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 June 30, 2009
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files.) Yes
o
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
As
of August 14, 2009 , the Company had outstanding
12,747,644 shares of Common Stock.
TABLE
OF CONTENTS
SENTISEARCH,
INC.
FORM
10-Q
|
Page
|
PART I FINANCIAL
INFORMATION
|
|
ITEM
1 Financial Statements
|
3
|
ITEM
2 Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
14
|
ITEM
3 Quantitative and Qualitative Disclosures About Market
Risk
|
18
|
ITEM
4 Controls and Procedures
|
18
|
PART II OTHER INFORMATION
|
|
ITEM
6 Exhibits
|
20
|
SIGNATURES
|
21
|
PART
I- FINANCIAL INFORMATION
Item 1. Financial
Statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Balance
Sheets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
50,115
|
|
|
$
|
198,187
|
|
Security
deposit
|
|
|
4,170
|
|
|
|
4,170
|
|
Prepaid
expense
|
|
|
6,987
|
|
|
|
-
|
|
Total
Current Assets
|
|
|
61,272
|
|
|
|
202,357
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
License
and patent costs
|
|
|
541,819
|
|
|
|
515,722
|
|
Less:
accumulated amortization
|
|
|
(467,152
|
)
|
|
|
(426,067
|
)
|
Total
Other Assets
|
|
|
74,667
|
|
|
|
89,655
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
135,939
|
|
|
$
|
292,012
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
199,480
|
|
|
$
|
125,352
|
|
Total
Current Liabilities
|
|
|
199,480
|
|
|
|
125,352
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity (Deficiency)
|
|
|
|
|
|
|
|
|
Common
stock — $0.0001 par value, 20,000,000 shares authorized,
12,747,644 and 12,747,644 shares outstanding
|
|
|
1,275
|
|
|
|
1,275
|
|
Additional
paid-in capital
|
|
|
1,960,451
|
|
|
|
1,955,791
|
|
Deficit
accumulated during development stage
|
|
|
(2,025,267
|
)
|
|
|
(1,790,406
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity (Deficiency)
|
|
|
(63,541
|
)
|
|
|
166,660
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$
|
135,939
|
|
|
$
|
292,012
|
|
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 six months
|
|
|
of
Business)
|
|
|
|
|
|
|
|
|
|
to
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Direct
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income
after direct costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
93,095
|
|
|
|
181,651
|
|
|
|
194,270
|
|
|
|
330,571
|
|
|
|
1,544,099
|
|
Amortization
of license and patent costs
|
|
|
21,175
|
|
|
|
12,708
|
|
|
|
41,085
|
|
|
|
23,882
|
|
|
|
467,152
|
|
|
|
|
114,270
|
|
|
|
194,359
|
|
|
|
235,355
|
|
|
|
354,453
|
|
|
|
2,011,251
|
|
Other
(income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(income)
|
|
|
(104
|
)
|
|
|
-
|
|
|
|
(494
|
)
|
|
|
-
|
|
|
|
(2,906
|
)
|
Interest
and financing expense
|
|
|
-
|
|
|
|
2,383
|
|
|
|
-
|
|
|
|
6,519
|
|
|
|
16,922
|
|
|
|
|
(104
|
)
|
|
|
2,383
|
|
|
|
(494
|
)
|
|
|
6,519
|
|
|
|
14,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(114,166
|
)
|
|
|
(196,742
|
)
|
|
|
(234,861
|
)
|
|
|
(360,972
|
)
|
|
|
(2,025,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(114,166
|
)
|
|
$
|
(196,742
|
)
|
|
$
|
(234,861
|
)
|
|
$
|
(360,972
|
)
|
|
$
|
(2,025,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
Weighted
average shares outstanding — basic and dilutive
|
|
|
12,747,644
|
|
|
|
7,876,916
|
|
|
|
12
,747,644
|
|
|
|
7,876,916
|
|
|
|
|
|
See notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Changes in Stockholders’ Equity (Deficiency)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Subscription
Receivable
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
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 - June 24, 2008
|
|
|
5,053,302
|
|
|
|
506
|
|
|
|
-
|
|
|
|
927,194
|
|
|
|
-
|
|
|
|
927,700
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,542
|
|
|
|
-
|
|
|
|
28,542
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(642,303
|
)
|
|
|
(642,303
|
)
|
Balance
- December 31, 2008
|
|
|
12,747,844
|
|
|
|
1,275
|
|
|
|
-
|
|
|
|
1,955,791
|
|
|
|
(1,790,406
|
)
|
|
|
166,660
|
|
Stock-based
compensation expense (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,660
|
|
|
|
-
|
|
|
|
4,660
|
|
Net
loss (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(234,861
|
)
|
|
|
(234,861
|
)
|
Balance
– June 30, 2009 (unaudited)
|
|
|
12,747,844
|
|
|
$
|
1,275
|
|
|
$
|
-
|
|
|
$
|
1,960,451
|
|
|
$
|
(2,025,267
|
)
|
|
$
|
(63,541
|
)
|
See notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
