39,607 )     1,026       459,571  
                                         
Net loss
    (1,136,563 )     (1,703,665 )     (3,152,039 )     (1,892,961 )     (47,753,684 )
                                         
Preferred dividends
    (675,608 )     -       (1,682,014 )     -       (7,921,528 )
                                         
Loss applicable to common shares
  $ (1,812,171 )   $ (1,703,665 )   $ (4,834,053 )   $ (1,892,961 )   $ (55,675,212 )
                                         
Basic and diluted net loss per common share
  $ (0.03 )   $ (0.06 )   $ (0.08 )   $ (0.08 )        
                                         
Basic and diluted weighted-average number of common shares outstanding
    67,978,776       26,250,566       62,733,481       24,146,382          

See Notes to Condensed Consolidated Financial Statements
 
 
3

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2010
(unaudited)

                                 
Deficit
       
                                 
Accumulated
       
                                 
During the
   
Stockholders'
 
   
Preferred Stock
   
Common Stock
   
Capital in Excess
   
Development
   
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
of Par Value
   
Stage
   
(Deficiency)
 
                                           
Balance July 1, 1998 (inception) through June 30, 2010
    9,235     $ 92       50,092,204     $ 500,922     $ 58,321,169     $ (50,841,159 )   $ 7,981,024  
                                                         
Issuance of common stock at $0.30 per share
    -       -       599,185       5,992       174,722       -       180,714  
                                                         
Commissions and other fees related to the issuance of common stock
    -       -       -       -       (31,437 )     -       (31,437 )
                                                         
Preferred stock converted into common stock
    (3,910 )     (39 )     12,218,750       122,187       (122,148 )     -       -  
                                                         
Issuance of common stock in lieu of cash payment for dividends
    -       -       6,335,260       63,353       1,355,678       (1,188,156 )     230,875  
                                                         
Fair market value of options and warrants vested and amended
    -       -       -       -       520,603       -       520,603  
                                                         
Reclassification of warrant liability
    -       -       -       -       1,121,733       -       1,121,733  
                                                         
Issuance of common stock under the Company's the Company's long-term incentive plan
    -       -       10,000       100       (100 )     -       -  
                                                         
Deemed dividend - Preferred Stock
    -       -       -       -       360,733       (360,733 )     -  
                                                         
Dividends accrued and unpaid at December 31, 2010
    -       -       -       -       -       (133,125 )     (133,125 )
                                                         
Net loss
    -       -       -       -       -       (3,152,039 )     (3,152,039 )
                                                         
Balance at December 31, 2010
    5,325     $ 53       69,255,399     $ 692,554     $ 61,700,953     $ (55,675,212 )   $ 6,718,348  

See Notes to Condensed Consolidated Financial Statements
 
 
4

 
 
SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

         
Cumulative
 
   
Six months ended December 31,
   
Amounts from
 
   
2010
   
2009
   
Inception
 
Cash flows from operating activities:
                 
Net loss
  $ (3,152,039 )   $ (1,892,961 )   $ (47,753,684 )
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
    (469,386 )     (2,339,341 )     (8,039,073 )
Noncash charge for change in warrant terms
    115,869       -       115,869  
Issuance of common stock and warrants for interest
    -       382,269       2,003,386  
Issuance of common stock for services
    -       28,800       53,800  
Stock-based compensation expense
    404,734       153,542       10,994,317  
Depreciation and amortization
    69,304       60,535       768,312  
Deferred rent
    (4,030 )     (3,979 )     4,030  
Amortization of convertible note discount
    -       1,496,593       10,000,000  
Amortization of deferred financing costs
    -       271,267       1,227,869  
Loss on extinguishment of debt
    -       86,532       361,877  
(Increase) decrease in operating assets:
                       
Accounts receivable
    -       (140,000 )     -  
Prepaid expenses and other current assets
    (3,181 )     29,344       (1,307,976 )
Security deposit
    -       -       (7,187 )
Increase (decrease) in operating liabilities:
                       
Accounts payable
    68,575       196,512       625,995  
Accrued expenses
    (107,640 )     96,434       413,343  
Net cash used in operating activities
    (3,077,794 )     (1,574,453 )     (30,322,693 )
                         
Cash flows from investing activities:
                       
Patent costs
    (258,276 )     (467,382 )     (5,352,554 )
Redemption of investments, net
    -       1,050,000       -  
Purchase of equipment, furniture and fixtures
    (2,026 )     (1,116 )     (180,205 )
Net cash (used in) provided by investing activities
    (260,302 )     581,502       (5,532,759 )
                         
Cash flows from financing activities:
                       
Proceeds from grant
    -       -       99,728  
Proceeds from draw-down on line of credit
    -       -       2,194,844  
Proceeds from issuance of bridge notes
    -       -       525,000  
Proceeds from issuance of preferred stock and warrants, net
    -       -       10,754,841  
Redemption of convertible notes and warrants
    -       -       (2,160,986 )
Proceeds from issuance of convertible notes
    -       -       9,340,000  
Deferred financing costs
    -       -       (651,781 )
Proceeds from issuance of common stock and warrants, net and exercise of warrants and options
    149,277       1,364,169       20,591,283  
Net cash provided by financing activities
    149,277       1,364,169       40,692,929  
                         
Net (decrease) increase in cash and cash equivalents
    (3,188,819 )     371,218       4,837,477  
                         
Cash and cash equivalents at beginning of period
    8,026,296       380,569       -  
Cash and cash equivalents at end of period
  $ 4,837,477     $ 751,787     $ 4,837,477  
                         
Supplemental disclosure of non-cash transactions:
                       
