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 March 31, 2010
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 May
12, 2010, the Company had outstanding 16,821,787 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
|
|
|
12
|
|
|
ITEM
3 Quantitative and Qualitative Disclosures About Market
Risk
|
|
|
15
|
|
|
ITEM
4 Controls and Procedures
|
|
|
15
|
|
|
PART
II OTHER INFORMATION
|
|
|
|
|
|
ITEM
6 Exhibits
|
|
|
17
|
|
|
SIGNATURES
|
|
|
18
|
|
PART
I- FINANCIAL INFORMATION
Item 1. Financial
Statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Balance
Sheets
|
ASSETS
|
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,376
|
|
|
$
|
73,612
|
|
|
Security
deposit
|
|
|
4,170
|
|
|
|
4,170
|
|
|
Total
Current Assets
|
|
|
15,546
|
|
|
|
77,782
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
License
and patent costs
|
|
|
560,325
|
|
|
|
553,332
|
|
|
Less:
accumulated amortization
|
|
|
(548,826
|
)
|
|
|
(517,410
|
)
|
|
Total
Other Assets
|
|
|
11,499
|
|
|
|
35,922
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
27,045
|
|
|
$
|
113,704
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
289,667
|
|
|
$
|
206,149
|
|
|
Convertible
notes payable - related party
|
|
|
150,000
|
|
|
|
150,000
|
|
|
Convertible
note payable
|
|
|
50,000
|
|
|
|
50,000
|
|
|
Total
Current Liabilities
|
|
|
489,667
|
|
|
|
406,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency
|
|
|
|
|
|
|
|
|
|
Common
stock — $0.0001 par value, 20,000,000 shares authorized,
12,747,844 and 12,747,844 shares issued and outstanding
|
|
|
1,275
|
|
|
|
1,275
|
|
|
Additional
paid-in capital
|
|
|
1,964,580
|
|
|
|
1,963,415
|
|
|
Deficit
accumulated during development stage
|
|
|
(2,428,477
|
)
|
|
|
(2,257,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficiency
|
|
|
(462,622
|
)
|
|
|
(292,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
27,045
|
|
|
$
|
113,704
|
|
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
|
|
|
of
Business)
|
|
|
|
|
ended
March 31,
|
|
|
to
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Direct
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Income
after direct costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
137,873
|
|
|
|
101,175
|
|
|
|
1,862,046
|
|
|
Amortization
of license and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
patent
costs
|
|
|
31,416
|
|
|
|
19,910
|
|
|
|
548,826
|
|
|
|
|
|
169,289
|
|
|
|
121,085
|
|
|
|
2,410,872
|
|
|
Other
(income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
(1
|
)
|
|
|
(390
|
)
|
|
|
(2,911
|
)
|
|
Interest
and financing expense
|
|
|
2,054
|
|
|
|
-
|
|
|
|
20,516
|
|
|
|
|
|
2,053
|
|
|
|
(390
|
)
|
|
|
17,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
(171,342
|
)
|
|
|
(120,695
|
)
|
|
|
(2,428,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(171,342
|
)
|
|
$
|
(120,695
|
)
|
|
$
|
(2,428,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding -
basic and dilutive
|
|
|
12,747,844
|
|
|
|
12,747,844
|
|
|
|
|
|
See notes
to financial statements.
SENTISEARCH,
INC.
