UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended September 30, 2008
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
Transition Period from ___________ to __________
Commission
file number:
000-52320
SENTISEARCH,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
20-5655648
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
1217
South Flagler Drive, 3
rd
Floor
West
Palm Beach, FL
|
|
33401
|
(Address
of principal executive office)
|
|
(Zip
Code)
|
(561)
653-3284
|
(Registrant's
telephone number, including area
code)
|
Indicate
by check mark whether the Registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x
No
o
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
|
Accelerated
Filer
o
|
|
|
Non-Accelerated
Filer
o
(Do
not check if a smaller reporting company )
|
Smaller
Reporting Company
x
|
Indicated
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: As of October 31, 2008, the Company
had outstanding 12,747,644 shares of Common Stock.
TABLE
OF CONTENTS
SENTISEARCH,
INC.
|
Page
|
PART
I FINANCIAL INFORMATION
|
|
ITEM
1 Financial Statements
|
3
|
ITEM
2 Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
15
|
ITEM
3 Quantitative and Qualitative Disclosures About Market
Risk
|
20
|
ITEM
4T Controls and Procedures
|
20
|
PART
II OTHER INFORMATION
|
|
ITEM
6 Exhibits
|
21
|
SIGNATURES
|
22
|
PART
I- FINANCIAL INFORMATION
Item 1.
Financial Statements
SENTISEARCH,
INC.
(A
Development Stage Company)
Balance
Sheets
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
268,492
|
|
$
|
42,500
|
|
Security
Deposit
|
|
|
4,170
|
|
|
-
|
|
Total
Current Assets
|
|
|
272,662
|
|
|
42,500
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
License
and Patent costs
|
|
|
499,773
|
|
|
482,507
|
|
Less:
accumulated amortization
|
|
|
(408,534
|
)
|
|
(370,244
|
)
|
|
|
|
91,239
|
|
|
112,263
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
363,901
|
|
$
|
154,763
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
95,738
|
|
$
|
122,042
|
|
Total
Current Liabilities
|
|
|
95,738
|
|
|
122,042
|
|
|
|
|
|
|
|
|
|
Notes
Payable - Related Party
|
|
|
-
|
|
|
180,000
|
|
Total
Liabilities
|
|
|
95,738
|
|
|
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, respectively
|
|
|
1,275
|
|
|
769
|
|
Additional
paid in capital
|
|
|
1,952,296
|
|
|
1,000,055
|
|
Deficit
accumulated during development stage
|
|
|
(1,685,408
|
)
|
|
(1,148,103
|
)
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity (Deficiency)
|
|
|
268,163
|
|
|
(147,279
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficiency)
|
|
$
|
363,901
|
|
$
|
154,763
|
|
See
notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Operations (Unaudited)
|
|
|
|
|
|
|
|
For
the period
|
|
|
|
|
|
|
|
|
|
April
10, 2000
|
|
|
|
|
|
|
|
|
|
(Commencement
|
|
|
|
For the three months
|
|
For the nine months
|
|
of Business)
|
|
|
|
Ended September 30,
|
|
Ended September 30,
|
|
to September
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Direct
costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
after direct costs
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
161,925
|
|
|
66,830
|
|
|
492,496
|
|
|
162,980
|
|
|
1,259,953
|
|
Amortization
of license and patent costs
|
|
|
14,408
|
|
|
8,181
|
|
|
38,290
|
|
|
24,546
|
|
|
408,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,333
|
|
|
75,011
|
|
|
530,786
|
|
|
187,526
|
|
|
1,668,487
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and financing expense
|
|
|
—
|
|
|
5,071
|
|
|
6,519
|
|
|
5,626
|
|
|
16,921
|
|
|
|
|
—
|
|
|
5,071
|
|
|
6,519
|
|
|
5,626
|
|
|
16,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss before provision for income taxes
|
|
|
(176,333
|
)
|
|
(80,082
|
)
|
|
(537,305
|
)
|
|
