UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR
THE FISCAL YEAR ENDED DECEMBER 31,
2008
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR
THE TRANSITION PERIOD FROM _______ TO
_______
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0-10593
(Commission
File Number)
SENTISEARCH,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
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20-5655648
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(State
or other jurisdiction
of
incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1217
South Flagler Drive, 3
rd
Floor West Palm Beach, FL 33401
(Address
of principal executive
offices) (
zip code)
Registrant's
telephone number, including area code: (561) 653-3284
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.0001 Par Value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
x
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.
x
Yes
o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
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
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated
filer
o
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Smaller reporting company
x
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(Do not check if a smaller
reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
o
No
x
The aggregate market value of the
registrant's Common Stock held by non-affiliates of the registrant as of the
close of business on
June
30
, 2008 was
approximately $937,350.
F
or purposes of this calculation
only, shares of Common Stock held by each officer and director as well as
and by each person who, as of June 30, 2008, may be deemed to have
beneficially owned more than 10% of the outstanding voting stock have been have
been excluded. This determination of affiliate status is not necessarily a
conclusive determination of affiliate status for any other purpose.
As of
March 15, 2009 12,747,644 shares of the registrant's Common Stock, par value
$.0001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
TABLE
OF CONTENTS
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PAGE
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PART
I
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Forward-Looking
Information
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1
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Item
1 Business
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1
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Item
1A Risk Factors
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3
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Item
1B Unresolved Staff Comments
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3
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Item
2 Properties
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3
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Item
3 Legal Proceedings
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3
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Item
4 Submission Of Matters To A Vote Of Security Holders
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3
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PART
II
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Item
5 Market For Registrant’s Common Equity And Related Stockholder Matters
And Issuer Purchases Of Equity Securities
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4
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Item
6 Selected Financial Data
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5
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Item
7 Management’s Discussion And Analysis Of Financial Condition And Results
Of Operations
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5
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Item
7A Quantitative And Qualitative Disclosures About Market
Risk
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9
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Item
8 Financial Statements And Supplementary Data
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9
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Item
9 Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
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24
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Item
9A Controls And Procedures
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24
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Item
9B Other Information
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25
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PART
III
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Item
10 Directors, Executive Officers and Corporate Governance
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25
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Item
11 Executive Compensation
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26
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Item
12 Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters
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26
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Item
13 Certain Relationships And Related Transactions, And Director
Independence
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28
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Item
14 Principal Accountant Fees And Services
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29
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PART
IV
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Item
15 Exhibits, Financial Statement Schedule
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30
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Signatures
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Forward-looking
Information
This
Annual Report on Form 10-K (including the section regarding Management’s
Discussion and Analysis and Results of Operations) contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), including statements using terminology
such as “can”, “may”, “believe”, “designated to”, “intend to”, “expect”, “plan”,
“anticipate”, “estimate”, “potential” or “continue”, or the negative thereof or
other comparable terminology regarding beliefs, plans, expectations or
intentions regarding the future. You should read statements that contain these
words carefully because they:
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discuss
our future expectations;
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contain
projections of our future results of operations or of our financial
condition; and
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state
other “forward-looking”
information.
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We
believe it is important to communicate our expectations. However,
forward-looking statements involve risks and uncertainties and our actual
results and the timing of certain events could differ materially from those
discussed in, or implied by, forward-looking statements as a result of certain
factors, including those set forth under “Management’s Discussion and Analysis
and Results of Operations” and elsewhere in this Annual Report on Form 10-K. All
forward-looking statements included in this document are made as of the date
hereof, based on information available to us as of the date thereof, and we
assume no obligations to update any forward-looking statement or risk factor,
unless we are required to do so by law.
General
SentiSearch, Inc. (“SentiSearch” or
“we” or “us” or the “Company”) is a Delaware corporation that was incorporated
on October 3, 2006. We were previously a wholly-owned subsidiary of
Sentigen Holding Corp. (“Sentigen”) and were incorporated solely for the
purposes of holding the olfaction intellectual property assets of Sentigen and
its then subsidiary, Sentigen Biosciences, Inc. (“Sentigen Biosciences”). Prior
to the merger between Sentigen and Invitrogen Corporation (“Invitrogen”) that
was consummated on December 1, 2006, Sentigen separated its olfaction
intellectual property assets from the businesses to be acquired by Invitrogen.
This separation was accomplished through the contribution of Sentigen’s
olfaction intellectual property assets to us on October 10, 2006 and the
subsequent spin-off in which Sentigen distributed 100% of its ownership interest
in us to its then stockholders on December 1, 2006. As a result of this
spin-off, we became a public, stand-alone company. Our principal executive
offices are located at 1217 South Flagler Drive, 3
rd
Floor, West Palm Beach, Florida 33401.
Overview
The olfaction intellectual property
assets that we hold primarily consist of an exclusive worldwide license issued
by The Trustees of Columbia University in the City of New York (“Columbia”), as
described in more detail below under the heading “Licensed Products and
Services” (the “Columbia License”), and certain patent applications titled
“Nucleic Acids and Proteins of Insect or 83b odorant receptor genes and uses
thereof.” The olfaction intellectual property assets are also referred to in
this Form 10-K as “our olfaction intellectual property.” We are currently a
development stage company and have a limited operating history. Other than with
regard to the development and protection of our intellectual property, our
planned principal operations have not commenced. We have not generated any
revenues from operations and have no assurance of any future revenues. All
losses accumulated since the commencement of our business have been considered
as part of our development stage activities.
Licensed
Products and Services
On April 10, 2000, Sentigen
Biosciences entered into the Columbia License described below. On
October 10, 2006, we entered into a contribution agreement with Sentigen
pursuant to which Sentigen transferred to us all of its olfaction intellectual
property, including the Columbia License. On October 17, 2006, Columbia
consented to the assignment of the Columbia License from Sentigen Biosciences to
us subject to certain conditions, all of which have been satisfied to the extent
currently required.
The Columbia License provides us with
worldwide rights to certain of Columbia’s patent applications and other rights
in the areas of insect chemosensation and olfaction. The Columbia License gives
us an exclusive license to develop, manufacture, have made, import, use, sell,
distribute, rent or lease (i) any product or service the development,
manufacture, use, sale, distribution, rental or lease of which is covered by a
claim of a patent licensed to us under the Columbia License or (ii) any
product or service that involves the know-how, confidential information and
physical materials conveyed by Columbia to us relating to the patents licensed
from Columbia (collectively, the “Licensed Products/Services”). In addition to
certain funding requirements by Sentigen, all of which were satisfied, in
consideration of the Columbia License, Columbia was issued 75,000 shares of
Sentigen common stock and will
receive
royalties of 1% of the net sales of any Licensed Products/Services.
The licenses granted to us under the
Columbia License expire on the later of the date of expiration of the last to
expire of the licensed patents relating to any Licensed Product/Service or ten
years from the first sale of any Licensed Product/Service.
The potential uses of the olfaction
intellectual property assets derived from the Columbia License consist of three
families of patent applications relating to (i) odorant receptors and their
uses, (ii) cloning of vertebrate pheromone receptors and their uses and
(iii) genes encoding insect odorant receptors and their uses. We believe
that the applications most likely to be useful in the near future are in the
area of insect control, because insects operate entirely through sense of smell
and taste for feeding, mating, locating egg-laying sites and general navigation.
Blocking the insect sense of smell and taste may afford a potential strategy to
inhibit insect reproduction, feeding behavior, and damage to humans, animals,
crops and stored products. Such a technology would not require genetic
modification of the plant or insect and may rely solely on compounds that are
natural, non-toxic and compatible with organic farming methods. This technology
has the potential to offer a high level of specificity providing for the
targeting of an individual species, reduction of environmental disruption and
less chance of insect resistance.
In addition to the Columbia License, we
have certain patent applications relating to nucleic acids and proteins of
insect or 83b odorant receptor genes and their uses. These patent applications
relate to the isolation of a gene that appears to be ubiquitous among insects.
This gene has been identified in various species of insects, including many that
have a profound effect on agricultural production and human health. The
identification of this gene, and the protein that it expresses, may enable the
development of high-throughput screening methods to discover compounds that
attract insects to a particular site (and away from one where their presence is
undesirable), or develop materials that are distasteful to the insects’ sense of
“smell,” thereby making agricultural products, for example, undesirable to
them.
During July 2007, we were issued
two patents in the United States and during November 2007, we were issued a
patent in Australia and during 2008, we were issued one patent in Mexico. One of
the U.S. patents and the Australia patent were issued directly to us and the
other U.S. patent was issued under the Columbia License. All of the issued
patents cover nucleic acid molecules which encode insect odorant receptor
proteins, including numerous variations on insect odorant receptor coding
sequence. The patents cover any nucleic acid molecule as long as the protein it
encodes contains a short segment of amino acids, linked together.
We believe that our olfaction
intellectual property may be of value to commercial and non-profit partners
wishing to develop novel, safer and more effective means to control pest insects
through molecular manipulation of insect olfaction and taste. This effort would
aim to identify receptor molecules that control key aspects of insect behavior
and discovering compounds that block or activate the function of these receptors
and to identify new compounds that may have use in agricultural crop protection
and insect-borne disease management such as agents that completely block the
insect sense of smell rendering an individual or a field invisible to insects.
Other potential products include new and effective insect repellants and novel
potent attractants for use in insect bait stations and traps.
We believe the applications offering
the greatest potential for developing products in the intermediate term are for
mosquito repellants to be sold by household product companies. Other potential
markets for our olfaction intellectual property include:
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food
production;
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agricultural
chemical companies; and
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pharmaceutical
companies.
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Our executive officer and Board of
Directors are also seeking opportunities with non-profit agencies and with
potential commercial partners to leverage our olfaction intellectual property
for the development of control agents for biting insects, in particular, insect
vectors of malaria and other diseases. If these endeavors are successful,
additional capital commensurate with such an undertaking may need to be
raised.
In particular, additional steps to
commercialize the intellectual property assets may include:
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obtaining
research and development grants;
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developing
commercially feasible products;
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filing
and obtaining additional patents;
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entering
into licensing, marketing or joint venture agreements;
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applying
the olfaction intellectual property to a commercially viable
product;
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developing
and implementing a marketing plan in conjunction with a partner or
licensee;
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controlling
quality and cost in the manufacturing process in conjunction with a
partner or licensee;
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selling
products on a profitable basis in conjunction with a partner or licensee;
and
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structuring
an agreement that will enable us to enjoy the profits of our
products.
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However,
there is no guarantee that commercial opportunities will arise from our efforts
to develop our olfaction intellectual property. We currently do not have any
research and development grant applications outstanding nor can we predict
whether we will receive any research and development grants or other commercial
funding in the near future. Although no commercially feasible products are
imminently foreseeable, we intend to enter into discussions with third parties
concerning a possible development, licensing, marketing or joint venture
agreement to commercialize our olfaction intellectual property. We currently
have limited financial and personnel resources, and believe that we must enter
into an agreement with another party in order to commercialize our intellectual
property assets.
Competition
We face competition primarily from
universities, including Yale University and Vanderbilt University, who
are conducting the research and have patent applications pertaining to areas
relevant to olfaction technology. These competitors may have greater financial,
management, technology, research and development, sale, marketing and other
resources than we do.
Employees
We
currently have one employee, in addition to our Chief Executive Officer. In the
event we are able to commercialize our research and development activities, or
prospects for doing so appear significant, we would expect at that time to hire
additional employees. Presently, Mr. Joseph K. Pagano, our Chairman and Chief
Executive Officer, devotes his time to our Company without a
salary.
Government
Regulation
In the event we are able to
commercialize our research and development activities and depending on the
development objectives and uses of any of our potential products, we may become
subject to government regulation by certain government agencies including the
Food and Drug Administration and the Environmental Protection Agency. In
addition, we may become subject to various other federal, state and local
regulatory and licensing requirements as the same are promulgated from time to
time. We intend to monitor and comply with any requirements which may, from time
to time, become applicable to us. Failure by us to comply with any applicable
requirements could result in, among other things, the imposition of fines by
governmental authorities or awards of damages to private litigants.