(A
Development Stage Company)
Statements
of Changes in Stockholders' Deficiency
|
|
|
Common
Stock
|
|
|
Subscription
Receivable
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 29, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,624
|
|
|
|
|
|
|
|
7,624
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(466,729
|
)
|
|
|
(466,729
|
)
|
|
Balance
- December 31, 2009
|
|
|
12,747,844
|
|
|
|
1,275
|
|
|
|
-
|
|
|
|
1,963,415
|
|
|
|
(2,257,135
|
)
|
|
|
(292,445
|
)
|
|
Stock-based
compensation expense (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165
|
|
|
|
|
|
|
|
1,165
|
|
|
Net
loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171,342
|
)
|
|
|
(171,342
|
)
|
|
Balance
- March 31, 2010 (unaudited)
|
|
|
12,747,844
|
|
|
$
|
1,275
|
|
|
$
|
-
|
|
|
$
|
1,964,580
|
|
|
$
|
(2,428,477
|
)
|
|
$
|
(462,622
|
)
|
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)
|
|
|
|
|
three
months ended
|
|
|
Through
|
|
|
|
|
March
31
|
|
|
March
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(171,342
|
)
|
|
$
|
(120,695
|
)
|
|
$
|
(2,428,477
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
1,165
|
|
|
|
3,495
|
|
|
|
38,821
|
|
|
Amortization
|
|
|
31,416
|
|
|
|
19,910
|
|
|
|
548,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets & liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in security deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,170
|
)
|
|
Increase
in prepaid expense
|
|
|
-
|
|
|
|
(2,688
|
)
|
|
|
-
|
|
|
Increase
in accounts payable and accrued expenses
|
|
|
83,518
|
|
|
|
34,868
|
|
|
|
606,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(55,243
|
)
|
|
|
(65,110
|
)
|
|
|
(1,238,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in patents
|
|
|
(6,993
|
)
|
|
|
(8,205
|
)
|
|
|
(119,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(6,993
|
)
|
|
|
(8,205
|
)
|
|
|
(119,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
of notes payable - related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
154,675
|
|
|
Proceeds
of convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
Proceeds
from due to related party
|
|
|
-
|
|
|
|
-
|
|
|
|
106,914
|
|
|
Proceeds
from issuance of common stock, net of offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
907,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,369,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
Increase in cash and cash equivalents
|
|
|
(62,236
|
)
|
|
|
(73,315
|
)
|
|
|
11,376
|
|
|
Cash
and cash equivalents — beginning of period
|
|
|
73,612
|
|
|
|
198,187
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
11,376
|
|
|
$
|
124,872
|
|
|
$
|
11,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of due to related party for common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
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
March 31, 2010 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 March 31, 2010. Our business was
operated within Sentigen, until October 10, 2006, 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 whose 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 $2,428,477 and as of March 31, 2010, has a working capital
deficiency of $474,121 and a stockholders' deficit of $462,622. 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 locate opportunities with non-profit agencies and/or
potential commercial partners, raise additional capital from the sale of stock
and, ultimately, income from operations. The accompanying financial statements
do not include any adjustments that might be required should the Company be
unable to recover the value of its assets or satisfy its
liabilities.
3. Summary of
Significant Accounting Policies
|
|
a.
|
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 March 31, 2010, and the results of operations,
changes in stockholders’ equity and cash flows for the three months ended
March 31, 2010. The results for the three months ended March 31, 2010 are
not necessarily indicative of the results to be expected for any
subsequent quarter or the entire fiscal year ending December 31,
2010.
|
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, 2009 as included in the Company’s report on Form 10-K for the
year ended December 31, 2009. There have been no changes in significant
accounting policies since December 31, 2009.
|
|
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 Cr
ed
it Risk -
Financial
instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash
equivalents. The Company maintains its cash accounts at high
quality financial institutions with balances, at times, in excess of
federally insured limits. As of March 31, 2010, the Company had no cash
balances in excess of the Federal Deposit Insurance Corporation ("FDIC")
insurance limit. Management believes that the financial institutions that
hold the Company’s deposits are financially sound and therefore pose
minimal credit risk. Congress has increased FDIC deposit insurance 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 applicable accounting standards. 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 Notes 4
and 5).
|
|
|
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 March 31,
2010 (see Notes 4 and 5).
|
|
|
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 –
The
Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on the differences between the financial reporting basis
and the tax basis of the assets and liabilities and are measured using
enacted tax rates and laws that will be in effect, when the differences
are expected to reverse. An allowance against deferred tax assets is
recognized, when it is more likely than not, that such tax benefits will
not be realized.
|
The
Company recognizes the financial statement benefit of an uncertain tax position
only after considering the probability that a tax authority would sustain the
position in an examination. For tax positions meeting a "more-likely-than-not"
threshold, the amount recognized in the financial statements is the benefit
expected to be realized upon settlement with the tax authority. For tax
positions not meeting the threshold, no financial statement benefit is
recognized. The Company recognizes interest and penalties, if any, related to
uncertain tax positions in income tax expense. As of March 31, 2010, the Company
is unaware of any uncertain tax positions.
|
|
h.
|
Loss Per Share –
The
accompanying financial statements include loss per share calculated as
required by accounting standards 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. Accounting standards
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 three months ended March 31, 2010 since the
effect would be anti-dilutive. As of March 31, 2010, 675,000 options were
outstanding of which 675,000 were
exercisable.
|
|
|
i.
|
Fair Value of Financial
Instruments –
The Company has adopted the accounting standard
for fair value measurements, as it applies to its financial statements.