Conversion of convertible note into common stock
  $ -     $ 1,457,460     $ 10,000,000  
Conversion of bridge notes into common stock
    -       -       534,316  
Conversion of preferred stock into common stock
    122,148       -       308,111  
Allocation of preferred stock proceeds to warrants and beneficial conversion feature
    360,733       -       7,449,780  
Allocation of convertible debt proceeds to warrants and beneficial conversion feature
    -       -       9,340,000  
Warrants issued for financing costs
    -       -       690,984  
Issuance of common stock for interest payments on convertible notes
    -       382,269       2,003,386  
Issuance of common stock for dividend payments on preferred stock
    1,188,156       -       2,607,187  
Issuance of common stock in settlement of accounts payable
    -       175,000       175,000  
Dividends accrued on preferred stock
    133,125       -       133,125  
Supplemental disclosure of cash flow information:
                       
Cash paid for interest
    53,387       -       179,872  
 
See Notes to Condensed Consolidated Financial Statements
 
 
5

 

SENESCO TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1 - Basis of Presentation:
 
The financial statements included herein have been prepared by Senesco Technologies, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
 
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary to present fairly its financial position as of December 31, 2010, the results of its operations for the six months and three-months ended December 31, 2010 and 2009, cash flows for the six months ended December 31, 2010 and 2009, and the results of its operations and cash flows for the period from inception on July 1, 1998 through December 31, 2010.
 
Interim results are not necessarily indicative of results for the full fiscal year.
 
Note 2 – Liquidity:
 
As shown in the accompanying condensed consolidated financial statements, the Company has a history of losses with a deficit accumulated during the development stage from July 1, 1998 (inception) through December 31, 2010 of $55,675,212.  Additionally, the Company has generated minimal revenues by licensing its technology for certain crops to companies willing to share in its development costs. In addition, the Company’s technology may not be ready for commercialization for several years. The Company expects to continue to incur losses for the next several years because it anticipates that its expenditures on research and development and administrative activities will significantly exceed its revenues during that period. The Company cannot predict when, if ever, it will become profitable.
 
As of December 31, 2010, the Company had cash and cash equivalents in the amount of $4,837,477, which consisted of checking accounts and money market funds.  From January 1, 2011 through February 4, 2011, the Company has received net proceeds from the issuance of the Company’s common stock, par value $0.01 (the “Common Stock”) in the amount of approximately $1,360,000.  The Company estimates its cash and cash equivalents and the net proceeds from the issuance of Common Stock from January 1, 2011 through February 4, 2011 will cover its expenses for at least the next twelve months from December 31, 2010.
 
The Company will need additional capital and plans to raise additional capital through the placement of debt instruments or equity or both.  In December 2010, the Company entered into an At Market Issuance Sales Agreement (“ATM”) whereby it may issue up to $5,500,000 of Common Stock under this facility.  Through February 4, 2011, the Company has received gross proceeds from the ATM facility in the amount of $1,655,150. However, the Company may not be able to obtain adequate funds for its operations when needed or on acceptable terms.  If the Company is unable to raise additional funds, it will need to do one or more of the following:
 
 
6

 

 
·
delay, scale-back or eliminate some or all of its research and product development programs;
 
·
license third parties to develop and commercialize products or technologies that it would otherwise seek to develop and commercialize itself;
 
·
seek strategic alliances or business combinations;
 
·
attempt to sell the Company;
 
·
cease operations; or
 
·
declare bankruptcy.
 
Note 3 – Intangible Assets:
 
The Company conducts research and development activities, the cost of which is expensed as incurred, in order to generate patents that can be licensed to third parties in exchange for license fees and royalties.  Because the patents are the basis of the Company’s future revenue, the patent costs are capitalized.   The capitalized patent costs represent the outside legal fees incurred by the Company to submit and undertake all necessary efforts to have such patent applications issued as patents.
 
The length of time that it takes for an initial patent application to be approved is generally between four and six years.  However, due to the unique nature of each patent application, the actual length of time may vary.  If a patent application is denied, the associated cost of that application would be written off.  However, the Company has not had any patent applications denied as of December 31, 2010.  Additionally, should a patent application become impaired during the application process, the Company would write down or write off the associated cost of that patent application.
 
Issued patents and agricultural patent applications pending are being amortized over a period of 17 years, the expected economic life of the patent.  The Company assesses the impairment in value of intangible assets whenever events or circumstances indicate that their carrying value may not be recoverable.  Factors the Company considers important which could trigger an impairment review include the following:
 
•      significant negative industry trends;
 
•      significant underutilization of the assets;
 
•      significant changes in how the Company uses the assets or its plans for their use; and
 
•      changes in technology and the appearance of competing technology.
 
If the Company's review determines that the future discounted cash flows related to these assets will not be sufficient to recover their carrying value, the Company will reduce the carrying values of these assets down to its estimate of fair value and continue amortizing them over their remaining useful lives.  To date, the Company has not recorded any impairment of intangible assets.

 
7

 

Note 4 - Loss Per Share:
 
Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares assumed to be outstanding during the period of computation. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
 
For all periods presented, basic and diluted loss per share are the same, as any additional Common Stock equivalents would be anti-dilutive. Potentially dilutive shares of Common Stock have been excluded from the calculation of the weighted average number of dilutive common shares.
 
As of December 31, 2010, there were 84,111,290 additional potentially dilutive shares of Common Stock. These additional shares include 17,750,000 shares issuable upon conversion of the Preferred Stock, and 66,361,290 shares issuable upon the exercise of outstanding options and warrants.  As of December 31, 2009, there were 57,002,123 additional potentially dilutive shares of Common Stock. These additional shares included 29,620,519 shares issuable upon conversion of 8% convertible notes and 27,381,604 shares issuable upon the exercise of outstanding options and warrants.
 
Note 5 – Share-Based Transactions:
 
The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee.  Generally, the awards vest based upon time-based conditions.
 