We are a smaller reporting company, as
defined by Rule 12b-2 of the Exchange Act and are not required to provide
information under this item.
ITEM
1B
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UNRESOLVED
STAFF COMMENTS.
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We are a smaller reporting company, as
defined by Rule 12b-2 of the Exchange Act and are not required to provide
information under this item, however there are no unresolved staff
comments.
ITEM
2
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DESCRIPTION
OF PROPERTY.
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During the first quarter of 2008, our
principal executive office moved to 1217 South Flagler Drive, 3
rd
Floor, West Palm Beach, Florida 33401. As of June 25,
2008, the Company has entered into a sublease for office space in West Palm
Beach, Florida. The lease has a term of one year, with an option to renew for an
additional year and the leased space consists of approximately 411 square feet.
The lease requires twelve monthly payments of approximately $1,390 through June
2009. We do not own any real property.
ITEM
3
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LEGAL
PROCEEDINGS.
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None.
ITEM
4
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
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None.
PART
II
ITEM
5
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
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Market
Information
Since our
spin-off from Sentigen in late 2006, our common stock has been listed for
quotation on the OTC Bulletin Board under the symbol “SSRC.” The following table
sets forth for the period indicated, the high and low prices for our common
stock. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
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Price
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Period
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High
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Low
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2008
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First
Quarter
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$
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0.23
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$
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0.19
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Second
Quarter
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$
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0.23
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$
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0.18
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Third
Quarter
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$
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0.18
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$
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0.15
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Fourth
Quarter
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$
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0.15
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$
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0.13
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2007
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First
Quarter
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$
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2.50
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$
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0.22
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Second
Quarter
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$
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0.22
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$
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0.17
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Third
Quarter
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$
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0.24
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$
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0.18
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Fourth
Quarter
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$
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0.22
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$
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0.18
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Holders
As of
March 15, 2009, we had 48 stockholders of record.
Dividends
We have
never declared or paid any cash dividends on our common stock. For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock. Any future determination to pay dividends will be
at the discretion of the Board of Directors and will be dependent upon then
existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects
and other factors that the Board of Directors considers relevant.
Equity
Compensation Plan Information
The
following table provides certain information as of December 31, 2008 with
respect to our equity based compensation plans.
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(a)
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
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(b)
Weighted-average
exercise price of outstanding options, warrants and
rights
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(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
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Equity
compensation plans approved by security holders (1)
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—
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—
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—
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Equity
compensation plans not approved by security holders
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575,000
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$
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0.189
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—
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Total
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575,000
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$
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0.189
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—
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(1) Column
(a) and (b) represent the aggregate shares issuable upon exercise of outstanding
ten-year stock options granted from May 2007 through May 2008 to certain
consultants to the Company and the two non-officer directors of the Company.
These options vest at various times with the last options vesting on May 14,
2018.
ITEM
6
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SELECTED
FINANCIAL DATA.
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We are a
smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and
are not required to provide information under this item.
ITEM
7
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MANAGEMENT’S
DISCUSSION AND ANALYSIS AND RESULTS OF
OPERATIONS.
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Introduction
We were
previously a wholly-owned subsidiary of Sentigen. Sentigen and its then
subsidiary, Sentigen Biosciences, previously owned all right and title to the
olfaction intellectual property assets. Prior to its merger with Invitrogen,
Sentigen separated its olfaction intellectual property assets from the
businesses acquired by Invitrogen. This separation was accomplished through the
contribution of Sentigen’s olfaction intellectual property assets to us on
October 10, 2006 and the subsequent spin-off in which Sentigen distributed
100% of its ownership interest in us to its then stockholders on
December 1, 2006.
To date,
we have incurred substantial operating losses. While we believe our technology
capabilities in the olfaction area are substantial, as of December 31,
2008, we held three patents directly with another patent being issued under our
Columbia License. We cannot provide any assurance that our additional
patent applications will be successful. We intend to continually review the
commercial validity of our olfaction technology in order to make the appropriate
decisions as to the best way to allocate our limited resources.
Critical
Accounting Policies and Use of Estimates
The SEC
defines critical accounting policies as those that are, in management’s view,
important to the portrayal of our financial condition and results of operations
and demanding of management’s judgment. Our critical accounting policies
include:
Impairment
of intangibles
Our
intangible assets consist of license and patent costs of $89,655 as of
December 31, 2008, as compared with $112,263 as of December 31, 2007,
and are the result of the Columbia License and certain patents. The value of the
license reflects the closing share price of Sentigen's common stock on
April 10, 2000 (the closing date of the Columbia License) multiplied by the
75,000 shares of Sentigen common stock issued to Columbia University less
accumulated amortization. The value of the license is subject to an amortization
period of 10 years. The value of the patents mainly consists of legal fees
and is being amortized over the remaining term of the license. Management
reviews the value of the license and patents for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be fully recoverable. A review for impairment was conducted by an outside firm
that concluded the fair market value of the olfaction technology was between
$120,000 and $190,000 as of August 2006. The license and patent are
considered to be impaired when the carrying value exceeds the calculation of the
undiscounted net future cash inflows or fair market value. An impairment loss of
$122,996 was recognized as amortization expense in August 2006 in
connection with the license. We believe no further impairment loss is necessary
as of December 31, 2008.
Off-Balance-Sheet
Arrangements
As of
December 31, 2008, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4) of Regulation S-K.
Results
of Operations
General
We are a
development stage company as defined in Financial Accounting Standard Board
(“FASB”) Statement No. 7, “Accounting and Reporting by Development Stage
Enterprises.” Other than with regard to the development and protection of our
intellectual property, our planned principal operations have not yet commenced.
We intend to establish a new business. We have not
generated
any revenues from operations and have no assurance of any future revenues. All
losses accumulated since commencement of our business have been considered as
part of our development stage activities.
Prior to
the spin-off on December 1, 2006, our business was operated within Sentigen
as part of its broader corporate organization rather than as a stand-alone
company. Historically, Sentigen performed certain corporate functions for us.
Our historical financial statements included herein do not reflect the expense
of certain corporate functions we would have needed to perform if we were not a
wholly-owned subsidiary. Following the spin-off, Sentigen no longer provided
assistance to us and we are responsible for the additional costs associated with
being an independent public company, including costs related to corporate
governance, quoted securities and investor relations issues. Therefore, you
should not make any assumptions regarding our future performance based on the
financial statements.
Our
financial statements were prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities. Funding for the
year ended December 31, 2008 was obtained in part, through $106,914 in loans
made to us by Mr. Pagano, our Chief Executive Officer and Chairman. In addition,
on May 9, 2008 and June 20, 2008, we closed on a $750,000 financing and a
$145,980 financing, respectively, with certain of our largest stockholders,
including our Chief Executive Officer and Chairman and another member of our
Board of Directors. On July 9, 2008, two investors who participated in the May
9, 2008 and June 20, 2008 financings exercised their overallotment options for
an aggregate amount of $54,020. In addition, certain of our
indebtedness was cancelled in connection with the financings. See “-
Liquidity and Capital
Resources
” below for a discussion of our financings and loans. We believe
that our limited financial resources, inclusive of the foregoing amounts, are
sufficient to fund operations and capital requirements for the next twelve
months. We may, however, need substantial amounts of additional financing to
commercialize the research programs undertaken by us, which financing may not be
available on favorable terms, or at all.
Our
ability to obtain financing and realize revenue depends upon the status of
future business prospects, as well as conditions prevailing in the capital
markets. These factors, among others, raise doubt about our ability to continue
as a going concern should we be unable to realize revenues from our olfaction
technology or raise sufficient additional funds in the future.
Our Chief Executive Officer
and Board of Directors are also seeking opportunities with non-profit agencies
and with potential commercial partners to leverage our olfaction intellectual
property for the development of control agents for biting insects, in
particular, insect vectors of malaria and other diseases.
Product
Research and Development
We intend
to continually review the commercial validity of the olfaction technology, in
order to make the appropriate decisions as to the best way to allocate our
limited resources. We currently do not have any research and development grant
applications outstanding nor can we predict whether we will receive any research
and development funding during the next twelve (12) months. We are unable at
this time to predict a level of spending, if any, for product research and
development activities during the next twelve (12) months, all of which will be
dependent upon the implementation of our business plan. Our executive officer
and Board of Directors have and intend to continue to seek opportunities with
non-profit agencies and with potential commercial partners to leverage our
olfaction intellectual property for the development of control agents for biting
insects, in particular, insect vectors of malaria and other
diseases.
Acquisition
of Plant and Equipment and Other Assets
We do not
anticipate the purchase or sale of any material property, plant or equipment
during the next 12 months.
Operating
Expenses
For the
year ended December 31, 2008, we had general and administrative
costs of $582,372, compared to $237,431 for the year ended December 31,
2007. The increase in general and administrative costs is primarily due to an
increase in professional fees of approximately $144,000, an increase of
approximately $68,000 for a full year of a new employee’s salary and benefits,
an increase in rent and office expenses of approximately $35,000 and an
increase in travel expenses, related to our office relocation and our attempts
to locate a market for our olfaction intellectual property, of approximately
$72,000. In addition, 525,000 shares of stock options were granted
during the year which resulted in an expense of $28,542. The increase in
professional fees is due to costs incurred for our general compliance and
corporate governance.
Amortization
expense includes the amortization of our license and patent
costs. During the current year, we were issued a patent
in Mexico. For the period April 10, 2000 (Commencement of
Predecessor Business) to December 31, 2008, amortization expense was
$426,067. The original value of the license of $440,625 reflects the closing
share price of Sentigen’s common stock on April 10, 2000. The
value of the patent of $75,097
mainly
consists of legal and application fees. The value of the license and patent, net
of amortization as of the year ended December 31, 2008 and 2007, was
$89,655 and $112,263, respectively. The remaining licensing and patent costs are
being amortized on a straight line basis through April 2010.
Liquidity
and Capital Resources
We have
incurred operating losses since inception. As of December 31, 2008, we had
$198,187 in cash and cash equivalents, compared to $42,500 at December 31,
2007. Our working capital at December 31, 2008 was $77,005, compared to a
working capital deficit of $259,542 at December 31, 2007. Net
cash used in operating activities for the year ended December 31, 2008 was
$550,633 mainly attributable to our net loss of $642,303 and cash paid for
security deposits of $4,170, offset in part by amortization of license and
patent costs of $55,823, stock-based compensation expense of $28,542 and an
increase in accounts payable and accrued expenses of $11,475. Net
cash used in operating activities for the year ended December 31, 2007 was
$163,511 mainly attributable to our net loss of $286,544 offset in part by
amortization of license and patent costs of $38,711, stock-based compensation
expense of $1,490, and an increase in accounts payable and accrued expenses of
$82,832.
During
the second quarter of 2008, as previously disclosed, we closed on a financing
for an aggregate amount of $950,000. On May 9, 2008, we closed on the first
tranche of the financing, for an aggregate amount of $750,000, which consisted
of cash in the amount of $563,986 and the conversion of $186,014 of
indebtedness. Participants in the first tranche of the financing subscribed for
an aggregate of 3,947,363 shares of common stock, based on the closing price of
$0.19 per share of our common stock on the closing date. On June 20, 2008, we
closed on the second tranche of the financing, for an aggregate amount of
$200,000 of which $145,980 was subscribed for, consisting of cash in the amount
of $62,240 and the conversion of $83,740 of indebtedness. Participants in the
second tranche of the financing subscribed for an aggregate of 768,315 shares of
common stock, based on the closing price of $0.19 per share of our common stock
on the closing date. In the third quarter of 2008, two participants in the
financing elected to exercise their over-allotment options, which consisted of
cash in the amount of $54,020. The participants who exercised their
over-allotment options subscribed for an aggregate of 337,424 shares of common
stock, based on the closing price of $0.16 per share of our common
stock. Issuance of the shares were subject to stockholder approval of
the amendment to our certificate of incorporation to increase the number of
shares of common stock, which was approved by the stockholders at our 2008
annual meeting on June 24, 2008.