This standard defines fair value, outlines a framework for measuring fair
value, and details the required disclosures about fair value
measurements.
|
Fair
value is defined as the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between market participants
at the measurement date in the principal or most advantageous market. The
standard establishes a hierarchy in determining the fair value of an asset or
liability. The fair value hierarchy has three levels of inputs, both observable
and unobservable. The standard requires the utilization of the lowest possible
level of input to determine fair value. Level 1 inputs include quoted market
prices in an active market for identical assets or liabilities. Level 2 inputs
are market data, other than Level 1, that are observable either directly or
indirectly. Level 2 inputs include quoted market prices for similar assets or
liabilities, quoted market prices in an inactive market, and other observable
information that can be corroborated by market data. Level 3 inputs are
unobservable and corroborated by little or no market data.
The
carrying value of current assets and liabilities approximates fair value due to
the short period of time to maturity. The carrying amount of notes payable
approximate their fair value, using Level 3 inputs, as the current interest rate
on such instruments approximates current market rates on similar
instruments.
|
|
j.
|
Stock-Based
Compensation
– Stock-based compensation expense represents
share-based payment awards based upon the grant date fair value estimated
in accordance with accounting standards. 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. Forfeitures are 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. 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 rendered using the measurement date guidelines enumerated in the
accounting standards. 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.
|
|
k.
|
Recently
Adopted and Issued Accounting
Pronouncements
|
In
February 2010, the Financial Accounting Standards Board (“FASB”) issued an
update to ASC 855, “Subsequent Events”. The Codification does not require
significant changes regarding recognition or disclosure of subsequent events,
but does require evaluation of subsequent events through the date the financial
statements are issued. The update was effective upon
issuance. The adoption did not have a significant impact on our
financial statements. Subsequent events have been evaluated through
the time of the filing of our quarterly report on Form 10-Q
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a significant effect on the
accompanying financial statements.
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, the Company entered into a contribution agreement with
Sentigen pursuant to which Sentigen transferred to us all of its olfaction
intellectual property, including the Columbia License. On October 17, 2006,
Columbia consented to the assignment of the Columbia License from Sentigen
Biosciences to SentiSearch subject to certain conditions, all of which have
already been satisfied to the extent currently required.
The value
of the Columbia License is recorded as license costs, net of accumulated
amortization on the accompanying balance sheet. The original value of the
license costs reflects the closing share price of Sentigen’s common stock on
April 10, 2000. The value of the license costs, net of amortization as of March
31, 2010 was $2,727.
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 the Company’s 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. Expected amortization expense for the next twelve months is
$2,727.
5.
Patent Costs
During
July 2007, we were issued two patents in the United States. During November
2007, the Company was issued a patent in Australia and during May 2008, the
Company was issued a patent in Mexico. One of the U.S. patents and the Australia
and Mexico patents, were issued directly to the Company and the other U.S.
patent was issued under the Columbia License. All of the issued patents cover
nucleic acid molecules which encode insect odorant receptor proteins, including
numerous variations on insect odorant receptor coding sequence. The patents
cover any nucleic acid molecule as long as the protein it encodes contains a
short segment of amino acids, linked together.
The value
of the patent costs, mainly consisting of legal and application fees in the
amount of $119,700, 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 March 31, 2010 was $8,772.
The
patent costs are being amortized on a straight line basis through April 2010,
the remaining term of the license costs. Expected amortization
expense for the next twelve months is $8,772.
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 0%; expected option
life of two and one-half years; and expected volatility of approximately
17%. The aggregate grant date fair value of the award amounted to
$1,490.
On March
27, 2008 and May 14, 2008, the Company granted options to purchase an aggregate
of 425,000 and 100,000 shares, respectively, of its common stock to three
individuals for consulting services rendered to the Company and a director,
respectively, each at an exercise price of $0.19 per share and term of ten
years. The terms of the consulting arrangements are for five years. The fair
value of the underlying common stock at the date of grant was $0.07 per share.