For the period
|
|
|
|
|
|
|
|
|
|
April 10, 2000
|
|
|
|
For
the
|
|
|
(Commencement
|
|
|
|
Six
months ended
|
|
|
of Business)
|
|
|
|
June 30,
|
|
|
Through
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
200
9
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(234,861
|
)
|
|
$
|
(360,972
|
)
|
|
$
|
(2,025,267
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
4,660
|
|
|
|
21,553
|
|
|
|
34,692
|
|
Amortization
|
|
|
41,085
|
|
|
|
23,882
|
|
|
|
467,152
|
|
Increase
in security deposit
|
|
|
-
|
|
|
|
(4,170
|
)
|
|
|
(4,170
|
)
|
Increase
in prepaid expense
|
|
|
(6,987
|
)
|
|
|
-
|
|
|
|
(6,987
|
)
|
Increase in
accounts payable and accrued expenses
|
|
|
74,128
|
|
|
|
126,738
|
|
|
|
516,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(121,975
|
)
|
|
|
(192,969
|
)
|
|
|
(1,018,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in patents
|
|
|
(26,097
|
)
|
|
|
(17,266
|
)
|
|
|
(101,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(26,097
|
)
|
|
|
(17,266
|
)
|
|
|
(101,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayment)proceeds
of notes payable - related parties
|
|
|
-
|
|
|
|
(25,325
|
)
|
|
|
154,675
|
|
Proceeds
from related party
|
|
|
-
|
|
|
|
106,914
|
|
|
|
106,914
|
|
Proceeds
from issuance of common stock, net of offering costs
|
|
|
-
|
|
|
|
603,926
|
|
|
|
907,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
|
685,515
|
|
|
|
1,169,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(148,072
|
)
|
|
|
475,280
|
|
|
|
50,115
|
|
Cash
and cash equivalents — beginning of period
|
|
|
198,187
|
|
|
|
42,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
50,115
|
|
|
$
|
517,780
|
|
|
$
|
50,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and 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 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 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
June 30, 2009 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 June 30, 2009. 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 $2,025,267. 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
financings,
including debt financings and/or the sale of securities 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.
|
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 June 30, 2009, and the results of operations,
changes in stockholders’ equity and cash flows for the six months ended
June 30, 2009. The results for the six months ended June 30, 2009 are not
necessarily indicative of the results to be expected for any subsequent
quarter or the entire fiscal year ending December 31,
2009.
|
|
|
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, 2008 as included in the Company’s report on Form
10-K for the year ended December 31, 2008. There have been no changes in
significant accounting policies since December 31,
2008.
|
|
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 June 30, 2009, 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
May 2009, Congress temporarily increased FDIC deposit insurance from
$100,000 to $250,000 per depositor through December 31,
2013.
|
|
d.
|
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
is expected to provide alternative future uses and, accordingly, the costs
associated with this agreement have been capitalized and are being
amortized on a straight-line basis through April 2010 (see Note
4).
|
|
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 June 30, 2009 (see Note
4).
|
|
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. The Company recognizes
interest and penalties, if any, related to uncertain tax positions as
income tax expense.
|
|
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 six months ended June 30, 2009 since
the effect would be anti-dilutive. As of June 30, 2009, 575,000
options were outstanding of which 441,667 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.
|
|
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. 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’s common stock on April 10, 2000. The value of
the license costs, net of amortization as of June 30, 2009 was
$27,274.
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 year:
Twelve months ending June
30,
|
|
Expected amortization
expense
|
|
2010
|
|
$
|
27,274
|
|
Total
|
|
$
|
27,274
|
|
5. 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 $101,194, 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 June 30, 2009 was $47,393.