Ten of
our largest stockholders (each holding 50,000 or more shares of our common
stock) subscribed in the May 2008 financing, of which the following are holders
of 5% or more of our common stock: Joseph K. Pagano, Frederick R. Adler,
Longview Partners L.P., The Joseph A. Pagano Jr. 2007 Trust and Samuel A. Rozzi,
who subscribed for $122,325, $109,350, $112,125, $100,350 and $95,775,
respectively. Also, Mr. Pagano serves as our Chairman and Chief Executive
Officer, and Mr. Adler is a member of our Board of Directors. The general
partner of Longview Partners L.P. is Susan Chapman, an adult daughter of Mr.
Adler.
The funds
raised in the financing were used for general working capital purposes,
including the funding of research and development efforts and the pursuit of a
joint venture or other form of collaboration with another entity or entities.
Our ability to obtain financing and realize revenue depends upon the status of
future business prospects, as well as conditions prevailing in the capital
markets. It is possible that any such additional financing may be dilutive to
current stockholders and the terms of any debt financings could contain
restrictive covenants limiting our ability to do certain things, including
paying dividends.
On
June 21, 2007, we issued a demand promissory note in favor of each of
Mr. Frederick R. Adler, Mr. Joseph K. Pagano, D.H. Blair Investment
Banking Corp. and Mr. Samuel A. Rozzi (together, the “Lenders”), evidencing
loans extended to us in the principal amount of $50,000, $50,000, $50,000 and
$30,000, respectively, by the Lenders, for an aggregate amount of $180,000. The
promissory notes accrued interest at Citibank N.A.’s reported prime rate plus
3%, which was due and payable at the time the principal amount of each
respective promissory note becomes due. Although the promissory notes had a
maturity date of June 22, 2009, each Lender could demand the payment of all
of the outstanding principal and interest of his or its respective promissory
note at any time prior to the maturity date. At the time of the loan
transaction, each of the Lenders was the beneficial owner of a significant
number of shares of our common stock. In addition, Mr. Pagano is our Chief
Executive Officer and the Chairman of our Board of Directors, and Mr. Adler
is a member of our Board of Directors. On May 9, 2008, in connection with
the first tranche of the financing discussed above, (i) $24,675 of the
outstanding amount of Mr. Pagano’s promissory note was applied to the
subscriptions made by Mr. Pagano and a trust for the benefit of his son;
and (ii) $54,425, the entire outstanding amount of D.H. Blair Investment Banking
Corp.’s promissory note, including principal and accrued interest, was applied
to the subscriptions made by each of three affiliates of D.H. Blair Investment
Banking Corp. On May 16, 2008, Mr. Pagano made a demand for repayment
of the remaining outstanding principal and interest ($29,750) of his promissory
note. On June 20, 2008, in connection with the second tranche of the
financing discussed above (i) $30,000 of the outstanding principal amount of
Mr. Rozzi’s promissory note was applied to the subscription made by
Mr. Rozzi and he received a payment for $2,961 in accrued interest on
July 10, 2008 and (ii) $53,740 of the outstanding amount of principal and
accrued interest of Mr. Adler’s promissory note was applied to the
subscription made by Mr. Adler and he received a payment for the remaining
$1,195 in accrued interest. All of the promissory notes have been cancelled and
there are no amounts outstanding to date.
We have
been issued an opinion by our auditor that raises substantial doubt about our
ability to continue as a going concern based on our current financial
position. See note 2 of our financial statements.
Inflation
Periods
of high inflation could have a material adverse impact on us to the extent that
increased borrowing costs for floating rate debt (if any) may not be offset by
increases in cash flow. At December 31, 2008, we had $0 in floating rate
debt outstanding. There was no significant impact on our operations as a result
of inflation during the years ended December 31, 2007 and
2008.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”).
SFAS 141R replaces SFAS No. 141, “Business Combinations” (“SFAS 141”). SFAS 141R
retains the fundamental requirements in SFAS 141 that the purchase method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. SFAS 141R defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. SFAS 141R retains guidance of SFAS 141 for identifying and
recognizing intangible assets separately from goodwill. SFAS 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition date, measured at
their fair values as of that date with limited exceptions specified in the
Statement. SFAS 141R also requires the acquirer in a business combination
achieved in stages to recognize the identifiable assets and liabilities, as well
as the non-controlling interest in the acquiree, at the full amounts of their
fair values. SFAS 141R applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. SFAS 141R would have an impact
on accounting for any business acquired after the effective date of this
pronouncement.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS 160”). SFAS 160 amends ARB 51 to
establish accounting and reporting standards for the non-controlling interest in
a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective
for fiscal years and interim periods within those fiscal years beginning on or
after December 15, 2008. Earlier adoption is prohibited. SFAS 160 shall be
applied prospectively as of the beginning of the fiscal year in which this
Statement is initially applied. The Company is currently assessing the impact of
SFAS 160 on its financial position and results of operations.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”).
SFAS 161 gives financial statement users better information about the reporting
entity’s hedges by requiring qualitative disclosures about the objectives and
strategies for using derivatives, quantitative data about the fair value of and
gains and losses on derivative contracts, and details of credit-risk-related
contingent features in their hedged positions. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently assessing the impact of SFAS 161 on
its financial position and results of operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS 162 is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company does not expect the adoption of this pronouncement to
have a material impact on its financial position or results of
operations.
In
November 2008, the FASB ratified Emerging Issue Task Force Issue 08-6, “Equity
Method Investment Accounting Considerations.” EITF 08-6 addresses certain issues
that arise from a company’s application of the equity method under Opinion 18
due to a change in accounting for business combinations and consolidated
subsidiaries resulting from the issuance of Statement 141(R) and Statement
160. EITF 08-6 addresses issues regarding the initial carrying value
of an equity method investment, tests of impairment performed by the investor
over an investee’s underlying assets, changes in ownership resulting from the
issuances of shares by an investee, and changes in an investment from the equity
method to the cost method. This Issue is effective and will be
applied on a prospective basis in fiscal years beginning on or after December
15, 2008, and interim periods within those fiscal years, consistent with the
effective dates of Statement 141(R) and Statement 160.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.” This FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of SFAS No. 128. FSP EITF
03-6-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those years. The
adoption of FSP EITF 03-6-1 is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.
In June
2008, the FASB issued EITF Issue No.
07-5, “Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own
Stock” (“EITF
07-5”). EITF
07-5
provides that an entity should use a two step approach to evaluate
whether
an equity-linked financial instrument, or embedded feature, is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuations.
EITF 07-5 is effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. The adoption of EITF 07-5 is not
expected to have a material impact on the Company’s consolidated financial
position and results of operations.
Management does not believe that any
other recently issued, but not yet effective accounting pronouncements, if
adopted, would have a material effect on the accompanying financial
statements.
ITEM
7A
|
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
We are a
smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and are
not required to provide information under this item.
ITEM
8
|
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
(A
Development Stage Company)
INDEX
TO FINANCIAL STATEMENTS
|
|
|
|
|
Page
No.
|
Report
of Independent Registered Accounting Firm
|
|
10
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
Balance
Sheets
|
|
11
|
|
|
|
Statements
of Operations
|
|
12
|
|
|
|
Statements
of Changes in Stockholders’ Equity (Deficiency)
|
|
13
|
|
|
|
Statements
of Cash Flows
|
|
14
|
|
|
|
Notes
to Financial Statements
|
|
15
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
SentiSearch,
Inc.
West Palm
Beach, Florida
We have
audited the accompanying balance sheets of SentiSearch, Inc. (A Development
Stage Company) (the “Company”) as of December 31, 2008 and 2007,
and the related statements of operations,
stockholders’ equity (deficiency), and cash flows for the years then
ended, and the cumulative period April 10, 2000 (commencement of business)
to December 31, 2008. The Company’s management is responsible for these
financial statements. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SentiSearch, Inc. as of December
31, 2008 and 2007, and the results of its operations and its cash flows for the
years then ended and the cumulative period April 10, 2000 (commencement of
business) to December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and has suffered
recurring losses. This raises substantial doubt about its ability to
continue as a going concern. Management’s plans in regards to these
matters are also described in Note 2. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Raich
Ende Malter & Co. LLP
Raich
Ende Malter & Co. LLP
New York,
New York
March 30,
2009
SENTISEARCH,
INC.
(A
Development Stage Company)
Balance
Sheets
ASSETS
|
|
December
31,
|
|
December
31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
198,187
|
|
|
$
|
42,500
|
|
Security
deposit
|
|
|
4,170
|
|
|
|
-
|
|
Total
Current Assets
|
|
|
202,357
|
|
|
|
42,500
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
License
and patent costs
|
|
|
515,722
|
|
|
|
482,507
|
|
Less:
accumulated amortization
|
|
|
(426,067
|
)
|
|
|
(370,244
|
)
|
Total
Other Assets
|
|
|
89,655
|
|
|
|
112,263
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
292,012
|
|
|
$
|
154,763
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
125,352
|
|
|
$
|
122,042
|
|
Notes
Payable - Related Party
|
|
|
-
|
|
|
|
180,000
|
|
Total
Current Liabilities
|
|
|
125,352
|
|
|
|
302,042
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity (Deficiency)
|
|
|
|
|
|
|
|
|
Common
stock — $0.0001 par value, 20,000,000 shares authorized,
12,747,644 and 7,694,542 shares outstanding
|
|
|
1,275
|
|
|
|
769
|
|
Additional
paid- in capital
|
|
|
1,955,791
|
|
|
|
1,000,055
|
|
Deficit
accumulated during development stage
|
|
|
(1,790,406
|
)
|
|
|
(1,148,103
|
)
|
Total
Stockholders' Equity (Deficiency)
|
|
|
166,660
|
|
|
|
(147,279
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$
|
292,012
|
|
|
$
|
154,763
|
|
|
|
|
|
|
|
|
|
|
See
notes to financial statements.