The options granted on March 27, 2008, vest as follows: 158,334 immediately,
133,333 on the first anniversary and 133,333 on the second anniversary. The
options granted on May 14, 2008 vested upon stockholder approval to amend the
Certificate of Incorporation to increase the number of authorized shares of
common stock at the annual stockholder meeting on June 24, 2008, and have a term
of ten years unless cancelled earlier upon director's removal or resignation
from the board. Assumptions related to the estimated fair value of these stock
options on their date of grant, which the Company estimated using the
Black-Scholes option pricing model, are as follows: risk-free interest rate of
approximately 4%; expected dividend yield of 0%; 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.
On
October 20, 2009, the Company granted options to purchase 100,000 shares of its
common stock at an exercise price of $0.05 per share to a
director. The fair value of the underlying common stock at the date
of grant was $0.03 per share. The options vested immediately and have
a ten 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 3%; expected divided yield of 0%; expected option life of ten
years; and expected volatility of approximately 22%. The aggregate
grant date fair value of the award amounted to $634.
The
Company recorded $1,165 and $3,495 of compensation expense for the three months
ended March 31, 2010 and 2009, respectively, related to these options.
Total unamortized compensation expense related to unvested stock options at
March 31, 2010 amounted to $0.
The
following table summarizes information on all common stock purchase options
issued by us for the three months ended March 31, 2010:
|
|
|
March
31, 2010
|
|
|
|
|
Number
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of the year
|
|
|
675,000
|
|
|
$
|
0.17
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
March 31, 2010
|
|
|
675,000
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2010
|
|
|
675,000
|
|
|
$
|
0.17
|
|
The
number and weighted average exercise prices of all common stock purchase options
as of March 31, 2010 are as follows:
|
Range
of Exercise Prices
|
|
|
Remaining
Number Outstanding
|
|
|
Weighted
Average Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.05
to $0.19
|
|
|
|
675,000
|
|
|
|
7.81
|
|
|
$
|
0.17
|
|
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.
Notes Payable
During October 2009, the Company issued
to each of four individuals $50,000 subordinated convertible promissory notes
(the “Notes”) aggregating $200,000. The individuals included the Company’s Chief
Executive Officer and Chairman of the Board, another director, one of the
Company’s greater than 5% stockholders and an accredited investor.
The $50,000 principal amount of Notes issued to the Chief Executive
Officer and Chairman of the Board represent $25,000 of new funds received and a
rollover of a $25,000 loan made by him to the company on September 10,
2009. The Notes bear interest of 4% per annum and were payable on
demand on the earlier of (i) the date on which the Company publicly announces a
joint venture or strategic relationship, the execution of a license, or similar
agreement with a third-party with respect to the Company’s technology and (ii)
the date on which the Company files with the SEC its annual report on Form 10-K,
which includes audited financial statements for the year ending December 31,
2009, such date referred to as the target date. The holders may
convert the outstanding principal amount of the Notes and accrued and unpaid
interest thereon into shares of the Company’s common stock at any time
commencing on the fifth trading day immediately following the target date at the
conversion price in effect on such date. The conversion price shall
be the greater of (i) the average of the closing sale price of the Company’s
common stock for the five trading days immediately following the target date and
(ii) $0.05 per share. (See Note 10).
The Company may prepay the Notes on 20
days prior written notice to the holders. The Company has agreed to
include the shares of common stock issuable upon conversion of the Notes in any
applicable registration statement filed by the Company with the SEC covering its
equity securities.
8.
Commitments and Contingencies
The Company has entered into a one-year
sublease for office space in West Palm Beach, Florida. The sublease
expires in June 2010, with an option to renew for an additional year. The
sublease requires monthly payments of approximately $1,390 through June
2010.
9.
Related Party Transactions
Please refer to Notes 6, 7 and 10
regarding related party transactions.
On April 8, 2010, pursuant to the terms
of the Notes, the conversion price of the Notes was set at
$0.05. Also, on April 8, 2010, each of the holders elected to convert
all of the then outstanding principal and interest, totaling $203,697, on
such Notes, which resulted in the issuance to them of an aggregate of 4,073,943
shares of the Company’s common stock. The conversion of the Notes
resulted in the Notes being satisfied in full. (See Note 7 for a
complete description of the Notes).