The fair value of each stock option and warrant granted or vesting has been determined using the Black-Scholes model.  The material factors incorporated in the Black-Scholes model in estimating the value of the options and warrants include the following:

   
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Warrants granted
    5,000    
None
      305,000    
None
 
Options granted
    4,115,892       733,399       4,115,892       733,399  
Estimated life in years
    5.0-10.0       3.5-5.5       5.0-10.0       3.5-5.5  
Risk-free interest rate (1)
    1.5%-2.9 %     1.9%-3.9 %     1.3%-2.9 %     1.3% – 1.8 %
Volatility
    104 %     100 %     104 %     100 %
Dividend paid
 
None
   
None
   
None
   
None
 
 
 (1)      Represents the interest rate on a U.S. Treasury security with a maturity date corresponding to that of the option or warrant term.
 
The economic values of the options will depend on the future price of the Company's Common Stock, which cannot be forecast with reasonable accuracy.

 
8

 

A summary of changes in the stock option plan for the six months ended December 31, 2010 is as follows:
 
   
Number of Options
   
Weighted-Average
Exercise Price
 
Outstanding at July 1, 2010
    7,269,172     $ 1.13  
Granted
    4,115,892       0.26  
Exercised
           
Expired
    (500,000 )     1.14  
Outstanding at December 31, 2010
    10,885,064     $ 0.80  
Exercisable at December 31, 2010
    6,413,394     $ 1.13  
Not Exercisable at December 31, 2010
    4,471,670     $ 0.26  
 
As of December 31, 2010, the aggregate intrinsic value of stock options outstanding was $39,236, with a weighted-average remaining term of 7.7 years.  The aggregate intrinsic value of stock options exercisable at that same date was $8,869, with a weighted-average remaining term of 6.3 years.  As of December 31, 2010, the Company has 3,819,820 shares available for future stock option grants.
 
As of December 31, 2010, total compensation expense not yet recognized related to stock option grants amounted to approximately $1,207,000, which will be recognized over the next 47 months.
 
Long-Term Incentive Program
 
On December 13, 2007, the Company adopted a Long-Term Equity Incentive Program for the members of the executive management team pursuant to which key employees could be awarded shares of Common Stock and options to acquire shares of Common Stock if the Company achieved certain target goals relating to its multiple myeloma research project over the three fiscal year period from the date of adoption.
 
As of December 31, 2010, the Company determined that the first target goal under the Long-Term Equity Incentive Program had been met and, therefore, recognized $93,500 of compensation.  The Company also determined that the second and third target goals under the Long-Term Equity Incentive Program will not be met.  As such, the eligible shares and options related thereto will not vest and the remaining $374,000 of potential compensation expense will not be recognized.

Note 6 –Loan Payable:
 
On February 17, 2010, the Company entered into a credit agreement with JMP Securities LLC.  The agreement provides the Company with, subject to certain restrictions, including the existence of suitable collateral, up to a $3.0 million line of credit upon which the Company may draw at any time (the “Line of Credit”).  Any draws upon the Line of Credit accrue at a monthly interest rate of (i) the broker rate in effect at the time of the draw (which was 2.0% at December 31, 2010), plus (ii) 2.75%.  There are no other conditions or fees associated with the Line of Credit.  The Line of Credit is not secured by any assets of the Company, but it is secured by certain assets of one of the Company’s directors, Harlan W. Waksal, M.D., which are currently held by JMP Securities.  The balance outstanding as of December 31, 2010 is $2,194,844.
 
 
9

 

Total interest expense for the three and six months ended December 31, 2010 amounted to $26,715 and $53,387, respectively.
 
Note 7 – Income Taxes:
 
No provision for income taxes has been made for the three and six months ended December 31, 2010 and 2009 given the Company’s losses in 2010 and 2009 and available net operating loss carryforwards.  A benefit has not been recorded as the realization of the net operating losses is not assured and the timing in which the Company can utilize its net operating loss carryforwards in any year or in total may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations.
 
Note 8 - Fair Value Measurements:
 
The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2010 and June 30, 2010:
 
         
Fair Value Measurement at
 
   
Carrying
   
December 31, 2010.
 
   
Value
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Cash and cash equivalents
  $ 4,837,477     $ 4,837,477     $ -     $ -  
Liabilities:
                               
Warrant Liabilities
  $ 902,675     $ -     $ 902,675     $ -  

         
Fair Value Measurement at
 
   
Carrying
   
June 30, 2010.
 
   
Value
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Cash and cash equivalents
  $ 8,026,296     $ 8,026,296     $ -     $ -  
Liabilities:
                               
Warrant Liabilities
  $ 2,493,794     $ -     $ 2,493,794     $ -  
 
Note 9 – Warrant Liabilities:
 
The warrant liabilities represent the fair value of Common Stock purchase warrants, which have exercise price reset features and cash settlement features.
 
The fair value of the warrants that have exercise price reset features is estimated using an adjusted Black-Scholes model.  The Company computes valuations, each quarter, using the Black-Scholes model for such warrants to account for the various possibilities that could occur due to changes in the inputs to the Black-Scholes model as a result of contractually-obligated changes.  The Company effectively weights each calculation based on the likelihood of occurrence to determine the value of the derivative at the reporting date.  The fair value of the warrants that have cash settlement features is estimated using the Black-Scholes model.
 
During the six months ended December 31, 2010, the holders of an aggregate of 21,079,165 warrants amended the terms of their warrants.  At December 31, 2010, there were an aggregate of 22,870,314 warrants included in the fair value of the warrant liabilities.
 
10

 
As of the dates of the amendments to the warrants, the Black-Scholes value in the amount of $1,121,733 was reclassified from warrant liabilities to equity with the change in fair value from June 30, 2010 through the dates of the amendments being recorded in the statement of operations.
 
Also, the Company recorded a charge of $115,869 as a result of the amendment to certain of the warrants that had an exercise price reset feature, whereby the exercise price of $0.50, subject to future adjustments, was reset to $0.32 and would no longer be subject to future adjustments.  The charge of $115,869 represents the difference in the Black-Scholes value of the warrants immediately prior to the amendment and the Black-Scholes value of the warrants immediately after the amendment.
 