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 June
30,
|
|
Expected amortization
expense
|
|
2010
|
|
$
|
47,393
|
|
Total
|
|
$
|
47,393
|
|
6. 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
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 granted on March 27, 2008 vested 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 which occurred at the annual meeting of stockholders
held 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 $4,660 of consulting expense during the
six months ended June 30, 2009 with respect to these awards.
Total compensation expense recognized
for the six months ended June 30, 2009 amounted to $4,660. The
stock-based compensation expense will fluctuate as the fair market value of the
common stock fluctuates. Total unamortized compensation expense related to
unvested stock options at June 30, 2009 amounted to $3,495 and is expected to be
recognized over a weighted average period of approximately one
year.
The
following table summarizes information on all common stock purchase options
issued by us for the six months ended June 30, 2009:
|
|
June
30, 2009
|
|
|
|
Number
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2008
|
|
|
575,000
|
|
|
$
|
0.19
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June
30, 2009
|
|
|
575,000
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
June 30, 2009
|
|
|
441,667
|
|
|
$
|
0.19
|
|
The
number and weighted average exercise prices of all common stock purchase options
as of June 30, 2009 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
|
|
|
|
8.3
|
|
|
$
|
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.
7. Recently
Adopted Accounting Pronouncements
On
January 1, 2009, we adopted FSP No. FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) in order to
improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141(R) and other GAAP. The adoption of FSP FAS
142-3 had no impact on our financial statements.
On
May 28, 2009, we adopted Statement of Financial Accounting Standards
(“SFAS”) No.165, “Subsequent Events” (“SFAS 165”). The standard does not require
significant changes regarding recognition or disclosure of subsequent events,
but does require disclosure of the date through which subsequent events have
been evaluated for disclosure and recognition. The standard is effective for
interim and annual reporting periods ending
after
June 15, 2009. The adoption of SFAS 165 did not have a significant impact on our
financial statements. We evaluated subsequent events through August 14, 2009, which represents the date the financial
statements were issued.
On April
1, 2009, we adopted FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments.” The FSP
requires disclosures about fair value of financial instruments for interim
reporting periods as well as in annual financial statements. The FSP is
effective for interim and annual reporting periods ending after June 15,
2009. The adoption of this FSP did not have a significant impact on
our financial statements.
On April
1, 2009, we adopted FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.” The FSP amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. This FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The FSP is effective for interim and annual reporting
periods ending after June 15, 2009. The adoption of this FSP did not have a
significant impact on our financial statements.
On April
1, 2009, we adopted FSP No. 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
identifying Transactions That Are Not Orderly.” The FSP provides
additional guidance for estimating fair value in accordance with SFAS No. 157,
“Fair Value Measurements,” when the volume and activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The FSP is
effective for interim and annual reporting periods ending after June 15,
2009. The adoption of this FSP did not have a significant impact on
our financial statements.
8.
Recently Issued Accounting Pronouncements
In June
2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R)”
(“SFAS 167”), which amends FIN 46(R) to require an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. The
analysis identifies the primary beneficiary of a variable interest entity (VIE)
as the enterprise that has both: a) the power to direct the activities that most
significantly impact the entity’s economic performance and b) the obligation to
absorb losses of the entity or the right to receive benefits from the entity
which could potentially be significant to the VIE. SFAS 167 requires enhanced
disclosures to provide users of financial statements with more transparent
information about and enterprises involvement in a VIE. Further, this statement
also requires ongoing assessments of whether an enterprise is the primary
beneficiary of a VIE. SFAS 167 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, and for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is
prohibited. The adoption of this pronouncement is not expected to have a
material impact on our financial position or results of operations.
Management does not believe that any
recently issued, but not yet effective accounting pronouncements, if adopted,
would have a material effect on the accompanying financial
statements.
9.
Commitments and Contingencies
As of June 25, 2008, the Company
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. Currently, the Company is
occupying the office on a month to month basis and is renegotiating the
lease.
10.
Related Party Transactions
For the six months ended June 30, 2009,
the Company has no related party transactions to be reported.
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 Securities Exchange Act of 1934,
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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discuss
our future expectations;
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•
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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 our Annual Report on Form 10-K
for the year ended December 31, 2008. 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 and were incorporated solely for the
purposes of holding the olfaction intellectual property assets of Sentigen and
its then subsidiary, 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 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.” 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.