On April
12, 2010, the Company received $80,000 and issued to each of four individuals
$20,000 principal amount of promissory notes. The investors included the
Company’s Chief Executive Officer, and Chairman of the Board, a director of the
Company who is also a beneficial owner of more than 10% of the Company’s
outstanding common stock, another beneficial owner of more than 10% of the
Company’s outstanding common stock and one other individual. These notes
bear interest of 4% per annum. Principal and accrued interest on the notes are
payable on April 12, 2015; provided, however that the notes become due and
payable immediately upon the Company’s consummation of an equity financing
resulting in net proceeds to the Company in excess of $2,500,000.
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:
|
•
|
discuss
our future expectations;
|
|
•
|
contain
projections of our future results of operations or of our financial
condition; and
|
|
•
|
state
other “forward-looking”
information.
|
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 in our Annual Report on Form 10-K for
the year ended December 31, 2009. 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 three months ended March 31, 2010. As of March
31, 2010, 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.
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.
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 $560,325 as of March
31, 2010, as compared with $523,927 as of March 31, 2009 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 March 31, 2010.
Results
of Operations
General
We are a
development stage company. 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
three months ended March 31, 2010 was provided by the proceeds we received from
the $750,000 financing we closed on May 9, 2008, the $145,980 financing we
closed on June 20, 2008 with certain of our largest stockholders, including our
Chief Executive Officer and Chairman of the Board and another member of our
Board of Directors, a $25,000 loan to us by our Chief Executive Officer and
Chairman of the Board in September 2009, referred to as the September loan, and
through the loans made to us in October 2009 by four individuals,
including a rollover of the September loan with our Chief Executive Officer
and Chairman of the Board, another member of our Board of Directors
and, a beneficial owner of more than 5% of our outstanding common stock,
discussed in greater detail below.
On
October 26, 2009, we issued to each of four individuals $50,000 subordinated
convertible promissory notes, referred to as the notes (an aggregate principal
amount of $200,000 of notes). The individuals included our Chief Executive
Officer and Chairman of the Board of Directors, another director and one of our
greater than 5% stockholders. The $50,000 principal amount of notes issued to
the Chief Executive Officer and Chairman of the Board represent $25,000 of new
funds received and a rollover of the September loan. The notes bear
interest of 4% per annum and are payable on demand on the earlier of (i) the
date on which we publicly announce a joint venture or strategic relationship,
the execution of a license, or similar agreement with a third-party with respect
to our technology and (ii) the date on which we file with the SEC our annual
report on Form 10-K, which includes audited financial statements for the year
ending December 31, 2009. For a more detailed description of the notes,
see
Liquidity and
Capital Resources
below. On April 8, 2010, the
holders of these notes elected to convert these notes into shares of our common
stock at a conversion price of $0.05, resulting in the aggregate issuance of
4,073,943 shares of our common stock. The October 2009 notes were
thereby satisfied in full and are no longer outstanding.
On April
12, 2010 we issued to each of four individuals $20,000 principal amount of
promissory notes, for an aggregate of $80,000 principal amount of notes. The
investors included Joseph Pagano, the Company’s Chief Executive Officer,
Secretary, Treasurer and Chairman of the Board of Directors, Frederick R. Adler,
a director of the Company and a beneficial owner of more than 10% of the
Company’s outstanding common stock and Samuel A. Rozzi, a beneficial owner of
more than 10% of the Company’s outstanding common stock and one other
individual. Principal and accrued interest on the notes are payable
on April 12, 2015; provided, however that the notes become due and payable
immediately upon our consummation of an equity financing resulting in net
proceeds to us in excess of $2,500,000.
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 March 31,
2010, general and administrative costs were $137,873 compared to $101,175 for
the three months ended March 31, 2009. The comparative increase of $36,698
during the three months ended March 31, 2010 is primarily due to an increase in
professional fees of approximately $39,000, coupled with a net decrease in
other expense of approximately $2,000.
Amortization
expense includes the amortization of our license and patent
costs. For the three months ended March 31, 2010 and 2009,
amortization expense was $31,416 and $19,910, respectively. For the period
April 10, 2000 (Commencement of Predecessor Business) to March 31, 2010,
amortization expense was $548,826. 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 $119,700 mainly
consists of legal and application fees. The value of the license and patent, net
of amortization at March 31, 2010 and 2009, was $11,499 and $ 77,950,
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 in October 2009. For
the three months ended March 31, 2010 and 2009 interest on the promissory notes
amounted to $2,054, and $0, respectively.