On December 31, 2010, the Company revalued all of the remaining warrant liabilities, using the adjusted Black-Scholes model.  A gain on the change in fair value of the warrant liabilities in the amount of $469,386, which includes the change in fair value of the warrants from June 30, 2010 through the dates of amendment, was recorded in the Condensed Consolidated Statement of Operations for the six months ended December 31, 2010.
 
The assumptions used to value the warrants were as follows:
 
   
December 31,
   
   
 
   
2010
   
June 30, 2010
 
Warrants issued on December 20, 2007
           
Estimated life in years
    2.00       2.50  
Risk-free interest rate (1)
    0.61 %     0.80 %
Volatility
    104 %     106 %
Dividend paid
 
None
   
None
 
                 
Warrants issued on June 30, 2008
               
Estimated life in years
    2.50       3.00  
Risk-free interest rate (1)
    1.02 %     1.00 %
Volatility
    104 %     106 %
Dividend paid
 
None
   
None
 
                 
Warrants issued on April 1, 2010
               
Estimated life in years
    4.25       4.75  
Risk-free interest rate (1)
    1.52 %     1.79 %
Volatility
    104 %     106 %
Dividend paid
 
None
   
None
 
                 
Warrants issued on June 2, 2010
               
Estimated life in years
    -       4.9  
Risk-free interest rate (1)
    -       1.79 %
Volatility
    -       106 %
Dividend paid
    -    
None
 
 
(1)
Represents the interest rate on a U.S. Treasury security with a maturity date corresponding to that of the warrant term.
 
 
11

 

Note 10- At Market Issuance Sales Agreement
 
On December 22, 2010, the Company entered into an At Market Issuance Sales Agreement (the “ATM”) under which the Company, from time to time, may issue and sell shares of its Common Stock, par value $0.01 per share, with an aggregate offering price of up to $5,500,000.  Such Common Stock will be offered and sold pursuant to a prospectus supplement filed with the Securities and Exchange Commission in connection with the Company’s shelf registration statement on Form S-3 (File No. 333-170140), which became effective on November 9, 2010.

Upon delivery of a placement notice by the Company, if any, the placement agent may sell the Common Stock in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on the NYSE Amex, or sales made through a market maker other than on an exchange.  The placement agent will make all sales using commercially reasonable efforts consistent with its normal sales and trading practices on mutually agreed upon terms between the placement agent and the Company. The Company will pay the placement agent a commission of up to 6% of the gross proceeds from the sale of shares of the Common Stock, depending on the per share sales price.  The Company has agreed to reimburse a portion of the placement agent’s expenses in connection with the offering, up to an aggregate amount of $25,000. In addition, the Company granted customary indemnification rights to the placement agent.

The ATM will terminate upon the earlier of (1) the sale of all of the Common Stock subject to the ATM, or (2) upon termination by the Company or the placement agent.  The placement agent may terminate the ATM in certain circumstances, including the occurrence of a material adverse change that, in the placement agent’s reasonable judgment, may impair its ability to sell the Common Stock, the Company’s failure to satisfy any condition under  the ATM or a suspension or limitation of trading of the Common Stock on the NYSE Amex. In addition, either the Company or the placement agent may terminate the ATM at any time and for any reason upon 10 days prior notice to the other party.

During the period ended December 31, 2010, the Company issued 599,185 shares of Common Stock under the ATM for gross proceeds in the amount of $180,714.  From January 1, 2011 through February 4, 2011, the Company issued an additional 4,652,430 shares of Common Stock under the ATM for gross proceeds in the amount of $1,474,436.

Note 11 –Preferred Stock
 
On April 1, 2010 and June 2, 2010, the Company issued 10,297 and 1,200 shares of 10% convertible preferred stock (the “Preferred Stock”), respectively.  Each share of Preferred Stock has a stated value of $1,000 (the “Stated Value”). On December 27, 2010, in connection with the Company’s ATM facility discussed above, the conversion price on the then outstanding 5,325 shares of Preferred Stock was adjusted from $0.32 to $0.30, resulting in an additional 1,109,375 shares of Common Stock that will be issued upon conversion of the then outstanding Preferred Stock.   In connection with the adjustment of the conversion price, due to a beneficial conversion feature, an additional dividend in the amount of $360,733 was recorded as an increase to both additional paid-in capital and accumulated deficit. As a result of the reset of the conversion price, each share of Preferred Stock is convertible into 3,333 shares of Common Stock (a conversion price of $0.30).
 
 
12

 

Each holder of shares of Preferred Stock is entitled to receive semi-annual dividends at the rate of 10% per annum of the Stated Value for each share of Preferred Stock held by such holder. Except in limited circumstances, the Company can elect to pay the dividends in cash or shares of Common Stock.  If the dividends are paid in shares of Common Stock, such shares will be priced at the lower of (i) 90% of the volume weighted average price (“ VWAP”) for the 20 trading days immediately preceding the payment date or (ii) $0.224.  The dividends are subject to a 30% make whole provision.
 
During the six months ended December 31, 2010, 3,910 shares of Preferred Stock were converted into 12,218,750 shares of Common Stock.  During the six months ended December 31, 2010, the Company issued an additional 6,335,260 shares of Common Stock for the payment of dividends in the amount of $1,419,031.  Total dividends payable on the outstanding 5,325 shares of Preferred Stock at December 31, 2010 amounted to $133,125.
 
Note 12 – Grant Income:
 
On October 29, 2010, the Company was approved for a grant in the amount of $244,479 in connection with the Qualified Therapeutic Discovery Project, which is Section 48D of the Internal Revenue Code.  The funds were granted in connection with the Company’s program for the use of its lead therapeutic candidate, SNS01-T, in multiple myeloma.
 