|
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Operations
|
|
|
|
|
|
|
|
For
the period
|
|
|
|
|
|
|
|
|
|
April
10, 2000
|
|
|
|
|
|
|
|
|
|
(Commencement
|
|
|
|
For
the Years
|
|
|
of
Business)
|
|
|
|
Ended
December 31,
|
|
|
to
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Direct
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
after direct costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
582,372
|
|
|
|
237,431
|
|
|
|
1,349,829
|
|
Amortization
of license and patent costs
|
|
|
55,823
|
|
|
|
38,711
|
|
|
|
426,067
|
|
|
|
|
638,195
|
|
|
|
276,142
|
|
|
|
1,775,896
|
|
Other
(income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(income)
|
|
|
(2,412
|
)
|
|
|
-
|
|
|
|
(2,412
|
)
|
Interest
and financing expense
|
|
|
6,520
|
|
|
|
10,402
|
|
|
|
16,922
|
|
|
|
|
4,108
|
|
|
|
10,402
|
|
|
|
14,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(642,303
|
)
|
|
|
(286,544
|
)
|
|
|
(1,790,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(642,303
|
)
|
|
$
|
(286,544
|
)
|
|
$
|
(1,790,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
Weighted
average shares outstanding — basic and dilutive
|
|
|
10,317,714
|
|
|
|
7,694,542
|
|
|
|
|
|
See notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Changes in Stockholders’ Equity (Deficiency)
|
|
Common
Stock
|
|
|
Subscription
|
|
|
Additional
Paid-in
|
|
|
Accumulat
ed
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Receivable
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
- April 10, 2000 (Commencement of Predecessor Business)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,763
|
)
|
|
|
(47,763
|
)
|
Balance
- December 31, 2000
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,763
|
)
|
|
|
(47,763
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,169
|
)
|
|
|
(63,169
|
)
|
Balance
- December 31, 2001
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(110,932
|
)
|
|
|
(110,932
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(65,936
|
)
|
|
|
(65,936
|
)
|
Balance
- December 31, 2002
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(176,868
|
)
|
|
|
(176,868
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(77,083
|
)
|
|
|
(77,083
|
)
|
Balance
- December 31, 2003
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(253,951
|
)
|
|
|
(253,951
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(109,169
|
)
|
|
|
(109,169
|
)
|
Balance
- December 31, 2004
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(363,120
|
)
|
|
|
(363,120
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,870
|
)
|
|
|
(60,870
|
)
|
Balance
- December 31, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(423,990
|
)
|
|
|
(423,990
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(320,747
|
)
|
|
|
(320,747
|
)
|
Balance
- October 2, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(744,737
|
)
|
|
|
(744,737
|
)
|
Issuance
of common stock - October 3, 2006
|
|
|
7,694,542
|
|
|
|
769
|
|
|
|
(769
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional
contribution of capital - October 10, 2006
|
|
|
|
|
|
|
|
|
|
|
769
|
|
|
|
249,231
|
|
|
|
|
|
|
|
250,000
|
|
Contribution
to capital of License costs and assumption of liability - October 10,
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
749,334
|
|
|
|
-
|
|
|
|
749,334
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(116,822
|
)
|
|
|
(116,822
|
)
|
Balance
- December 31, 2006
|
|
|
7,694,542
|
|
|
|
769
|
|
|
|
-
|
|
|
|
998,565
|
|
|
|
(861,559
|
)
|
|
|
137,775
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,490
|
|
|
|
-
|
|
|
|
1,490
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(286,544
|
)
|
|
|
(286,544
|
)
|
Balance
- December 31, 2007
|
|
|
7,694,542
|
|
|
|
769
|
|
|
|
-
|
|
|
|
1,000,055
|
|
|
|
(1,148,103
|
)
|
|
|
(147,279
|
)
|
Issuance
of common stock
|
|
|
5,053,102
|
|
|
|
506
|
|
|
|
-
|
|
|
|
927,194
|
|
|
|
-
|
|
|
|
927,700
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,542
|
|
|
|
|
|
|
|
28,542
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(642,303
|
)
|
|
|
(642,303
|
)
|
Balance-
December 31, 2008
|
|
|
12,747,644
|
|
|
$
|
1,275
|
|
|
$
|
-
|
|
|
$
|
1,955,791
|
|
|
$
|
(1,790,406
|
)
|
|
$
|
166,660
|
|
See notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Cash Flows
|
|
|
|
|
|
|
|
For the period
|
|
|
|
|
|
|
|
|
|
April 10, 2000
|
|
|
|
|
|
|
|
|
|
(Commencement
|
|
|
|
For the
|
|
|
of Business)
|
|
|
|
Year ended
|
|
|
Through
|
|
|
|
December
31,
|
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(642,303
|
)
|
|
$
|
(286,544
|
)
|
|
$
|
(1,790,406
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
28,542
|
|
|
|
1,490
|
|
|
|
30,032
|
|
Amortization
|
|
|
55,823
|
|
|
|
38,711
|
|
|
|
426,067
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in
Security Deposits
|
|
|
(4,170
|
)
|
|
|
—
|
|
|
|
(4,170
|
)
|
Increase in
accounts payable and accrued expenses
|
|
|
11,475
|
|
|
|
82,832
|
|
|
|
442,226
|
|
Net
cash used in operating activities
|
|
|
(550,633
|
)
|
|
|
(163,511
|
)
|
|
|
(896,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in patents
|
|
|
(33,215
|
)
|
|
|
(41,882
|
)
|
|
|
(75,097
|
)
|
Net
cash used in investing activities
|
|
|
(33,215
|
)
|
|
|
(41,882
|
)
|
|
|
(75,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayment)
proceeds of notes payable - related parties
|
|
|
(25,325
|
)
|
|
|
180,000
|
|
|
|
154,675
|
|
Proceeds
from due to related party
|
|
|
106,914
|
|
|
|
—
|
|
|
|
106,914
|
|
Proceeds
from issuance of common stock, net of offering costs
|
|
|
657,946
|
|
|
|
—
|
|
|
|
907,946
|
|
Net
cash provided by financing activities
|
|
|
739,535
|
|
|
|
180,000
|
|
|
|
1,169,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
155,687
|
|
|
|
(25,393
|
)
|
|
|
198,187
|
|
Cash
and cash equivalents — beginning of period
|
|
|
42,500
|
|
|
|
67,893
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
198,187
|
|
|
$
|
42,500
|
|
|
$
|
198,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption
of liability by Sentigen Holding Corp.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
308,709
|
|
Stock
of Sentigen Holding Corp. issued for license costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
440,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable ($154,675) and accrued interest ($8,165) to common
stock
|
|
$
|
162,840
|
|
|
$
|
—
|
|
|
$
|
162,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of due to related party for common stock
|
|
$
|
106,914
|
|
|
$
|
—
|
|
|
$
|
106,914
|
|
See notes
to financial statements.
Notes
to Financial Statements
1.
Organization and Nature of Operations
SentiSearch,
Inc. (“we,” “our”, “SentiSearch,” and “the Company”) was a wholly-owned
subsidiary of Sentigen Holding Corp. (“Sentigen”) until the December 1, 2006
“spin-off”, discussed below. We are a development stage company and have a
limited operating history. We were incorporated in the State of Delaware on
October 3, 2006 to hold the olfaction intellectual property assets of Sentigen
and its subsidiaries.
On
October 10, 2006, in connection with its merger with Invitrogen Corporation,
Sentigen separated its olfaction intellectual property assets from the
businesses being acquired by Invitrogen Corporation. The distribution of
SentiSearch shares to the shareholders of Sentigen, commonly referred to as a
“spin-off,” took place immediately prior to the consummation of the merger. In
connection with the distribution, on October 10, 2006, we entered into a
distribution agreement with Sentigen, pursuant to which Sentigen contributed
$250,000 to our capital. Also on October 10, 2006, we entered into a
contribution agreement with Sentigen, pursuant to which Sentigen transferred to
us all of its olfaction intellectual property. The olfaction intellectual
property assets primarily consist of an exclusive license agreement with The
Trustees of Columbia University in the City of New York (“Columbia”), dated
April 10, 2000 (the “Columbia License”), and certain patent applications titled
“Nucleic Acids and Proteins of Insect or 83b odorant receptor genes and uses
thereof.”
During
July 2007, we were issued two patents in the United States. During November
2007, we were issued one patent in Australia and during 2008, we were issued one
patent in Mexico. Three of these patents were issued directly to us and the
other patent was issued under the Columbia License. All of the issued patents
cover nucleic acid molecules which encode insect odorant receptor proteins,
including numerous variations on insect odorant receptor coding sequence. The
patents cover any nucleic acid molecule as long as the protein it encodes
contains a short segment of amino acids, linked together.
While we
believe our technology capabilities in the olfaction area are substantial, up to
this point, we have incurred substantial operating losses. There have been no
revenues from operations to date. Although we have an exclusive license
agreement with Columbia, only one patent has been issued under the Columbia
License and we cannot provide any assurance that our additional patent
applications will be successful. We intend to continually review the commercial
validity of our olfaction technology in order to make the appropriate decisions
as to the best way to allocate our limited resources.
2.
Basis of Presentation
The
financial statements for the period April 10, 2000 (Commencement of Business) to
December 31, 2008 differ from the results of operations, financial condition and
cash flows that would have been achieved had we been operated independently
during the periods from April 10, 2000 through December 31, 2008. Our business
was operated within Sentigen as part of its broader corporate organization
rather than as a stand-alone company. Our historical financial statements do not
reflect the expense of certain corporate functions that we would have needed to
perform if we were not a wholly-owned subsidiary.
We are a
development stage company as defined in Financial Accounting Standard Board
(“FASB”) Statement No. 7, “Accounting and Reporting by Development Stage
Enterprises.” Our planned principal operations have not yet commenced. We intend
to establish a new business. We have not generated any revenues from operations
and have no assurance of any future revenues. All losses accumulated since
commencement of our business have been considered as part of our development
stage activities.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the recoverability of
assets and the satisfaction of liabilities in the normal course of business. The
Company has had no revenue and has incurred accumulated net losses during the
development stage of $1,790,406. The Company may need substantial amounts of
additional financing to commercialize the research programs undertaken, for
which financing may not be available on favorable terms, or at all. The
Company’s ability to obtain financing and realize revenue depends upon the
status of future business prospects, as well as conditions prevailing in the
capital markets. These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent upon management’s plan to raise
additional capital from the sale of stock and, ultimately, income from
operations. The accompanying financial statements do not include any adjustments
that might be required should the Company be unable to recover the value of its
assets or satisfy its liabilities.
3. Summary of
Significant Accounting Policies
|
|
a.
|
Cash and Cash Equivalents
–
Cash and cash equivalents include liquid investments with
maturities of three months or less at the time of
purchase.
|
|
b.
|
Concentration of Cr
ed
it Risk -
Financial
instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts
receivable. The Company maintains its cash accounts at high
quality financial institutions with balances, at times, in excess of
federally insured limits. As of December 31, 2008, the Company had no cash
balances in excess of federally insured limits. Management believes that
the financial institutions that hold the Company’s deposits are
financially sound and therefore pose minimal credit risk. In October 2008,
Congress temporarily increased FDIC deposit insurance from $100,000 to
$250,000 per depositor through December 31, 2009.
|
|
|
|
|
c.
|
License and Patent Costs
–
The costs of intangible assets that are purchased from others for
use in research and development activities and that have alternative
future uses (in research and development projects or otherwise) are
accounted for in accordance with FASB Statement No. 142, “Goodwill and
Other Intangible Assets.” The amortization of those intangible assets used
in research and development activities is a research and development cost.
However, the costs of intangibles that are purchased from others for a
particular research and development project and that have no alternative
future uses (in other research and development projects or otherwise) and
therefore no separate economic values are research and development costs
at the time the costs are incurred. We determined that the licensing costs
arising from our exclusive licensing agreement with The Trustees of
Columbia University have alternative future uses. These costs have been
capitalized and are being amortized on a straight-line basis through April
2010 (see Note 6).
|
|
d.
|
Impairment –
Intangible
and long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets
may not be fully recoverable. A review for impairment includes comparing
the carrying value of an asset to an estimate of the undiscounted net
future cash inflows over the life of the asset or fair market value. An
asset is considered to be impaired when the carrying value exceeds the
calculation of the undiscounted net future cash inflows or fair market
value. An impairment loss is defined as the amount of the excess of the
carrying value over the fair market value of the asset. We believe that
none of our intangible and long-lived assets are impaired as of December
31, 2008 (see Note 6).
|
|
e.
|
Estimates –
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
|
|
|
|
|
f.
|
Income Taxes –
Certain
income and expense items are accounted for differently for financial
reporting and income tax purposes. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and
income tax basis of assets and liabilities and the tax effect of net
operating loss and tax credit carry-forwards applying the enacted
statutory tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established if it is
determined to be more likely than not that deferred tax assets will not be
recovered. The Company recognized interest and penalties, if
any, related to uncertain tax positions as income tax
expense.
|
|
g.
|
Loss Per Share –
The
accompanying financial statements include loss per share calculated as
required by FASB Statement No. 128 “Earnings Per Share” on a “pro-forma”
basis as if we were a separate entity from the period April 10, 2000
(commencement of business) until October 3, 2006 (our date of
incorporation). Basic loss per share is calculated by dividing net loss by
the weighted average number of shares of common stock outstanding. Diluted
loss per share include the effects of securities convertible into common
stock, consisting of stock options, to the extent such conversion would be
dilutive. FASB Statement No. 128 prohibits adjusting the denominator of
diluted Earnings Per Share for additional potential common shares when a
net loss from continuing operations is reported. The assumed exercise of
common stock equivalents was not utilized for the twelve months ended
December 31, 2008 since the effect would be anti-dilutive. As of December
31, 2008, 575,000 options were outstanding of which 458,334 were
exercisable.
|
|
h.
|
Fair Value of Financial
Instruments –
The carrying value of cash and cash equivalents and
accounts payable and accrued expenses approximates fair value because of
the short-term maturity of those instruments. The carrying amount of the
Company’s notes payable approximate fair value because the effective yield
of such instruments, which includes the effects of contractual interest
rates taken together with any discounts, is consistent with current market
rates of interest for instruments of comparable credit
risk.
|
|
|
|
|
|
On
January 1, 2008, the Company adopted Financial Accounting Standards Board
(“FASB”) SFAS No. 157, “Fair Value Measurements” (“SFAS 157. There
was no impact on the Company’s financial position, results of operation or
cash flows as of December 31, 2008 and for the year then ended as a result
of FAS 157.