Liquidity and Capital
Resources
We have
incurred operating losses since inception. As of March 31, 2010, we had $11,376
in cash and cash equivalents, compared to $73,612 at December 31, 2009. At
March 31, 2010, we had a working capital deficiency of $474,121, compared
to a working capital deficiency of $328,367 at December 31, 2009, an
increase of $145,754, mainly attributable to the operating expenses for the
three months ended March 31, 2010. Net cash used in operating activities for the
three months ended March 31, 2010 was $55,243, compared to $65,110 for the three
months ended March 31, 2009, a decrease of $9,867.
On
September 10, 2009 we borrowed $25,000 from our Chief Executive Officer and
Chairman of the Board. This loan bore interest at 6% per annum, and
has been amended as described below.
On
October 26, 2009, we issued to each of four individuals $50,000 subordinated
convertible promissory notes (an aggregate principal amount of $200,000 of
notes). The individuals included our Chief Executive Officer and Chairman of the
Board of Directors, another director and one of our greater than 5%
stockholders. The $50,000 principal amount of notes issued to the Chief
Executive Officer and Chairman of the Board represent $25,000 of new funds
received and a rollover of the September loan. The notes bear
interest of 4% per annum and are payable on demand on the earlier of (i) the
date on which we publicly announce a joint venture or strategic relationship,
the execution of a license, or similar agreement with a third-party with respect
to our technology and (ii) the date on which we file with the SEC our annual
report on Form 10-K, which includes audited financial statements for the year
ending December 31, 2009. The holders may convert the outstanding principal
amount of the notes and accrued and unpaid interest thereon into shares of our
common stock at any time commencing on the fifth trading day immediately
following the target date at the conversion price in effect on such
date. The conversion price shall be the greater of (i) the average of
the closing sale price of our common stock for the five trading days immediately
following the target date and (ii) $0.05 per share.
On April
8, 2010 the holders of these notes elected to convert these notes into shares of
our common stock at a conversion price of $0.05, resulting in the aggregate
issuance of 4,073,943 shares of our common stock. The October 2009
notes were thereby satisfied in full and are no longer outstanding.
On April
12, 2010 we issued to each of four individuals $20,000 principal amount of
promissory notes, for an aggregate of $80,000 principal amount of notes. The
investors included Joseph Pagano, the Company’s Chief Executive Officer,
Secretary, Treasurer and Chairman of the Board of Directors, Frederick R. Adler,
a director of the Company and a beneficial owner of more than 10% of the
Company’s outstanding common stock and Samuel A. Rozzi, a beneficial owner of
more than 10% of the Company’s outstanding common stock and one other
individual. Principal and accrued interest on the notes are payable
on April 12, 2015; provided, however that the notes become due and payable
immediately upon our consummation of an equity financing resulting in net
proceeds to us in excess of $2,500,000.
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. 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
March 31, 2010, we did not have any off-balance-sheet arrangements, as defined
in Item 303(a)(4) of Regulation S-K.
Inflation
Periods
of high inflation could have a material adverse impact on us to the extent that
increased borrowing costs for floating rate debt (if any) may not be offset by
increases in cash flow. At March 31, 2010, we had $0 in floating rate
debt outstanding. There was no significant impact on our operations as a result
of inflation during the three-month period ended March 31, 2010.
Recent Accounting
Pronouncements
See Note
3 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 March 31, 2010, 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 SEC'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 March
31, 2010, 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
|
|
Description
|
|
|
|
|
|
|
|
|
|
31
|
|
Certification
of Chief Executive Officer and principal financial officer pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934.
|
|
|
|
|
|
32
|
|
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.
|
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: May
17, 2010
|
SENTISEARCH,
INC.
|
|
|
|
|
|
/s/
Joseph K. Pagano
|
|
|
Joseph
K. Pagano, Chief Executive Officer and
Treasurer
(principal executive and financial
officer)
|
EXHIBIT
INDEX
|
Exhibit
|
|
Description
|
|
|
|
|
|
|
|
|
|
31
|
|
Certification
of Chief Executive Officer and principal financial officer pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934.
|
|
|
|
|
|
32
|
|
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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