 
13

 

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q.  The discussion and analysis may contain forward-looking statements that are based upon current expectations and entail various risks and uncertainties.  Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this report.
 
Overview
 
Our Business
 
The primary business of Senesco Technologies, Inc., a Delaware corporation incorporated in 1999, and its wholly-owned subsidiary, Senesco, Inc., a New Jersey corporation incorporated in 1998, collectively referred to as “Senesco,” “we,” “us” or “our,” is to utilize our patented and patent-pending technology related to certain genes, primarily eukaryotic translation initiation Factor 5A, or Factor 5A, and deoxyhypusine synthase, or DHS, and related technologies for human health applications to develop novel approaches to treat cancer and inflammatory diseases.
 
For agricultural applications, we are developing and licensing applications of the Factor 5A, DHS and Lipase platforms to enhance the quality, productivity and stress resistance of fruits, flowers, vegetables, agronomic and biofuel feedstock crops through the control of cell death, referred to herein as senescence, and growth in plants.
 
Human Health Applications
 
We believe that our Factor 5A gene regulatory technology could have broad applicability in the human health field, by either inducing or inhibiting programmed cell death, also known as apoptosis, which is the natural process the human body goes through in order to eliminate redundant or defective cells.  Inducing apoptosis is useful in treating cancer where the defective cancer cells have failed to respond to the body’s natural apoptotic signals.  Conversely, inhibiting apoptosis may be useful in preventing or treating a wide range of inflammatory and ischemic diseases attributable to or aggravated by premature apoptosis.
 
SNS01-T for Multiple Myeloma
 
We have developed a therapeutic candidate, SNS01-T, a slightly modified formulation of SNS01, for the potential treatment of multiple myeloma.  SNS01-T utilizes our Factor 5A technology by incorporating a short interfering RNA, or siRNA, a DNA plasmid and polyethylenimine, or PEI.  SNS01-T modulates two proteins at amino acid 50 in the protein, (i) a lysine amino acid-containing protein, which regulates apoptosis, and (ii) a hypusine-containing protein, which promotes cell survival.  The two proteins are otherwise the same.  SNS01-T’s DNA plasmid up-regulates the apoptotic pathways within cancer cells.  Under the control of a plasma cell promoter, the DNA plasmid selectively expresses the stable arginine form of the Factor 5A death message in target cells of B-cell origin.  The siRNA down regulates Factor 5A expression including the survival message contained in the hypusine form of Factor 5A.  The siRNA also down-regulates anti-apoptotic proteins, such as NFkB, ICAM and pro-inflammatory cytokines, which are proliferation factors for multiple myeloma.  The PEI, a cationic polymer, promotes self-assembly of a nanoparticle with the other two components for intravenous delivery and protects the combination from degradation in the bloodstream until it is taken up by the tumor cell, where the siRNA and DNA plasmid are released.
 
 
14

 

We have performed efficacy, toxicological and dose-finding studies in vitro in non-human and human cells and in-vivo in mice for SNS01.  Our efficacy studies in severe combined immune-deficient, or SCID, mice with subcutaneous human multiple myeloma tumors tested SNS01-T dose ranging from 0.15 mg/kg to 1.5 mg/kg.  In these studies, mice treated with a dose of either 0.75 mg/kg or 1.5 mg/kg both showed, compared to relevant controls, a 91% reduction in tumor volume and a decrease in tumor weight of 87% and 95%, respectively.  For mice that received smaller doses of either 0.38 mg/kg or 0.15 mg/kg, there was also a reduction in tumor volume of 73% and 61%, respectively, and weight of 74% and 36%, respectively.  All SNS01 treated mice survived.  This therapeutic dose range study provided the basis for a non-GLP 8-day maximum tolerated dose study in which normal mice received two intravenous doses of increasing amounts of SNS01 (from 2.2 mg/kg).  Body weight, organ weight and serum levels of liver enzymes were used as clinical indices to assess toxicity.  A dose between 2.2 mg/kg and 2.9 mg/kg was well tolerated with respect to these clinical indices, and the survival rate at 2.9 mg/kg was 80%.  Mice receiving above 2.9 mg/kg of SNS01 showed evidence of morbidity and up to 80% mortality.  The 2.9 mg/kg threshold was therefore determined to be the maximum tolerated dose in mice in this study.  We have also completed our pivotal GLP toxicology studies in mice and dogs, employing SNS01-T, a slightly modified formulation of SNS01, and have submitted an investigational new drug application, or IND, to the United States Food and Drug Administration, or FDA.  We have been granted orphan drug status for SNS01-T by the FDA for the potential treatment of multiple myeloma.
 
Upon approval of our IND, we plan on initiating a Phase 1b/2a clinical study with SNS01-T in multiple myeloma patients.  We anticipate that the Phase 1b/2a study will be a sequential dose escalating study comprising three (3) to four (4) cohorts of four (4) to five (5) patients each.  Each cohort will receive SNS01-T over a six (6) week period.  During the treatment period, we will be assessing primarily safety and secondarily efficacy by measuring M protein, a surrogate marker that circulates in the blood of multiple myeloma patients, as well as other markers to determine if there is an effect on the disease.  We have selected Mayo Clinic as a clinical site and are considering adding one or two other sites.  We hope to begin our clinical trial before the end of the quarter ended June 30, 2011.
 
We may consider other human diseases in order to determine the role of Factor 5A and SNS01-T.
 
In order to pursue the above research initiatives, as well as other research initiatives that may arise, we completed a private placement of convertible preferred stock and warrants on April 1, 2010 and June 2, 2010.  In December 2010, we entered into the ATM facility for the issuance of up to $5,500,000 of common stock.  However, it will be necessary for us to raise a significant amount of additional working capital in the future.  If we are unable to raise the necessary funds, we may be required to significantly curtail the future development of some of our research initiatives and we will be unable to pursue other possible research initiatives.
 