On
January 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities (“FAS 159”). There was no impact on the
Company’s financial position, results of operation or cash flows as of
December 31, 2008 and for the year then ended as a result of FAS
159.
|
|
i.
|
Stock-Bas
ed
Compensation
–
Stock-based compensation expense represents share-based payment awards
granted subsequent to December 31, 2005, based upon the grant date fair
value estimated in accordance with the provisions of SFAS 123R. The
Company recognizes compensation expense for stock option awards on a
straight-line basis over the requisite service period of the award.
Stock-based compensation expense is recognized based upon awards
ultimately expected to vest, reduced for estimated forfeitures. SFAS 123R
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
|
|
|
|
|
|
The
expected term of stock options represents the average period the stock
options are expected to remain outstanding and is based on the expected
term calculated using the approach prescribed by SAB 107 for “plain
vanilla” options. The Company used this approach as it did not have
sufficient historical information to develop reasonable expectations about
future exercise patterns and post-vesting employment termination behavior.
The expected stock price volatility for the Company’s stock options was
determined by examining the historical volatilities for industry peers for
periods that meet or exceed the expected term of the options, using an
average of the historical volatilities of the Company’s industry peers as
the Company did not have sufficient trading history for the Company’s
common stock. The Company will continue to analyze the historical stock
price volatility and expected term assumption as more historical data for
the Company’s common stock becomes available. The risk-free interest rate
assumption is based on the U.S. Treasury instruments whose term was
consistent with the expected term of the Company’s stock options. The
expected dividend assumption is based on the Company’s history and
expectation of dividend payouts.
The
Company accounts for its issuances of stock-based compensation to
non-employees for services using the measurement date guidelines
enumerated in SFAS 123R and EITF 96-18. Accordingly, the value
of any awards that were vested and non forfeitable at their date of
issuance were measured based on the fair value of the equity instruments
at the date of issuance. The non-vested portion of awards that are subject
to the future performance of the counterparty are adjusted at each
reporting date to their fair values based upon the then current market
value of the Company’s stock and other assumptions that management
believes are reasonable. The Company believes that the fair value of the
stock options issued to non-employees is more reliably measurable
than the fair value of the services rendered. The fair value of the stock
options granted was calculated using the Black-Scholes option pricing
model as prescribed by
SFAS 123R.
|
4.
Notes Payable
On June
21, 2007, we entered into demand promissory notes with four of the company’s
stockholders including our Chief Executive Officer and a member of the Board of
Directors (together, the “Lenders”), providing for loans to us in the aggregate
amount of $180,000. The promissory notes accrued interest at Citibank N.A’s
reported prime rate plus 3%, which was due and payable at the time the principal
amount of each respective promissory note became due. Although the promissory
notes had a maturity date of June 22, 2009, each Lender had the right to demand
the payment of all of the outstanding principal and interest of his or its
respective promissory note at any time prior to the maturity date. At the time
of the loan transaction, each of the Lenders was a beneficial owner of 5% or
more of our common stock.
In May
and June 2008, the promissory notes were converted into subscriptions agreements
in two phases (see note 5). The accrued interest expense related to the
promissory notes amounted to $16,921, of which $8,756 was paid in cash and
$8,165 was converted into the subscriptions.
5.
Stockholders’ Equity
Common
Stock
During
the second quarter of 2008, the Company closed on a financing in two tranches
resulting in the issuance of common stock for $927,700, net of offering costs of
$22,300. On May 9, 2008, the Company closed on the first tranche of the
financing, for an aggregate amount of $750,000, which consisted of cash in the
amount of $563,986 and the conversion of $186,014 of indebtedness. Participants
in the first tranche of the financing subscribed for an aggregate of 3,947,363
shares of common stock, based on the price of $0.19 per share. On
June 20, 2008, we had an initial closing of $145,980 of the second tranche
of the financing, consisting of cash in the amount of $62,240 and the conversion
of $83,740 of indebtedness. Participants in the initial closing of the second
tranche of the financing subscribed for an aggregate of 768,315 shares of common
stock, based on the price of $0.19 per share.
On July
9, 2008, the Company raised $54,020 of additional funds from the unsubscribed
portion of the second tranche of the financing from the investors who
participated and desired to exercise their over-allotment option in the June 20,
2008 closing. The Company issued an aggregate of 337,424 shares of its common
stock in connection with the over-allotment exercise, based on the price of
$0.16 per share.
Prior to
the issuance of any shares of common stock pursuant to the financing, the
Company was required to receive the approval of its stockholders to amend our
Certificate of Incorporation to increase the number of authorized shares of
common stock to permit the financing shares to be issued (“Stockholder
Approval”). The Company received Stockholder Approval at its annual meeting of
stockholders on June 24, 2008.
Participants
in the financings included ten of our largest stockholders (each holding 50,000
or more shares of our common stock), including, the Company’s Chairman and Chief
Executive Officer, a director, and certain holders of 5% or more of the
Company’s common stock. All ten stockholders participated in the first tranche
of the financing, and six stockholders (including a director) participated in
the second tranche of the financing.
6.
Exclusive License Agreement
On April
10, 2000, Sentigen Biosciences, Inc. (“Sentigen Biosciences”), a wholly-owned
subsidiary of Sentigen, entered into the Columbia License.
In
consideration of the Columbia License, Columbia was issued 75,000 shares of
Sentigen common stock and will receive royalties of 1% of the net sales of any
licensed products or services. The Columbia License had certain minimum funding
requirements, all of which have been satisfied.
On
October 10, 2006, we entered into a contribution agreement with Sentigen
pursuant to which Sentigen transferred to us all of its olfaction intellectual
property, including the Columbia License. On October 17, 2006, Columbia
consented to the assignment of the Columbia License from Sentigen Biosciences to
SentiSearch subject to certain conditions, all of which have already been
satisfied to the extent currently required.
The value
of the Columbia License is recorded as license costs, net of accumulated
amortization on the accompanying balance sheet. The original value of the
license costs reflects the closing share price of Sentigen’s common stock on
April 10, 2000. The value of the license costs, net of amortization as of
December 31, 2008 was $43,636.
Intangible
and long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. A review of our olfaction technology was performed by Charter
Capital Advisers, Inc. in August 2006 which concluded that the estimated range
of fair value was $120,000 to $190,000. An impairment loss of $122,996 was
recognized as amortization expense in August 2006 as the amount of the excess of
the carrying value over the fair market value of the asset.
The
license costs are being amortized on a straight line basis through April 2010.
The following table details the expected amortization costs of the license over
the next two years:
Twelve months ending December
31,
|
|
Expected amortization expense
|
|
2009
|
|
$
|
32,727
|
|
2010
|
|
|
10,909
|
|
Total
|
|
$
|
43,636
|
|
7.
Patent Costs
During
July 2007, we were issued two patents in the United States. During November
2007, we were issued a patent in Australia and during 2008, we were issued a
patent in Mexico. One of the U.S. patents, the Australia and Mexico patents were
issued directly to us and the other U.S. patent was issued under the Columbia
License. All of the issued patents cover nucleic acid molecules which encode
insect odorant receptor proteins, including numerous variations on insect
odorant receptor coding sequence. The patents cover any nucleic acid molecule as
long as the protein it encodes contains a short segment of amino acids, linked
together.
The value
of the patent costs, mainly consisting of legal and application fees in the
amount of $75,097, is recorded as patent costs, net of accumulated amortization
on the accompanying balance sheet. The value of the patent costs, net of
amortization as of December 31, 2008 was $46,019.
The
patent costs are being amortized on a straight line basis through April 2010,
the remaining term of the license costs. The following table details the
expected amortization costs of the patent:
Twelve months ending December
31,
|
|
Expected amortization expense
|
|
2009
|
|
$
|
34,515
|
|
2010
|
|
|
11,504
|
|
Total
|
|
$
|
46,019
|
|
8.
Share-Based Payments
On May
16, 2007, the Company granted options to purchase 50,000 shares of its common
stock at an exercise price of $0.18 per share to a director. The fair
value of the underlying common stock at the date of grant was $0.18 per
share. The options vested immediately and have a five year
term. Assumptions related to the estimated fair value of these stock
options on their date of grant, which the Company estimated using the
Black-Scholes option pricing model, are as follows: risk-free
interest rate of approximately 5%; expected divided yield of zero percent;
expected option life of two and one-half years; and expected volatility of
approximately 17%. The aggregate grant date fair value of the award
amounted to $1,490.
On March
27, 2008 and May 14, 2008, the Company granted options to purchase an aggregate
of 425,000 and 100,000 shares, respectively, of its common stock to three
individuals for consulting services rendered to the Company and a director,
respectively, each at an exercise price of $0.19 per share and term of ten
years. The terms of the consulting arrangements are for five years. The fair
value of the underlying common stock at the date of grant was $0.07 per share.
The options granted on March 27, 2008, vest as follows: 158,334
immediately, 133,333 on the first anniversary and 133,333 on the second
anniversary. The options granted on May 14, 2008 vested upon stockholder
approval to amend the Certificate of Incorporation to increase the number of
authorized shares of common stock at the annual stockholder meeting on June 24,
2008, and have a term of ten years unless cancelled earlier upon director's
removal or resignation from the board. Assumptions related to the estimated fair
value of these stock options on their date of grant, which the Company estimated
using the Black-Scholes option pricing model, are as follows: risk-free interest
rate of approximately 4%; expected dividend yield of zero percent; expected
option life of ten years; and expected volatility of approximately 17%. The
aggregate grant date fair value of the award amounted to $36,698.
The
Company recorded $28,542 and $1,490 of compensation expense for the year ended
December 31, 2008 and 2007, respectively, related to these options.
The
stock-based compensation expense will fluctuate as the fair market value of the
common stock fluctuates. The weighted-average grant date fair value of options
granted during the year ended December 31, 2008 amounted to $0.07 per share.
Total unamortized compensation expense related to unvested stock options at
December 31, 2008 amounted to $4,480 and is expected to be recognized over a
weighted average period of approximately six months.
The
following table summarizes information on all common stock purchase options
issued by us for the years ended December 31, 2008 and 2007:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Number
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of the year
|
|
|
50,000
|
|
|
$
|
0.18
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
525,000
|
|
|
|
0.19
|
|
|
|
50,000
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end of the year
|
|
|
575,000
|
|
|
$
|
0.19
|
|
|
|
50,000
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
end of the year
|
|
|
308,334
|
|
|
$
|
0.19
|
|
|
|
50,000
|
|
|
$
|
0.18
|
|
The
number and weighted average exercise prices of all common stock purchase options
as of December 31, 2008 are as follows:
Range
of Exercise Prices
|
|
|
Remaining
Number Outstanding
|
|
|
Weighted
Average Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.18
to $0.19
|
|
|
|
575,000
|
|
|
|
8.8
|
|
|
$
|
0.19
|
|
All
options were issued at an option price equal to the market price on the date of
the grant. In addition, none of the options currently outstanding have any
intrinsic value.
The
Company issues new shares of common stock upon exercise of stock
options.