(193,152
|
)
|
|
(1,685,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(176,333
|
)
|
$
|
(80,082
|
)
|
$
|
(537,305
|
)
|
$
|
(193,152
|
)
|
$
|
(1,685,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.06
|
)
|
$
|
(0.02
|
)
|
|
|
|
Weighted
average shares outstanding — basic and dilutive
|
|
|
12,718,303
|
|
|
7,694,542
|
|
|
9,501,826
|
|
|
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
|
|
Accumulated
|
|
|
|
|
|
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 –
(unaudited)
|
|
|
5,053,102
|
|
|
506
|
|
|
-
|
|
|
927,194
|
|
|
-
|
|
|
927,700
|
|
Stock-based
compensation expense (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
25,047
|
|
|
|
|
|
25,047
|
|
Net
loss (unaudited)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(537,305
|
)
|
|
(537,305
|
)
|
Balance
- September 30, 2008 (unaudited)
|
|
|
12,747,644
|
|
$
|
1,275
|
|
$
|
-
|
|
$
|
1,952,296
|
|
$
|
(1,685,408
|
)
|
$
|
268,163
|
|
See
notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Cash Flows (Unaudited)
|
|
|
|
|
|
For the period
|
|
|
|
|
|
|
|
April 10, 2000
|
|
|
|
|
|
|
|
(Commencement
|
|
|
|
For the
|
|
of Business)
|
|
|
|
nine months ended
|
|
Through
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(537,305
|
)
|
$
|
(193,152
|
)
|
$
|
(1,685,408
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
25,047
|
|
|
—
|
|
|
26,537
|
|
Amortization
|
|
|
38,290
|
|
|
24,546
|
|
|
408,534
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
Security
Deposits
|
|
|
(4,170
|
)
|
|
—
|
|
|
(4,170
|
)
|
(Decrease)
increase in accounts payable and accrued expenses
|
|
|
(18,139
|
)
|
|
(650
|
)
|
|
412,612
|
|
Net
cash used in operating activities
|
|
|
(496,277
|
)
|
|
(169,256
|
)
|
|
(841,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Investment
in patents
|
|
|
(17,266
|
)
|
|
—
|
|
|
(59,148
|
)
|
Net
cash used in investing activities
|
|
|
(17,266
|
)
|
|
—
|
|
|
(59,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
657,946
|
|
|
—
|
|
|
907,946
|
|
Net
cash provided by financing activities
|
|
|
739,535
|
|
|
180,000
|
|
|
1,169,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
225,992
|
|
|
10,744
|
|
|
268,492
|
|
Cash
and cash equivalents — beginning of period
|
|
|
42,500
|
|
|
67,893
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
268,492
|
|
$
|
78,637
|
|
$
|
268,492
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and accrued interest 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 April 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 License
Agreement 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
September 30, 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 September 30, 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.
3.
Summary of Significant Accounting Policies
|
a.
|
Interim
Period -
The
accompanying interim financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
of
America for interim financial information, the instructions to Form
10-Q
and Article 8 of Regulation S-X. In the opinion of management,
the interim financial statements have been prepared on the same basis
as
the annual financial statements and reflect all adjustments, which
include
only normal recurring adjustments, necessary to present fairly the
financial position as of September 30, 2008, the results of operations,
changes in stockholders’ equity and cash flows for the nine months ended
September 30, 2008. The results for the nine months ended September
30,
2008 are not necessarily indicative of the results to be expected
for any
subsequent quarter or the entire fiscal year ending December 31,
2008.
|
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to the
Securities and Exchange Commission’s (“SEC”) rules and regulations.