 
15

 

We may further expand our research and development program beyond the initiatives listed above to include other diseases and research centers.
 
Agricultural Applications
 
Our agricultural 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.
 
We have licensed this technology to various strategic partners and have entered into a joint collaboration. We may continue to license this technology, as opportunities present themselves, to additional strategic partners and/or enter into additional joint collaborations or ventures.
 
Our ongoing research and development initiatives for agriculture include assisting our license and joint collaboration partners to:
 
 
·
further develop and implement the DHS and Factor 5A gene technology in banana, canola, cotton, turfgrass, rice, alfalfa, corn, soybean and trees; and
 
 
·
test the resultant crops for new beneficial traits such as increased yield, increased tolerance to environmental stress, disease resistance and more efficient use of fertilizer.
 
Agricultural Development Program

Generally, projects with our licensees and joint venture partner begin by transforming seed or germplasm to incorporate our technology.  Those seeds or germplasm are then grown in our partners’ greenhouses.  After successful greenhouse trials, our partners will transfer the plants to the field for field trials.  After completion of successful field trials, our partners may have to apply for and receive regulatory approval prior to initiation of any commercialization activities.
 
Generally, the approximate time to complete each sequential development step is as follows:
 
Seed Transformation
approximately 1 to 2 years
Greenhouse
approximately 1 to 2 years
Field Trials
approximately 2 to 5 years

The actual amount of time spent on each development phase depends on the crop, its growth cycle and the success of the transformation achieving the desired results.  As such, the amount of time for each phase of development could vary, or the time frames may change.
 
 
16

 

The status of each of our projects with our partners is as follows:
 
Project
 
Partner
 
Status
         
Banana
 
Rahan Meristem
   
- Shelf Life
 
 
 
Field trials
- Disease Resistance
 
 
 
Field trials
Trees
 
Arborgen
   
- Growth
 
 
 
Field trials
Alfalfa
 
Cal/West
 
Greenhouse
Corn
 
Monsanto
 
Proof of concept ongoing
Cotton
 
Bayer
 
Seed transformation
Canola
 
Bayer
 
Seed transformation
Rice
 
Bayer
 
Proof of concept ongoing
Soybean
 
Monsanto
 
Proof of concept ongoing
Turfgrass
 
The Scotts Company
 
Greenhouse
Ethanol
 
Poet
 
Discontinued
 
The license agreement with Poet called for modifying certain inputs in the production of ethanol in order to increase the yield of ethanol in Poet’s optimized production system.  While we have been able to modify those inputs, to date, we have not been successful in increasing the yield from Poets optimized production system.  As such, we have discontinued our efforts to modify those inputs.
 
Commercialization by our partners may require a combination of traits in a crop, such as both shelf life and disease resistance, or other traits.
 
Based upon our commercialization strategy, we anticipate that there may be a significant period of time before plants enhanced using our technology reach consumers.
 
Intellectual Property
 
We have twenty-one (21) issued patents from the United States Patent and Trademark Office, or PTO, and fifty-seven (57) issued patents from foreign countries.  Of our seventy-eight (78) domestic and foreign issued patents, fifty-three (53) are for the use of our technology in agricultural applications and twenty-five (25) relate to human health applications.
 
In addition to our seventy-eight (78) patents, we have a wide variety of patent applications, including divisional applications and continuations-in-part, in process with the PTO and internationally.  We intend to continue our strategy of enhancing these new patent applications through the addition of data as it is collected.
 
Our agricultural patents are generally set to expire in 2019 in the United States and 2025 outside the United States.  Our core human health technology patents are set to expire in 2021 in the United States and 2025 outside the United States, and our patents related to multiple myeloma are set to expire, both in and outside the United States in 2026.  To the extent our patents have different expiration dates abroad than in the United States, we are currently developing a strategy to extend the United States expiration dates to the foreign expiration dates.
 
 
17

 

Liquidity and Capital Resources
 
Overview
 
For the six months ended December 31, 2010, net cash of $3,077,794 was used in operating activities primarily due to a net loss of $3,152,039, which was partially reduced by non-cash expenses, net of non-cash income, of $120,521 and changes in operating assets and liabilities of $46,276.
 
Non-cash expenses consisted of stock-based compensation, depreciation and amortization and a charge arising from a change in terms of certain warrants.  Non-cash income arose from a reduction in the amount of warrant liabilities recorded at December 31, 2010.
 
The $46,276 change in operating assets and liabilities was primarily the result of a net decrease in accounts payable and accrued expenses of $39,065, a decrease in other liabilities of $4,030 and an increase in prepaid expenses of $3,181.
 
During the six months ended December 31, 2010, cash used for investing activities amounted to $260,302, which was related to patent costs incurred and fixed assets purchased.
 
Cash provided by financing activities during the six months ended December 31, 2010 amounted to $149,277, which was related to the placement of common stock through our $5,500,000 ATM facility.  Additionally, from January 1, 2011 through February 4, 2011, we have received net proceeds of approximately $1,360,000 from our ATM facility.
 
As of December 31, 2010, our cash balance totaled $4,837,477, and we had working capital of $2,949,117.  As of December 31, 2010, we had a federal tax loss carryforward of approximately $44,743,000 and a state tax loss carry-forward of approximately $37,378,000 to offset future taxable income. We cannot assure you that we will be able to take advantage of any or all of such tax loss carryforwards in future fiscal years.  Additionally, the federal tax loss carryforward in total may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations.
 