9. Income Taxes
SentiSearch
was a member of the Sentigen consolidated group for federal income tax purposes
for the period October 3, 2006 through December 1, 2006. Prior to
October 3, 2006, the assets and the related business of SentiSearch were
owned and operated by Sentigen. Such business was the predecessor of
SentiSearch, which became a separate legal entity on October 3, 2006. As
such, any deductions generated by the Company’s assets prior to October 3,
2006 were utilized by, or remain with, the consolidated group, Sentigen. The
Company was allocated its share of the consolidated group’s net operating loss
for the period October 3, 2006 through December 1, 2006. The table
below reflects the deferred tax assets from net operating loss carryforwards “as
if” the Company was a stand alone legal entity from the period April 10,
2000 through October 2, 2006.
On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement No. 109” (FIN 48). There was no
impact on the Company’s consolidated financial position, results of operations
or cash flows at December 31, 2007 and for the year then ended as a result
of implementing FIN 48. At the adoption date of January 1, 2007 and at
December 31, 2007, the Company did not have any unrecognized tax benefits.
The Company’s practice is to recognize interest and/or penalties related to
income tax matters in income tax expense. As of January 1, 2007 and
December 31, 2007, the Company had no accrued interest or penalties. The Company
currently has no federal or state tax examinations in progress nor has it had
any federal or state tax examinations since its inception. All of the Company’s
tax years are subject to federal and state tax examination.
Deferred
taxes reflect the tax effects of temporary differences between the amounts of
assets and liabilities for financial reporting and the amounts recognized for
income tax purposes as well as the tax effects of net operating loss
carryforwards. The significant components of net deferred tax assets are as
follows:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Net
operating loss carryforwards
|
|
$
|
374,844
|
|
|
$
|
137,841
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
80,608
|
|
|
|
72,108
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
12,013
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
Less:
Valuation allowance
|
|
|
(467,465
|
)
|
|
|
(210,545
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
We
believe that it is more likely than not that the deferred tax assets will not be
realized and have therefore provided a valuation allowance in the accompanying
balance sheet equal to the entire amount of the deferred tax assets. The
provision for income taxes on continuing operations differs from the amount
using the statutory federal income tax rate (34%) as follows:
|
|
|
|
|
|
|
|
|
|
For
the period April
|
|
|
|
|
|
|
|
|
|
|
|
10,
2000 (Commencement
|
|
|
|
|
|
|
|
|
|
|
|
of
Predecessor
|
|
|
|
For
the years ended December 31,
|
|
|
Business)
to December 31.
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
At
Statutory Rates
|
|
$
|
(218,383
|
)
|
|
$
|
(97,425
|
)
|
|
$
|
(608,738
|
)
|
State
income taxes, net of federal benefit
|
|
|
(38,538
|
)
|
|
|
(17,193
|
)
|
|
|
(107,424
|
)
|
NOL’s
utilized by Sentigen
|
|
|
—
|
|
|
|
—
|
|
|
|
297,895
|
|
Increase
in valuation allowance
|
|
|
256,921
|
|
|
|
114,618
|
|
|
|
418,267
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At
December 31, 2008, the Company has federal and state net operating loss
carryforwards of approximately $937,000 for each tax jurisdiction,
available to offset future federal and state taxable income. These carryforwards
will expire on December 31, 2028. In addition, the Company has a deferred
tax asset of approximately $93,000 related to a basis difference in its
intangible asset, and stock based compensation which is also available to offset
future federal and state taxable income. There are no tax-related balances due
to or from any entities of which the Company was previously
affiliated.
10.
Recently Issued Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141R, “Business Combination” (“SFAS
141R”), which establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and measuring
goodwill acquired in a business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. We do not expect the adoption of SFAS 141R will have a material impact
on our financial conditions or results of operations.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”)
which establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. We do not expect the adoption of SFAS 160 will have a material impact on
our financial conditions or results of operations.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”).
SFAS 161 gives financial statement users better information about the reporting
entity’s hedges by providing for qualitative disclosures about the objectives
and strategies for using derivatives, quantitative data about the fair value of
and gains and losses on derivative contracts, and details of credit-risk-related
contingent features in their hedged positions. SFAS 161 is effective for
financial statements issued for fiscal years beginning after November 15, 2008
and interim periods within those years. We do not expect the adoption of SFAS
161 will have a material impact on our financial condition or results of
operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS 162 is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company does not expect the adoption of this pronouncement to
have a material impact on its financial position or results of
operation.
In
November 2008, the FASB ratified Emerging Issue Task Force Issue 08-6, “Equity
Method Investment Accounting Considerations.” EITF 08-6 addresses certain issues
that arise from a company’s application of the equity method under Opinion 18
due to a change in accounting for business combinations and consolidated
subsidiaries resulting from the issuance of Statement 141(R) and Statement
160. EITF 08-6 addresses issues regarding the initial carrying value
of an equity method investment, tests of impairment performed by the investor
over an investee’s underlying assets, changes in ownership resulting from the
issuances of shares by an investee, and changes in an investment from the equity
method to the cost method. This Issue is effective and will be
applied on a prospective basis in fiscal years beginning on or after December
15, 2008, and interim periods within those fiscal years, consistent with the
effective dates of Statement 141(R) and Statement 160.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.” This FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of SFAS No. 128. FSP EITF
03-6-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those years. The
adoption of FSP EITF 03-6-1 is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.
In June
2008, the FASB issued EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock” (“EITF 07-5”).
EITF 07-5 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument, or embedded feature, is indexed
to its own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuations.
EITF 07-5 is effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. The adoption of EITF 07-5 is not
expected to have a material impact on the Company’s consolidated financial
position and results of operations.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
11.
Commitments and Contingencies
As of
June 25, 2008, the Company has entered into a sublease for office space in West
Palm Beach, Florida. The lease has a term of one year, with an option to renew
for an additional year. The lease requires twelve monthly payments of
approximately $1,390 through June 2009.
12.
Related Party Transactions
During
the year ended December 31, 2008, the Company’s Chief Executive Officer and
Chairman made interest-free demand loans to the Company in the aggregate of
$106,914. The loans were pursuant to a Revolving Credit Note dated as of
March 10, 2008, which would have matured on March 10, 2009. The total
aggregate amount of $106,914 outstanding under the Revolving Credit Note on May
9, 2008, was applied to Mr. Pagano’s participation in the Company’s
financing that closed on May 9, 2008 (see note 5).
Please
refer to Note 4 regarding additional related party transactions.
ITEM
9
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
ITEM 9A
|
|
CONTROLS
AND PROCEDURES.
|
Controls
and Procedures
As of
December 31, 2008, Mr. Joseph K. Pagano, who as our Chief Executive
Officer, Secretary and Treasurer is our principal executive and principal
financial officer, evaluated the effectiveness of our "disclosure controls and
procedures" as defined in Rules 13a-15(e) and Rule 15d-15(e)of the Exchange
Act ("Disclosure Controls"). Based upon this evaluation, Mr. Pagano
concluded that the Disclosure Controls were effective, as of the date of their
evaluation, in reaching a reasonable level of assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms
and that any information relating to us that is required to be disclosed in the
reports that we file or submit under the Exchange Act is accumulated
and communicated to our management, including our principal executive/financial
officer, to allow timely decisions regarding required disclosure.
Changes
in Internal Controls Over Financial Reporting
During
the fiscal quarter ended December 31, 2008, there were no changes in our
"internal control over financial reporting" as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act (“Internal Control”), that have
materially affected or are reasonably likely to materially affect our Internal
Control.
Management’s
Annual Report on Internal Control Over Financial Reporting
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed pursuant to the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules, regulations and related forms, and that
such information is accumulated and communicated to our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
Our
internal control over financial reporting includes those policies and procedures
that:
|
•
|
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
|
|
|
|
•
|
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
|
|
|
|
|
|
•
|
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in
Internal Control over
Financial Reporting — Guidance for Smaller Public Companies
.
We are a
development stage organization, with our chief executive officer having control
over all of the detail accounting transactions and the day-to-day activities.
Although this control rests with the chief executive officer, care was taken to
select and employ key controls which are sensitive to the segregation of duties
issue. Based on our assessment of those criteria, management
believes
that the Company maintained effective internal control over financial reporting
as of December 31, 2008.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report on Form 10-K.
ITEM
9B
|
|
OTHER
INFORMATION.
|
None.
PART
III
ITEM
10
|
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
|
Directors
and Executive Officer
Set forth
below are the names, ages and current positions of our executive officer and
directors. We have one employee, in addition to Joseph K. Pagano, who presently
serves as our Chief Executive Officer, Secretary and Treasurer for no
compensation.
Name
|
|
Age
|
|
Position
|
Joseph
K. Pagano
|
|
64
|
|
Chief
Executive Officer, Secretary, Treasurer and Chairman of the Board of
Directors
|
Frederick
R. Adler
|
|
83
|
|
Director
|
Erik
R. Lundh
|
|
39
|
|
Director
|
Set forth
below is a brief description of the business experience of our executive officer
and directors listed above.
Joseph K.
Pagano has served as our Chief Executive Officer, Secretary and Treasurer and as
the Chairman of our Board since our formation in October 2006 and as the
Chairman of the Board of Sentigen from 1996 until November 2006. He served
as Sentigen’s Chief Executive Officer and President from 1996 through
March 21, 2006. Mr. Pagano has been a private investor for more than
the past five years. Mr. Pagano has been active in venture capital for over
20 years, with investments in a wide variety of industries, including
information and technology, medical equipment, biotechnology, communications,
retailing and outsourcing. He was a founding investor in Ribi Immunochem, one of
the earliest biotechnology companies to go public and one of the first to focus
on cancer vaccines. He participated in the early round financing of Amcell
Cellular Communication, which was sold to Comcast. He was a founding investor of
NMR of America, the first MRI center business to go public and was also a
founding shareholder and director of Office Depot, the first office warehouse to
go public.
Frederick
R. Adler has been our director since our formation in October 2006 and was
a director of Sentigen from May 1996 until November 2006.
Mr. Adler is Managing Director of Adler & Company, a venture capital
management firm he organized in 1968, and a general partner of its related
investment funds. He is also a director of SIT Investments, Inc., an investment
management firm located in Minneapolis, Minnesota and from 1977 to 1995 was a
trustee and member of the Finance Committee of Teachers Insurance and Annuity
Association. Mr. Adler is a retired partner of the law firm of Fulbright
& Jaworski L.L.P. and was previously a senior partner in the firm and of
counsel to the firm. From 1982 to 1996 he was a director of Life Technologies,
Inc., a significant supplier in the biotechnology area, serving at various times
until January 1, 1988 as either its Chairman or its Chief Executive Officer
and after 1988 as Chairman of its Executive Committee. He has been a founding
investor and a director of a number of biotechnology entities including Data
General Corporation, Applied Materials, Inc., Biotechnology General (now
Savient) and Synaptic. In 1998, Mr. Adler received an honorary doctorate
from the Technion-Israel Institute of Technology in recognition of his work in
the Israeli high technology industry.
Erik R.
Lundh has been our director since May 2007. Mr. Lundh currently leads
the biotechnology sector of Heidrick & Struggles’ global life sciences
practice, and he manages the firm’s San Francisco office. He joined Heidrick
& Struggles in 2006 and has more than 16 years experience in the life
sciences industry. From 2005 to 2006, Mr. Lundh served as a client partner
with Korn/Ferry, an international executive search firm. From 2003 to 2004,
Mr. Lundh was executive vice president of commercial operations for
Sentigen Holding Corp. Earlier, Mr. Lundh worked in industry for several
life sciences companies in operating roles spanning corporate strategy, business
development, sales and marketing, and commercial operations.
Compliance
With Section 16(a) of the Exchange Act
Based
solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to us
with respect to our most recent fiscal year, we believe that all required
reports by our officers, directors and 10% or greater stockholders were filed on
a timely basis except for an untimely filing made by Mr. Samuel Rozzi, a greater
than 10% stockholder, relating to his purchases of our common stock and a late
Form 4 filed by Mr. Adler with respect to a grant of options to
him.