These
unaudited financial statements should be read in conjunction with the Company’s
audited financial statements and notes thereto for the year ended
December 31, 2007 as included in the Company’s report on Form 10-KSB for
the year ended December 31, 2007. There have been no changes in significant
accounting policies since December 31, 2007.
|
b.
|
Cash
and Cash Equivalents –
Cash and cash equivalents include liquid investments with maturities
of
three months or less at the time of purchase.
|
|
c.
|
Concentration
of Credit 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 September 30, 2008, the Company had
cash
balances in excess of federally insured limits of $103,740. 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.
|
|
d.
|
License
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).
|
|
e.
|
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 September 30, 2008 (see Note 6).
|
|
f.
|
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.
|
|
g.
|
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.
|
|
h.
|
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 nine months ended
September 30, 2008 since the effect would be anti-dilutive. As of
September 30, 2008, 575,000 options were outstanding of which 408,334
were
exercisable.
|
|
i.
|
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 Statement of Financial Accounting
Standards No. 157, “Fair Value Measurements (“FAS 157”). There was no
impact on the Company’s financial position, results of operation or cash flows
as of September 30, 2008 and for the nine months 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 September 30,
2008
and for the nine months then ended as a result of FAS 159.
|
j.
|
Stock-Based
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 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”), providing for loans to us in
the principal amount of $50,000, $50,000, $50,000 and $30,000, respectively,
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 became due. 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 addition, Mr. Pagano is our Chief Executive
Officer and the Chairman of the Board of Directors, and Mr. Adler is a member
of
the Board of Directors.
In
May
and June 2008, the notes were converted into subscriptions agreements in two
phases (see note 5). The accrued interest expense related to the 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
for an aggregate amount of $950,000. 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 closing price
of
$0.19 per share of our common stock on the closing date. 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 closing price of $0.19 per share of the Company’s common stock on the
closing date.
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 closing
price
of $0.16 per share of the Company’s common stock on July 9, 2008.
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 consisted of eleven 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 eleven 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 this license agreement 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 Holding Corp.’s
common stock on April 10, 2000. The value of the license costs, net of
amortization as of September 30, 2008 was $51,819.
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 September 30,
|
|
Expected amortization expense
|
|
2009
|
|
$
|
32,727
|
|
2010
|
|
|
19,092
|
|
Total
|
|
$
|
51,819
|
|
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 May 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
original value of the patent costs, mainly consisting of legal fees in the
amount of $59,148, 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 September 30, 2008 was $39,421.
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 September 30,
|
|
Expected amortization expense
|
|
2009
|
|
$
|
24,900
|
|
2010
|
|
|
14,521
|
|
Total
|
|
$
|
39,421
|
|
8.
Share-Based Payments
A
summary
of stock option activity is as follows:
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Balance
at January 1, 2008
|
|
|
50,000
|
|
$
|
0.18
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2008
|
|
|
50,000
|
|
$
|
0.18
|
|
|
3.63
|
|
$
|
0
|
|
Exercisable
at September 30, 2008
|
|
|
50,000
|
|
$
|
0.18
|
|
|
3.63
|
|
$
|
0
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying stock options and the fair value of the Company’s common
stock at the time for stock options that are in-the-money as of September 30,
2008.
There
was
no unrecognized compensation expense related to unvested stock options at
September 30, 2008.
Non-Employee
Stock-Based Compensation
On
March
27, 2008 and May 14, 2008, the Company granted options to purchase an aggregate
of 425,000 and 100,000 shares of its common stock to four individuals for
consulting services rendered to the Company and a director, respectively, each
at an exercise price of $.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 $.07 per share. The options vested as
follows: 258,334 immediately, 133,333 on the first anniversary and 133,333
on
the second anniversary. 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
3.56%; expected dividend yield of zero percent; expected option life of ten
years; and expected volatility of 17.36%. The aggregate grant date fair value
of
the award amounted to $36,698. The Company recorded $25,047 of consulting
expense during the nine months ended September 30, 2008 with respect to these
awards.
Total
compensation expense recognized for the nine months ended September 30, 2008
amounted to $25,047. 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 six months ended September 30,
2008 amounted to $0.07 per share.
Total
unamortized compensation expense related to unvested stock options at September
30, 2008 amounted to $11,650 and is expected to be recognized over a weighted
average period of approximately 1.5 years.
A
summary
of non-employee stock option activity, for the nine months ended September
30,
2008 is as follows:
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Balance
at January 1, 2008
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Granted
|
|
|
525,000
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2008
|
|
|
525,000
|
|
$
|
0.19
|
|
|
10
|
|
|
0
|
|
Exercisable
at September 30, 2008
|
|
|
525,000
|
|
$
|
0.19
|
|
|
10
|
|
|
0
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying stock options and the fair value of the Company’s common
stock at the time for stock options that are in-the-money as of September 30,
2008.