 
18

 
 
Contractual Obligations
 
The following table lists our cash contractual obligations as of December 31, 2010:
 
   
Payments Due by Period
 
         
Less than
               
More than
 
Contractual Obligations
 
Total
   
1 year
   
1 - 3 years
   
3 - 5 years
   
5 years
 
Research and Development Agreements (1)
  $ 738,257     $ 738,257     $     $     $  
Facility, Rent and Operating Leases (2)
  $ 33,440     $ 33,440     $     $     $  
Employment, Consulting and Scientific Advisory Board Agreements (3)
  $ 184,000     $ 181,500     $ 2,500     $     $  
Total Contractual Cash Obligations
  $ 955,697     $ 953,197     $ 2,500     $     $  
 

(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 consulting agreements provide for automatic renewal, which is not reflected in the table, unless terminated earlier by the parties to the respective agreements.
 
Effective December 1, 2010, we extended our research and development agreement with the University of Waterloo for an additional nine-month period through August 31, 2011, in the amount of CAD $434,687, or approximately USD $434,687 as of December 31, 2010.
 
We expect our capital requirements to increase significantly over the next several years as we commence new research and development efforts, increase our business and administrative infrastructure and embark on developing in-house business capabilities and facilities. Our future liquidity and capital funding requirements will depend on numerous factors, including, but not limited to, the levels and costs of our research and development initiatives and the cost and timing of the expansion of our business development and administrative staff.
 
 
19

 
 
We anticipate that, based upon our cash balance as of December 31, 2010 and with the proceeds from the ATM facility through February 4, 2011, we will be able to fund our operations for at least the next twelve months from December 31, 2010. Over such period, we plan to fund our research and development and commercialization activities by:
 
 
·
utilizing our current cash balance and investments;
 
 
·
the placement of additional equity or debt instruments;
 
 
·
achieving some of the milestones set forth in our current licensing agreements; and
 
 
·
the possible execution of additional licensing agreements for our technology.
 
We cannot assure you that we will be able to raise money through any of the foregoing transactions on favorable terms, if at all.
 
Changes to Critical Accounting Policies and Estimates
 
There have been no changes to our critical accounting policies and estimates as set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
 
 
20

 
 
Results of Operations
 
Three Months Ended December 31, 2010 and Three Months Ended December 31, 2009
 
The net loss for the three months ended December 31, 2010 was $1,136,563.  The net loss for the three months ended December 31, 2009 was $1,703,665.  Such a change represents a decrease in net loss of $567,102, or 33.3%.  This decrease in net loss was primarily the result of a decrease in other non-operating expenses which was partially offset by an increase in research and development costs related to the development of our multiple myeloma drug candidate, SNS01-T.
 
Revenue
 
There was no revenue during the three month period ended December 31, 2010.
 
Total revenue in the amount of $140,000 for the three months  ended December 31, 2009 consisted of a milestone payment in connection with an agricultural license agreement.
 
We anticipate that we will receive future milestone payments in connection with our current agricultural development and license agreements.  Additionally, we anticipate that we may receive future royalty payments from our license agreements when our partners commercialize their crops containing our technology.  However, it is difficult for us to determine our future revenue expectations because we are a development stage biotechnology company with no history of receiving development milestone payments or royalties and the timing and outcome of our experiments, the timing of signing new partner agreements and the timing of our partners moving through the development process into commercialization is difficult to accurately predict.
 
General and Administrative Expenses
 
   
Three Months Ended December 31,
 
   
2010
   
2009
   
Change
   
%
 
   
(in thousands, except % values)
 
                         
Payroll and benefits
  $ 136     $ 239     $ (103 )     (43.1 )%
Investor relations
    57       45       12       26.7 %
Professional fees
    160       141       19       13.5 %
Depreciation and amortization
    35       33       2       6.1 %
Director fees
    (14 )     10       (24 )     (240.0 )%
Other general and administrative
    163       69       94       136.2 %
      537       537       -       -  
Stock-based compensation
    170       148       22       14.9 %
Total general and administrative
  $ 707     $ 685     $ 22       3.2 %
 
 
21

 
 
 
·
Payroll and benefits for the three months ended December 31, 2010 was lower than for the three months ended December 31, 2009, primarily due to the severance package recorded for the former President and CEO during Fiscal 2010.  This was partially offset by a bonus granted to the Chief Financial Officer during Fiscal 2011.
 
 
·
Investor relations expense for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009, primarily as a result of an increase in investor relations consulting costs.
 
 
·
Professional fees for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009, primarily as a result of an increase in accounting fees.  Accounting fees increased primarily due to the use of a consultant to assist with the preparation of our quarterly filings.
 
 
·
Depreciation and amortization for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009, primarily as a result of an increase in amortization of patent costs.
 
 
·
Director fees for the three months ended December 31, 2010 was lower than for the three months ended December 31, 2009 primarily due to the termination of the Finance Committee that was in place from November 2009 through May 2010 and fewer board meetings being held during the three months ended December 31, 2010 than during the three months ended December 31, 2009.
 
 
·
Other general and administration expenses for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009 primarily due to an increase in attendance at various financial and industry conferences and certain consulting costs.
 
 
·
Stock-based compensation for the three months ended December 31, 2010 and 2009 consisted of the amortized portion of the Black-Scholes value of options, restricted stock units and warrants granted to directors, employees and consultants.  There were 4,115,892 and 733,399 options granted during the three months ended December 31, 2010 and 2009, respectively. There were 5,000 warrants granted to consultants during the three months ended December 31, 2010 and no warrants granted during the three months ended December 31, 2009.
 
Stock-based compensation for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009, primarily due to the increase in the number of options granted during the three months ended December 31, 2010 as compared to the number of options granted during the three months ended December 31, 2009.
 
We expect cash-based general and administrative expenses to modestly increase over the next twelve months primarily due to an increase in payroll and benefits and insurance costs related to our multiple myeloma project.
 