Code
of Ethics
We have
not yet adopted a formal code of ethics governing our executive officer and
directors. We have not adopted a code of ethics because we have minimal
operations. Our Board of Directors will address this issue in the future when
determined to be appropriate. In the meantime, our management intends to promote
honest and ethical conduct, full and fair disclosure in our reports to the SEC,
and compliance with applicable governmental laws and regulations.
Committees
We do not
and, for at least the near future, will not have an audit, nominating or
compensation committee because we believe that our Board of Directors is capable
of performing the respective functions of the foregoing committees as a result
of our size. The Board of Directors has determined that Frederick R. Adler
qualifies as an “audit committee financial expert” under SEC regulations and has
accounting or related financial management expertise and that Mr. Adler is
an “independent” director, as defined under the standards of independence set
forth in the Marketplace Rules of the NASDAQ Stock Market, although these
independent director standards do not directly apply to us because we do not
have any securities that are listed on NASDAQ.
We have
not adopted any procedures by which our stockholders may recommend nominees to
our Board of Directors.
ITEM
11
|
|
EXECUTIVE
COMPENSATION.
|
Executive
Officer Compensation.
Mr.
Pagano, our only executive officer, is not compensated for the services he
provides other than with respect to reimbursement of out of pocket expenses
actually incurred. In the future, if and when our operations so dictate, we may
approve payment of salaries for our executive officer and directors, but
currently, no such plans have been approved.
Other than our
health insurance plan, in which Mr. Pagano participates, we do not have any
benefits, such as life insurance or any other benefits. We have no
equity compensation plans and we have not granted any options or other
stock-based awards to our executive officer. In addition, our
executive officer is not a party to any employment agreements.
Director
Compensation.
The
following table sets forth a summary of the compensation we paid to our
directors during fiscal year 2008.
|
|
Option
awards (1)
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)
|
|
Joseph
K. Pagano
|
|
|
—
|
|
|
|
—
|
|
Frederick
R. Adler (2)
|
|
$
|
6,990
|
|
|
$
|
6,990
|
|
Erik
R. Lundh
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1)
|
|
The
amounts in this column represent the dollar amount recognized in
accordance with SFAS 123R for financial statement reporting purposes with
respect to the 2008 fiscal year for the fair value of stock options
granted in 2008. Assumptions used in the calculation of these amounts for
the 2008 fiscal year are included in Note 8 to our audited financial
statements for the 2008 fiscal year included elsewhere
herein.
|
|
|
|
(2)
|
|
On
May 14, 2008 we granted 100,000 ten-year options at $0.19
granted to Frederick R. Adler. The options vested on June
24, 2008 and were granted at an exercise price equal to the closing
price of our common stock on the grant date.
|
Typically,
our directors are not compensated for the services they provide other than with
respect to reimbursement of out of pocket expenses actually incurred. In the
future, if and when our operations so dictate, we may approve payment of
retainers for our directors, but currently, no such plans have been approved.
Other than the option grants to Mr. Adler and discussed above, there have
been no equity grants to directors to date.
ITEM
12
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
The
following table provides information with respect to the beneficial ownership of
our common stock as of March 15, 2009 by (1) each of our stockholders who
is known to us to be a beneficial owner of more than 5% of our outstanding
common stock, (2) each of our current directors and director nominees,
(3) our executive officer, and (4) our executive officer and all of
our directors as a group. Except as otherwise specified, the named beneficial
owner has sole voting and investment power over the shares listed.
The
shares “beneficially owned” by a person are determined in accordance with the
definition of “beneficial ownership” set forth in the regulations of the SEC
and, accordingly, shares of our common stock subject to options, warrants or
other convertible
securities
that are exercisable or convertible within 60 days as of March 15, 2009 are
deemed to be beneficially owned by the person holding such securities and to be
outstanding for purposes of determining such holder's percentage ownership. The
same securities may be beneficially owned by more than one person. Shares of
common stock subject to options, warrants, restricted stock units, restricted
stock awards or convertible securities that are not exercisable or do not vest
within 60 days from March 15, 2009 are not included in the table below as shares
“beneficially owned”.
Percentage
ownership of our common stock is based on the 12,747,644 shares of common stock
outstanding as of March 15, 2009.
Name and Address of Beneficial
Owner
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percentage
of Common Stock
|
|
|
|
|
|
|
|
|
|
Joseph
K. Pagano
|
|
|
1,315,265
|
(1)
|
|
|
10.3
|
%
|
1217
South Flagler Drive, 3
rd
Floor
West
Palm Beach, Florida 33401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick
R. Adler
|
|
|
1,611,941
|
(2)
|
|
|
12.5
|
%
|
1520 S. Ocean
Boulevard
Palm
Beach, Florida 33480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erik
R. Lundh
|
|
|
55,000
|
(3)
|
|
|
*
|
|
c/o Heidrick
& Struggles
One
California Street, Ste. 2400
San Francisco,
CA 94111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel
A. Rozzi
|
|
|
1,628,777
|
(4)
|
|
|
12.8
|
%
|
c/o Corporate
National Realty Inc.
135
Crossways Park Drive, Suite 104
Woodbury,
New York 11797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Joseph A. Pagano, Jr. 2007 Trust
|
|
|
1,128,157
|
|
|
|
8.8
|
%
|
1217
South Flagler Drive, 3
rd
Floor
West
Palm Beach, Florida 33401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Longview
Partners, L.P.
|
|
|
1,260,458
|
(5)
|
|
|
9.9
|
%
|
c/o Adler
& Co.
400
Madison Ave. Suite 7C
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan
Chapman
|
|
|
1,287,525
|
(6)
|
|
|
10.1
|
%
|
c/o Adler
& Co.
400
Madison Ave., Suite 7C
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
officer and all directors as a group (3 persons)
|
|
|
2,982,206
|
(1)(2)
|
|
|
23.1
|
%
|
*
|
|
Represents
less than 1%.
|
|
|
|
(1)
|
|
Includes
25,000 shares of Common Stock held of record by the Joseph Pagano,
Jr. Trust. Mr. Pagano disclaims beneficial ownership of all shares
other than those held in his name except to the extent of his pecuniary
interest therein. Does not include the shares of Common Stock held of
record by The Joseph A. Pagano Jr. 2007 Trust, a trust for which
Mr. Pagano has no investment control or right to
revoke.
|
|
|
|
(2)
|
|
Includes
100,000 shares issuable upon the exercise of stock options to
purchase share of our Common Stock that are exercisable within
60 days of March 15, 2009
|
|
|
|
(3)
|
|
Includes
2,500 shares held of record by each of Mr. Lundh’s son and
daughter. Mr. Lundh disclaims beneficial ownership of these shares.
Includes 50,000 shares issuable upon the exercise of stock options to
purchase share of our Common Stock that are exercisable within
60 days of March 15, 2009.
|
(4)
|
|
Includes
150,000 shares held by Scarsdale Limited Partnership, of which
Mr. Rozzi is general partner. Mr. Rozzi’s daughter and The
Samuel A. Rozzi Grantor Retained Annuity Trust, of which Mr. Rozzi’s
daughter is trustee, are the sole limited partners of Scarsdale Limited
Partnership. Mr. Rozzi disclaims beneficial ownership of all shares
other than those held in his name except to the extent of his pecuniary
interest therein.
|
|
|
|
(5)
|
|
Susan
Chapman is the general partner of Longview Partners, L.P., which is the
registered holder of these shares. Mrs. Chapman is an adult daughter
of Frederick R. Adler.
|
|
|
|
(6)
|
|
Includes
the shares held of record by Longview Partners, L.P. (of which
Mrs. Chapman is the general partner), 300 shares held in trusts
for the benefit of Mrs. Chapman’s children and 26,767 shares
held of record by Mrs. Chapman’s
spouse.
|
ITEM
13
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
Certain
Relationships and Related Transactions
On June
21, 2007, we issued a demand promissory note in favor of each of Mr. Frederick
R. Adler, Mr. Joseph K. Pagano, D.H. Blair Investment Banking Corp. and Mr.
Samuel A. Rozzi (together, the “Lenders”), evidencing loans extended to us in
the principal amount of $50,000, $50,000, $50,000 and $30,000, respectively, by
the Lenders, for an aggregate amount of $180,000. The promissory notes accrue
interest at Citibank N.A.’s reported prime rate plus 3%, which is due and
payable at the time the principal amount of each respective promissory note
becomes due. The promissory notes had a maturity date of June 22, 2009, except
that each Lender may demand the payment of all of the outstanding principal and
interest of his or its respective promissory note at any time prior to the
maturity date. At the time of the loan transaction, each of the Lenders was the
beneficial owner of 5% or more of the outstanding shares of our Common Stock. In
addition, Mr. Pagano is our Chief Executive Officer and the Chairman of our
Board of Directors, and Mr. Adler is a member of our Board of Directors.
On May 9, 2008, in connection with the financing discussed below, (i)
$24,675 of the outstanding amount of Mr. Pagano’s promissory note was applied to
the subscriptions made by Mr. Pagano and a trust for the benefit of his son; and
(ii) $54,425, the entire outstanding amount of D.H. Blair Investment Banking
Corp.’s promissory note, including principal and accrued interest, was applied
to the subscriptions made by three affiliates of D.H. Blair Investment Banking
Corp. On May 16, 2008, Mr. Pagano made a demand for repayment of the remaining
outstanding principal and interest of his promissory note. On June
20, 2008, in connection with the second tranche of the financing discussed above
(i) $30,000 of the outstanding principal amount of Mr. Rozzi’s promissory note
was applied to the subscription made by Mr. Rozzi and he received a payment for
$2,961 in accrued interest on July 10, 2008 and (ii) $53,740 of the outstanding
amount of principal and accrued interest of Mr. Adler’s promissory note was
applied to the subscription made by Mr. Adler and he received a payment for the
remaining $1,195 in accrued interest. All of the promissory notes
have been cancelled and there are no amounts outstanding.
As of
March 10, 2008, we entered into a Revolving Credit Note with Mr. Joseph K.
Pagano, our Chief Executive Officer and the Chairman of our Board of Directors,
which provides for interest-free loans to the Company. Under the Revolving
Credit Note, during March and April of 2008, Mr. Pagano made loans to the
Company in the aggregate amount of $106,914, which were used to finance our
operating activities. The Revolving Credit Note matures on March 10, 2009 and
Mr. Pagano may demand the payment of all of the outstanding principal amount of
all borrowings under the Revolving Credit Note at any time prior to the maturity
date. Upon the occurrence of certain specified events, the entire outstanding
balance of the borrowings under the Revolving Credit Note automatically becomes
immediately due and payable. The total aggregate amount of $106,914 was applied
to Mr. Pagano’s subscription in the Company’s financing that is discussed below.
As of the date hereof, there are no borrowings outstanding under the Revolving
Credit Note.
On May 9,
2008, we closed on a $750,000 financing, consisting of cash in the amount of
$563,986 and the conversion of $186,013 of indebtedness. Participants in the
financing entered into Subscription Agreements for an aggregate of 3,947,368
shares of common stock, based on the closing price of $0.19 per share of our
common stock on the closing date. Issuance of the shares is subject to
stockholder approval of the amendment to our Certificate of Incorporation to
increase the number of shares of our authorized Common Stock, which was approved
by the stockholders at our 2008 Annual Meeting which took place on June 24,
2008.
Ten of
our largest stockholders (each holding 50,000 or more shares of our common
stock) subscribed in the May 2008 financing, of which the following are holders
of 5% or more of our common stock: Joseph K. Pagano, Frederick R. Adler,
Longview Partners L.P., The Joseph A. Pagano Jr. 2007 Trust and Samuel A. Rozzi,
who subscribed for $122,325, $109,350, $112,125, $100,350 and $95,775,
respectively. Also, Mr. Pagano serves as our Chairman and Chief Executive
Officer, and Mr. Adler is a member of our Board of Directors. The general
partner of Longview Partners L.P. is Susan Chapman, an adult daughter of Mr.
Adler.