The
Company issues new shares of common stock upon exercise of stock
options.
9.
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
June 2008, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task
Force ("EITF") Issue No. 03-6-1, "Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities" ("EITF Issue
No. 03-6-1"). The 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 under the two-class method. The FSP affects
entities that accrue dividends on share-based payment awards during the awards’
service period when the dividends do not need to be returned if the employees
forfeit the award. This FSP is effective for fiscal years beginning
after December 15, 2008. The Company is currently evaluating the
effect of EITF Issue No. 03-6-1on its consolidated financial
statements.
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.
10.
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 $1,480, including state sales tax, through June 2009.
11.
Related Party Transactions
During
the nine months ended September 30, 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 2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-looking
Information
The
following discussion should be read in conjunction with our Consolidated
Financial Statements and Notes thereto, included elsewhere within this report.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Exchange Act, including statements using
terminology such as “can”, “may”, “believe”, “designed to”, “expect”, “intend
to,” “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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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 forward-looking statements as a result of certain factors,
including those set forth under our Annual Report on Form 10-KSB for the year
ended December 31, 2007. All forward-looking statements and risk factors
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.
Introduction
SentiSearch,
Inc. (“SentiSearch” or “we” or “us” or “our” 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.
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 (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 herein as “our olfaction
intellectual property.”
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.
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.
While
we
believe our technology capabilities in the olfaction area are substantial,
up to
this point, we have incurred substantial operating losses. There were no
revenues from operations for the three months ended September 30, 2008. As
of September 30, 2008, we held three patents directly with another patent
being issued under our License Agreement. 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 $499,773 as of
September 30, 2008, as compared with $440,625 as of September 30, 2007 and
are the result of the Columbia License and certain patents. The value of the
Columbia 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. Management reviews the value of the license 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 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
of
$122,996 was recognized as amortization expense in August 2006 by Sentigen.
We believe no further impairment loss is necessary as of September 30,
2008.
Results
of Operation
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.” Our planned principal operations have not yet commenced and we
have one employee. 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 our
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
nine months ended September 2008 was received through $28,970 in loans made
to
us by Mr. Pagano, our Chief Executive Officer. 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 were
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.
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.
Operating
and Other Expenses
For
the
three months ended September 30, 2008, general and administrative expenses
were $161,925 and primarily included professional audit fees and legal fees
and
travel and lodging expenses. For the three-months ended September 30, 2007,
general and administrative expenses were $66,830. The comparative increase
of
$95,095 during the third quarter of 2008 is primarily due to our increased
operating activities with respect to our patents, commercialization efforts
for
our olfaction intellectual property and financing activities. For the
nine-months ended September 30, 2008, general and administrative expenses
were $492,496 and primarily included professional audit fees and legal fees
and
travel and lodging expenses. For the nine months ended September 30, 2007,
general and administrative expenses were $162,980. The increase of $329,516
during the nine months ended September 30, 2008 over the comparable 2007 period
is primarily due to our increased operating activities with respect to our
patents, commercialization efforts for our olfaction intellectual property
and
financing activities.
Amortization
expense includes the amortization of our license and patent costs. For the
three-months ended September 30, 2008 and 2007, amortization expense was
$14,408 and $8,181, respectively. For the nine months ended September 30, 2008
and 2007, amortization expense was $38,290 and $24,546, respectively. The
remaining licensing costs are being amortized on a straight line basis through
April 2010.
Interest
expense reflects the cost of our promissory notes issued on June 21, 2007,
which were cancelled during the second quarter of 2008. For the three-months
ended September 30, 2008 and September 30, 2007, interest on the promissory
notes amounted to $-0-, and $5,071, respectively. For the nine-months ended
September 30, 2008 and September 30, 2007, interest on the notes
amounted to $6,519, and $5,626, respectively.