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.
In
addition to the Columbia License, we have certain patents and patent
applications relating to nucleic acids and proteins of insect or 83b odorant
receptor genes and their uses. These patents and 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 six months ended June 30, 2009. As of June 30,
2009, we held three patents directly with another patent being issued under the
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 $541,819 as of June 30,
2009, as compared with $499,773 as of June 30, 2008 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 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 June 30, 2009.
Results
of Operations
General
We are a
development stage company as defined in 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
six months ended June 30, 2009 was provided by the proceeds we received from the
$750,000 financing we closed on May 9, 2008 and the $145,980 financing we closed
on June 20, 2008 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 remainder of
2009. 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 substantial 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. It is likely that we will need to raise funds prior to
January 2010. If we are unable to raise such funds, we may need to cease
our operations. Additionally, if we raise additional funds by issuing
equity securities, our then-existing stockholders will likely experience
dilution, depending upon the terms and conditions of such
financing.
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.
Operating
and Other Expenses
For the
three months ended June 30, 2009, general and administrative costs were
$93,095 compared to $181,651 for the three months ended June 30, 2008. The
comparative decrease of approximately $88,000 during the three months ended June
30, 2009 is primarily due to a decrease in professional fees of approximately
$60,000, a decrease in compensation expense of approximately $17,000, and a
decrease of approximately $11,000 in travel expenses related to our prior year
office relocation. For the six months ended June 30, 2009, general
and administrative expenses were $194,270 compared to general and administrative
expenses of $330,571 for the six months ended June 30, 2008. The
comparative decrease of approximately $136,000 is primarily due to a decrease in
professional fees of approximately $71,000, a decrease in travel expense of
approximately $38,000, a decrease of approximately $17,000 in compensation
expense and a decrease of approximately $10,000 in miscellaneous
expenses.
Amortization
expense includes the amortization of our license and patent
costs. For the three months ended June 30, 2009 and 2008,
amortization expense was $21,175 and $12,708, respectively. For the six-months
ended June 30, 2009 and 2008, amortization expense was $41,085 and $23,882,
respectively. For the period April 10, 2000 (Commencement of
Predecessor Business) to June 30, 2009, amortization expense was
$467,152. The original value of the Columbia License of $440,625
reflects the closing share price of Sentigen’s common stock on April 10,
2000. The value of the patent costs of $101,194 mainly consists of legal and
application fees. The value of the license and patent, net of amortization
at June 30, 2009 and 2008, was $74,667 and $105,647,
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 six months ended
June 30, 2009 and 2008 accrued interest on the promissory notes amounted to $0,
and $6,519, respectively.
Liquidity
and Capital Resources
We have
incurred operating losses since inception. As of June 30, 2009, we had $50,115
in cash and cash equivalents, compared to $198,187 at December 31, 2008. At
June 30, 2009 we had a working capital deficiency of $138,208, compared to
working capital of $77,005 at December 31, 2008, a decrease of $215,213,
mainly attributable to the operating expenses for the six months ended June
30, 2009. Net cash used in operating activities for the six months ended June
30, 2009 was $121,975, compared to $192,969 for the six months ended June 30,
2008, a decrease of $70,994 mainly attributable to the decrease in
operating losses.
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. 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. 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.
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 substantial 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. It is likely that we will need to raise funds prior to
January 2010. If we are unable to raise such funds, we may need to cease our
operations. Additionally, if we raise additional funds by issuing
equity securities, our then-existing stockholders will likely experience
dilution, depending upon the terms and conditions of such
financing.
Off-Balance-Sheet
Arrangements
As of
June 30, 2009, we did not have any off-balance-sheet arrangements, as defined in
Item 303(a)(4) of Regulation S-K.
Inflation
At June
30, 2009, 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 June 30, 2009.
Recent
Accounting Pronouncements
See Note
7 to the financial statements included in Part I, Item 1 of this
report.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item
4
.
Controls and Procedures.
Disclosure
Controls and Procedures
As of June 30, 2009, 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 June 30, 2009, 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(a) promulgated under the Securities Exchange Act of
1934.
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32
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Certification
of Chief Executive Officer and principal financial officer 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: August
14, 2009
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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
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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(a) promulgated under the Securities Exchange Act of
1934.
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32
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Certification
of 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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