 
22

 
 
Research and Development Expenses
 
   
Three Months Ended December 31,
 
   
2010
   
2009
   
Change
   
%
 
   
(in thousands, except % values)
 
Payroll
  $ 40     $ 40     $ -       -  
Research contract with the University of Waterloo
    150       155       (5 )     (3.2 )%
Other research and development
    592       270       322       119.3 %
      782       465       317       68.2 %
Stock-based compensation
    16       3       13       433.3 %
Total research and development
  $ 798     $ 468     $ 330       70.5 %

 
·
Other research and development costs increased primarily due to an increase in the costs incurred in connection with our development of SNS01-T for multiple myeloma.  Specifically, during the three months ended December 31, 2010, we were conducting our pivotal toxicology study and preparing for the filing of an IND for the treatment of multiple myeloma with SNS01-T.
 
 
·
Stock-based compensation consists primarily of the amortized portion of Black-Scholes value of options and warrants granted to research and development consultants and employees.   Stock-based compensation for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009, primarily due to an increase in the number of options granted during the three months ended December 31, 2010 as compared to the number of options granted during the three months ended December 31, 2009.
 
The breakdown of our research and development expenses between our agricultural and human health research programs is as follows:
 
   
Three Months Ended December 31,
 
   
2010
   
%
   
2009
   
%
 
   
(in thousands, except % values)
 
Agricultural
  $ 139       17 %   $ 127       27 %
Human health
    659       83 %     341       73 %
Total research and development
  $ 798       100 %   $ 468       100 %
 
 
·
Agricultural research expenses did not materially change during the three months ended December 31, 2010 from the three months ended December 31, 2009, as we have not materially changed the scope of our agricultural research.
 
 
·
Human health research expenses increased during the three months ended December 31, 2010, primarily as a result of the timing of certain aspects of the development of our potential drug candidate, SNS01-T, for treating multiple myeloma.  Specifically, during the three months ended December 31, 2010, we incurred costs related to the performance of our pivotal toxicology studies and the preparation of an IND.
 
 
23

 
 
We expect our human health research program to continue to increase as a percentage of the total research and development expenses as we continue our current research projects and begin new human health initiatives, in particular as they relate to the potential clinical development of our potential drug candidate, SNS01-T, for treating multiple myeloma and other cancers.
 
Other non-operating income and expense
 
Grant income
 
We received grant income under the Qualified Therapeutic Discovery Project in the amount of $244,479 for the three months ended December 31, 2010.  The funds were granted in connection with the Company’s program for the use of its lead therapeutic candidate, SNS01-T, in multiple myeloma.
 
There was no grant income during the three months ended December 31, 2009.
 
Fair value – warrant liability
 
On December 31, 2010, the amount of the warrant liability was adjusted to $902,675 from $1,207,452 at September 30, 2010.  This decrease of $304,777 was primarily due to a decrease in the number of warrants that are accounted for as a liability as the terms that gave rise to liability accounting for these warrants were modified by the holders during the three months ended December 31, 2010.  Accordingly, $154,867 of the decrease was recorded as an increase to capital in excess of par with the balance of the decrease in the amount of $149,910 being recorded as income from the change in the Black-Scholes value of the remaining warrants.
 
On December 31, 2009, the amount of the warrant liability was adjusted to $860,767 from $1,311,975 at September 30, 2009. This decrease of $451,208 was due to a decrease in the Black-Scholes value of the underlying warrants.
 
Other noncash expense or income
 
During the three months ended December 31, 2010, the exercise price of 186,974 warrants was adjusted from $0.50 to $0.32 in exchange for those warrant holders giving up their right to future adjustments to the exercise price.  This resulted in a charge to stock-based compensation of $4,604.
 
Amortization of debt discount, financing costs and interest expense on convertible notes
 
During the fiscal year ended June 30, 2010, all of the convertible notes were either converted into common stock or redeemed.  Accordingly, the unamortized portion of the convertible notes and deferred financing costs were fully amortized during the year ended June 30, 2010.  Therefore, there are no charges for amortization of debt discount and financing costs or interest expense during the three months ended December 31, 2010.
 
 
24

 
 
Interest (expense) income

Interest expense for the three months ended December 31, 2010 was higher than for the three months ended December 31, 2009, due to the interest incurred on the $3,000,000 line of credit opened in February 2010, of which approximately $2,200,000 was utilized during the three months ended December 31, 2010.
 
 
25

 
 
Six Months Ended December 31, 2010 and Six Months Ended December 31, 2009
 
The net loss for the six months ended December 31, 2010 was $3,152,039.  The net loss for the six months ended December 31, 2009 was $1,892,961.  Such a change represents an increase in net loss of $1,259,078, or 66.5%.  This increase in net loss was primarily the result of an increase in research and development costs related to the development of our multiple myeloma drug candidate, SNS01-T, and general and administrative expenses, which was partially offset by an increase in revenue and non-operating income.
 
Revenue
 
There was no revenue during the six months ended December 31, 2010. Total revenue in the amount of $140,000 for the six months ended December 31, 2009 consisted of a milestone payment in connection with an agricultural license agreement.
 
We anticipate that we will receive future milestone payments in connection with our current agricultural development and license agreements.  Additionally, we anticipate that we may receive future royalty payments from our license agreements when our partners commercialize their crops containing our technology.  However, it is difficult for us to determine our future revenue expectations because we are a development stage biotechnology company with no history of receiving development milestone payments or royalties, and the timing and outcome of our experiments, the timing of signing new partners and the timing of our partners moving through the development process into commercialization is difficult to accurately predict.
 
General and Administrative Expenses
 
   
Six Months Ended December 31,
 
   
2010
   
2009
   
Change
   
%
 
   
(in thousands, except % values)
 
                         
Payroll and benefits
  $ 286     $ 400     $ (114 )     (28.5 )%
Investor relations
    106       91       15       16.5 %
Professional fees
    265       263       2       0.8 %
Depreciation and amortization
    69       61       8       13.1 %
Director fees
    24       53       (29 )     (54.7 )%
Other general and administrative
    251       130       121       93.1 %
      1,001       998       3       0.3 %
Stock-based compensation
    374       182       192       105.5 %
Total general and administrative</