Certain
of the investors utilized the amounts outstanding under the June 2007 loans
described above toward the payment for their subscription. All other amounts due
to the Lenders may be repaid from the proceeds of the May 2008 financing to the
extent that the loans are not applied our anticipated additional capital
raise.
On June
20, 2008, we closed on the second tranche of
our previously announced capital raising financing of up to $950,000.
The second tranche was for up to $200,000 of which $145,980 was subscribed for,
consisting of cash in the amount of $62,168 and the conversion of $83,740 of
indebtedness. Participants in this second tranche of the financing entered into
subscription agreements to purchase an aggregate of 767,936 shares of common
stock, based on the closing price of $0.19 per share of the Company’s common
stock on the closing date. The second tranche of financing closed on terms that
are substantially similar in all material respects to the terms of the May 9,
2008 financing.
Six of
our largest stockholders (each holding 50,000 or more shares of the Company's
common stock) purchased shares in the second tranche of the financing, of which
Messrs. Adler and Rozzi are holders of 5% or more of our common stock. Mr. Adler
is also a director of the Company.
On July
9, 2008, we raised $54,020 of additional funds from the unsubscribed portion of
the second tranche of the financing from two investors who participated in the
June 20, 2008 closing and desired to exercise their over-allotment
option. We issued an aggregate of 337,424 shares of our common stock
in connection with the over-allotment exercise, based on the closing price of
$0.18 per share of our common stock on July 9, 2008 to Messrs. Rozzi and
Serure.
Director
Independence
Our
common stock trades on the OTCBB, which currently does not have director
independence requirements. Messrs. Adler and Lundh have been deemed by our
Board of Directors to be “independent” directors, as defined under the standards
of independence set forth in the Marketplace Rules of the NASDAQ Stock Market,
although these independent director standards do not directly apply to us
because we do not have any securities that are listed on NASDAQ. In determining
independence, the Board of Directors has affirmatively determined, among other
items, whether the directors have any relationship that would interfere with the
exercise of independent do not expect to have an audit, nominating or
compensation committee because we believe that our Board of Directors is capable
of performing the respective functions of the foregoing committees as a result
of our size.
ITEM
14
|
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
The
following table sets forth fees billed to us by our auditors during the fiscal
years ended December 31, 2008 and 2007 for: (i) services rendered for
the audit of our annual financial statements, (ii) services by our auditor
that are reasonably related to the performance of the audit or review of our
financial statements and that are not reported as audit fees,
(iii) services rendered in connection with tax compliance, tax advice and
tax planning, and (iv) all other fees for services rendered.
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
December
31, 2008
|
|
(i) Audit
Fees
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
(ii) Audit
Related Fees
|
|
$
|
0
|
|
|
$
|
|
|
(iii) Tax
Fees
|
|
$
|
0
|
|
|
$
|
|
|
(iv) All
Other Fees
|
|
$
|
0
|
|
|
$
|
|
|
Total
Fees
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
Audit
Fees
Audit
fees consist of fees billed for professional services rendered for the audit of
our financial statements and services that are normally provided by Raich Ende
Malter & Co. LLP in connection with statutory and regulatory filings or
engagements.
Policy
on Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditors
We
currently do not have a designated audit committee, and accordingly, our Board
of Directors’ policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. The independent auditors are
required to periodically report to our board of directors regarding the extent
of services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. During 2008, all
of the audit fees were pre-approved by our Board of Directors.
PART IV
ITEM
15
|
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
Exhibit
|
|
Description
|
3.1
|
|
Certificate
of Incorporation of SentiSearch, Inc.(1)
|
|
|
|
3.1.1
|
|
Certificate
of Amendment to Certificate of Incorporation of SentiSearch, Inc. dated
June 24, 2008, incorporated by reference to Exhibit 3.1 to
SentiSearch’s Form 8-K filed on June 26,
2008.
|
|
|
|
3.2
|
|
Bylaws
of SentiSearch, Inc.(1)
|
|
|
|
4.1
|
|
Specimen
Common Stock Certificate of SentiSearch, Inc.(2)
|
|
|
|
10.1
|
|
Exclusive
License Agreement dated April 10, 2000 between Sentigen Biosciences,
Inc. (formerly known as Sentigen Corp.), and The Trustees of Columbia
University in the City of New York.(1)
|
|
|
|
10.2
|
|
Consent
to the Assignment to SentiSearch, Inc. of the Exclusive License Agreement
dated April 10, 2000 between Sentigen Biosciences, Inc. (formerly
known as Sentigen Corp.), and The Trustees of Columbia University in the
City of New York: (1) Letter dated September 25, 2006 by
Sentigen Biosciences, Inc. requesting consent to assignment of the
Exclusive License Agreement, and (2) Letter dated October 17,
2006 by Columbia University granting consent to the assignment of the
Exclusive License Agreement.(1)
|
|
|
|
10.3
|
|
Separation
and Distribution Agreement, dated as of October 10, 2006, between
Sentigen Holding Corp. and SentiSearch, Inc.(1)
|
|
|
|
10.4
|
|
Contribution
Agreement, dated as of October 10, 2006, between Sentigen Holding
Corp. and SentiSearch, Inc.(1)
|
|
|
|
10.5
|
|
Patent
Assignment, dated October 10, 2006, by Sentigen Holding Corp. to
SentiSearch, Inc.(1)
|
|
|
|
10.6
|
|
Form
of Indemnification Agreement.(1)
|
|
|
|
10.7
|
|
Option
Agreement dated May 16, 2007 by and between Erik R. Lundh and
SentiSearch, Inc., incorporated by reference to Exhibit 10.1 to
SentiSearch’s Form 8-K filed on May 18, 2007.
|
|
|
|
10.8
|
|
Form
of Demand Promissory Note, incorporated by reference to Exhibit 10.1
to SentiSearch’s Form 8-K filed on June 22,
2007.
|
|
|
|
10.9
|
|
Revolving
Credit Note, dated as of March 10, 2008, incorporated by reference to
Exhibit 10.1 to SentiSearch’s Form 10-Q filed on May 15,
2008.
|
|
|
|
10.10
|
|
Form
of Subscription Agreement, incorporated by reference to Exhibit 10.1 to
SentiSearch’s Form 8-K filed on May 15, 2008.
|
|
|
|
10.11
|
|
Revolving
Credit Note dated as of March 10, 2008, incorporated by reference to
Exhibit 10.1 to SentiSearch’s Form 8-K filed on May 15,
2008.
|
|
|
|
10.12
|
|
Form
of Subscription Agreement, incorporated by reference to Exhibit 10.1 to
SentiSearch’s Form 8-K filed on June 26, 2008
|
|
|
|
31
|
|
Certification
of Chief Executive and Financial Officer pursuant to Rule 13a-14 and
Rule 15d-14(a), promulgated under the Securities and Exchange Act of
1934, as amended.
|
|
|
|
32
|
|
Certification
of Chief Executive and Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
(1)
|
|
Incorporated
by reference to the applicable exhibit filed with SentiSearch’s
Registration Statement on Form 10-SB filed with the SEC on
November 15, 2006. File No. 000-52320.
|
|
|
|
(2)
|
|
Incorporated
by reference to the applicable exhibit filed with SentiSearch’s
Registration Statement on Amendment No. 1 to Form 10-SB filed with
the SEC on November 29, 2006. File
No. 000-52320.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
SENTISEARCH,
INC.
|
|
|
|
Date:
March 30, 2009
|
By:
|
/s/ Joseph K. Pagano
|
|
/
Joseph
K. Pagano,
Chief
Executive Officer
(Principal
Executive Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Joseph K. Pagano
|
|
|
|
|
Joseph
K. Pagano
|
|
Chief
Executive Officer, Secretary and Treasurer Chairman of the Board,
Principal Executive Officer and Principal Financial and Accounting
Officer
|
|
March
30, 2009
|
|
|
|
|
|
/s/
Frederick R. Adler
|
|
|
|
|
Frederick
R. Adler
|
|
Director
|
|
March
30, 2009
|
|
|
|
|
|
/s/
Erik R. Lundh
|
|
|
|
|
Erik
R. Lundh
|
|
Director
|
|
March
30, 2009
|
|
|
|
|
|
EXHIBIT
INDEX
|
|
|
Exhibit
|
|
Description
|
3.1
|
|
Certificate
of Incorporation of SentiSearch, Inc.(1)
|
|
|
|
3.1.1
|
|
Certificate
of Amendment to Certificate of Incorporation of SentiSearch, Inc. dated
June 24, 2008, incorporated by reference to Exhibit 3.1 to
SentiSearch’s Form 8-K filed on June 26,
2008.
|
|
|
|
3.2
|
|
Bylaws
of SentiSearch, Inc.(1)
|
|
|
|
4.1
|
|
Specimen
Common Stock Certificate of SentiSearch, Inc.(2)
|
|
|
|
10.1
|
|
Exclusive
License Agreement dated April 10, 2000 between Sentigen Biosciences,
Inc. (formerly known as Sentigen Corp.), and The Trustees of Columbia
University in the City of New York.(1)
|
|
|
|
10.2
|
|
Consent
to the Assignment to SentiSearch, Inc. of the Exclusive License Agreement
dated April 10, 2000 between Sentigen Biosciences, Inc. (formerly
known as Sentigen Corp.), and The Trustees of Columbia University in the
City of New York: (1) Letter dated September 25, 2006 by
Sentigen Biosciences, Inc. requesting consent to assignment of the
Exclusive License Agreement, and (2) Letter dated October 17,
2006 by Columbia University granting consent to the assignment of the
Exclusive License Agreement.(1)
|
|
|
|
10.3
|
|
Separation
and Distribution Agreement, dated as of October 10, 2006, between
Sentigen Holding Corp. and SentiSearch, Inc.(1)
|
|
|
|
10.4
|
|
Contribution
Agreement, dated as of October 10, 2006, between Sentigen Holding
Corp. and SentiSearch, Inc.(1)
|
|
|
|
10.5
|
|
Patent
Assignment, dated October 10, 2006, by Sentigen Holding Corp. to
SentiSearch, Inc.(1)
|
|
|
|
10.6
|
|
Form
of Indemnification Agreement.(1)
|
|
|
|
10.7
|
|
Option
Agreement dated May 16, 2007 by and between Erik R. Lundh and
SentiSearch, Inc., incorporated by reference to Exhibit 10.1 to
SentiSearch’s Form 8-K filed on May 18, 2007.
|
|
|
|
10.8
|
|
Form
of Demand Promissory Note, incorporated by reference to Exhibit 10.1
to SentiSearch’s Form 8-K filed on June 22,
2007.
|
|
|
|
10.9
|
|
Revolving
Credit Note, dated as of March 10, 2008, incorporated by reference to
Exhibit 10.1 to SentiSearch’s Form 10-Q filed on May 15,
2008.
|
|
|
|
10.10
|
|
Form
of Subscription Agreement, incorporated by reference to Exhibit 10.1 to
SentiSearch’s Form 8-K filed on May 15, 2008.
|
|
|
|
10.11
|
|
Revolving
Credit Note dated as of March 10, 2008, incorporated by reference to
Exhibit 10.1 to SentiSearch’s Form 8-K filed on May 15,
2008.
|
|
|
|
10.12
|
|
Form
of Subscription Agreement, incorporated by reference to Exhibit 10.1 to
SentiSearch’s Form 8-K filed on June 26, 2008
|
|
|
|
31
|
|
Certification
of Chief Executive and Financial Officer pursuant to Rule 13a-14 and
Rule 15d-14(a), promulgated under the Securities and Exchange Act of
1934, as amended.
|
|
|
|
32
|
|
Certification
of Chief Executive and Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
(1)
|
|
Incorporated
by reference to the applicable exhibit filed with SentiSearch’s
Registration Statement on Form 10-SB filed with the SEC on
November 15, 2006. File No. 000-52320.
|
|
|
|
(2)
|
|
Incorporated
by reference to the applicable exhibit filed with SentiSearch’s
Registration Statement on Amendment No. 1 to Form 10-SB filed with
the SEC on November 29, 2006. File
No. 000-52320.
|