Liquidity
and Capital Resources
We
have
incurred operating losses since inception. As of September 30, 2008, we had
$268,492 in cash and cash equivalents, compared to $42,500 at December 31,
2007. Our working capital at September 30, 2008 was $176,924, compared to
working capital deficit of $79,542 at December 31, 2007, an increase of
$256,466 or 322%, mainly attributable to the issuance of common stock in
connection with the financing discussed below. Net cash used in operating
activities for the nine-months ended September 30, 2008 was $496,277, compared
to $169,256 for the nine-months ended September 30, 2007, an increase of
$327,021 or 193%, mainly attributable to a increase in cash available for
operating and other expenses for the respective periods.
During
the nine months ended September 30, 2008, Mr. Pagano, our Chief
Executive Officer and Chairman of our Board of Directors, made loans to us
in
the aggregate amount of $106,914. On May 9, 2008, this amount was applied to
Mr. Pagano’s subscription in the financing discussed below.
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 on
the
closing date.
Prior
to
the issuance of any shares of common stock pursuant to the financing, we were
required to receive the approval of our 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”). We received
Stockholder Approval at our annual meeting of stockholders on June 24,
2008.
Participants
in the financings consisted of eleven of our largest stockholders (each holding
50,000 or more shares of our common stock), including, Mr. Pagano, our
Chairman and Chief Executive Officer, Mr. Adler, a director, and certain
holders of 5% or more of our common stock. All eleven stockholders participated
in the first tranche of the financing; six stockholders (including Mr. Adler)
participated in the second tranche of the financing and two stockholders elected
to exercise their over-allotment options.
We
expect
that the funds raised in the financing will be 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. 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.
As
discussed above, we believe that our financial resources presently are
sufficient to fund operations and capital requirements for the next twelve
months. We may need additional amounts of financing in order to more to fully
realize the possible research programs to be undertaken by us, which financing
may not be available on favorable terms, or at all.
Off-Balance-Sheet
Arrangements
As
of
September 30, 2008, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4) of Regulation S-K.
Inflation
At
September 30, 2008, we had $0 floating rate debt outstanding. There was no
significant impact on our operations as a result of inflation during the
three-month period ended September 30, 2008.
Recent
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 condition 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 condition 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
June 2008, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task
Force ("EITF") Issue No. 03-6-1, "Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities" ("EITF Issue
No. 03-6-1"). The 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 under the two-class method. The FSP affects
entities that accrue dividends on share-based payment awards during the awards’
service period when the dividends do not need to be returned if the employees
forfeit the award. This FSP is effective for fiscal years beginning
after December 15, 2008. We are currently evaluating the effect of
EITF Issue No. 03-6-1 on our consolidated financial statements.
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 financials statements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
Not
applicable.
Item
4T. Controls and Procedures
Disclosure
Controls and Procedures
As
of
September 30, 2008, Mr. Joseph K. Pagano, who is our Chief Executive Officer,
Secretary and Treasurer (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 Securities Exchange Act of 1934 ("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 Securities Exchange Act of 1934
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 Securities Exchange Act of 1934 is accumulated
and
communicated to our management, including our principal executive/financial
officer, to allow timely decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
During
the fiscal quarter ended September 30, 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 Securities Exchange Act of 1934 (“Internal Control”), that have
materially affected or are reasonably likely to materially affect our Internal
Control.
PART
II- OTHER INFORMATION
Item 6.
Exhibits
Exhibit
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Description
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31
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Certification
of Chief Executive Officer and principal financial officer pursuant
to
Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities
and Exchange Act of 1934, as amended.
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32
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
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SIGNATURES
Pursuant
to the requirements 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.
Date:
November 14, 2008
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SENTISEARCH,
INC.
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/s/
Joseph K. Pagano
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Joseph
K. Pagano, Chief Executive Officer and Treasurer (principal executive
and
financial officer)
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EXHIBIT
INDEX
Exhibit
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Description
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31
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Certification
of Chief Executive Officer and principal financial officer pursuant
to
Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities
and Exchange Act of 1934, as amended.
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32
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
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