SENTIGEN HOLDING CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(Mark One)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from____________to______________

Commission file number: 0-18700

SENTIGEN HOLDING CORP.
(formerly Prime Cellular, Inc.)
(Exact Name of Registrant as Specified in Its Charter)

Delaware 9995 13-3570672
- -------------------------------- --------------------- -------------------
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Identification
Classification Number)
Code Number)

580 Marshall Street
Phillipsburg, New Jersey 08865
(908) 387-1673
- --------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $0.01 per share

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 25, 2002 (based upon the closing sale price on such date as
reported by The Nasdaq SmallCap Market, Inc. was approximately $23,372,296.

As of March 26, 2002, 7,451,044 shares of the registrant's Common Stock, par
value $.01 per share were outstanding.

Documents Incorporated By Reference: None

PART I

ITEM 1. BUSINESS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The statements contained herein which
are not historical facts are forward-looking statements that involve known and
unknown risks and uncertainties that could significantly affect our actual
results, performance or achievements in the future and, accordingly, such actual
results, performance or achievements may materially differ from those expressed
or implied in any forward-looking statements made by us or on our behalf. These
risks and uncertainties include, but are not limited to, risks associated with
our future growth and operating results; our ability to successfully integrate
newly acquired business operations and personnel into operations; changes in
customer preferences; the ability to hire and retain key personnel; compliance
with federal or state environmental laws and other laws and changes in such laws
and the administration of such laws; risks associated with government grants and
funding of our customers' projects; dependence on certain significant customers;
protection of trademarks and other proprietary rights; technological change,
competitive factors and unfavorable general economic conditions. These risks are
included in "Item 1. Business," "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in "Exhibit 99: Risk Factors"
included in this Form 10-K. Actual results may vary significantly from such
forward-looking statements. The words "believe," "expect," "anticipate,"
"intend" and "plan" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date the statement was made.

Generally about us

We are a holding company conducting business through two wholly-owned
operating subsidiaries, Cell & Molecular Technologies, Inc. (CMT) and Sentigen
Corp. CMT is comprised of a service organization that provides contract research
and development (R&D) services, and a products organization that provides cell
culture media, reagents and other research products to companies engaged in the
drug discovery process. Sentigen Corp. is involved in scientific research to
develop environmentally sound approaches to prevent insect crop damage and the
spread of human diseases by impacting insect behavior.

We were incorporated under the laws of the State of Delaware in May
1990 and, after having engaged in the acquisition and operation of different
business entities subsequent to our initial public offering in August 1990, we
commenced our current business operations when we acquired CMT by a reverse
merger in May 1998. CMT was incorporated on May 6, 1997 to acquire all of the
outstanding stock in each of Specialty Media, Inc. and Molecular Cell Science,
Inc., two entities operating in the biotechnology and pharmaceutical industries
since 1987 and 1991, respectively. Sentigen Corp. was formed on February 16,
2000. We changed our name to Sentigen Holding Corp. on June 23, 2000.

We maintain principal executive offices, laboratory, manufacturing and
office/warehouse facilities in two facilities located at 580 and 445 Marshall
Street, Phillipsburg, New Jersey 08865. We also maintain a laboratory at 3960
Broadway, New York, New York 10032 and at 418 Industrial Drive, North Wales,
Pennsylvania 19454. We also maintain administrative offices at 434 East Cooper
Street, Aspen, Colorado 81611.

Cell & Molecular Technologies, Inc.

CMT is a Contract Research Organization (CRO) specializing in
supporting the drug discovery process. CMT's products and services line include:
High Throughput Screening (HTS) applications; contract research services; and
the development, production and marketing of specialty cell culture media.
Through its scientific staff, technology focus and specialty medium, CMT
increases the efficiency of the drug discovery process of pharmaceutical,
biotechnology, and biomedical research organizations and optimizes their
investment in new technologies and chemistry.

The majority of CMT's customers are engaged in target identification,
target validation, and target screening as steps in the drug discovery process.
The proliferation of new targets and technologies to this process has shifted
the resource priorities and research strategies of the entire drug discovery
industry. This industry is also facing patent expirations, more stringent drug
approval standards, and thinning product pipelines. As a result of these

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factors, the race for new targets, compounds and drug candidates has
dramatically intensified. This new landscape has increased the demand for
research talent, laboratory capacity, creative experimental design and tailored
products. Collaboration with CMT gives entities engaged in drug discovery access
to the talent, capacity, creativity, products and services they need to
accelerate drug discovery programs, optimize technology investments and gain
competitive advantage. CMT operates through two divisions -- Molecular Cell
Science and Specialty Media.

Molecular Cell Science Division (MCS)

CMT provides contract R&D services to the drug discovery community
through this division. CMT provides resources in:

o Molecular and cellular biology,
o protein bio-chemistry,
o bio-processing,
o HTS applications and assay development, and
o mouse genetics.

CMT's services are performed on a fee-for-service, fixed contract basis
that provides for payments after specific research milestones are achieved.
Research milestones are developed pursuant to the specific research goals of the
customer. CMT utilizes cost and time effective approaches in the delivery of its
services which results in a high level of customer service. We do not receive
residual or royalty payments for future discoveries or uses involving the
materials or services provided to our customers.

CMT's proposals are based on collaborative discussions between the
customer's research staff and CMT's scientific staff. These discussions lead to
detailed, milestone-based research proposals that are capable of being
periodically modified based on the data collected during each research
milestone. CMT's dynamic, data-driven approach augments and complements the
customer's own research and development efforts in a cost- and time-effective
manner.

Collaboration with CMT gives customers access to scientific talent and
laboratory capacity. Access to additional scientists and laboratory capacity
augments our customer's implementation of new drug discovery technologies and
methodologies. CMT designs and performs its services to meet a customers
specified research goals and quality standards. The following is a brief
overview of the aforementioned services:

Molecular and cellular biology. CMT offers an array of services to help
clone, isolate and characterize genes from viral, prokaryotic or eukaryotic
organisms. CMT's services in molecular biology include: construction of custom
cDNA libraries; single cell cDNA libraries; genomic DNA libraries; size
selected, normalized, subtracted libraries and other custom gene libraries. In
addition, CMT provides expertise in molecular cloning and related functions of
target selected genes. CMT's custom services in this area allow our customers to
specify the vector and cell or tissue source.

Protein bio-chemistry. The drug discovery community demands ever
increasing amounts and numbers of recombinant proteins for their HTS programs,
as well as, biochemical and biophysical studies. CMT meets this demand through
the production and purification of recombinant proteins from
genetically-engineered hosts. CMT offers expression of recombinant proteins in:
Escherichia coli; Yeast; Mammalian Cells; Insect Cells and Baculovirus. CMT also
performs Expression Optimization Studies and Scale-up Process Development.

Bio-processing. CMT possesses multifaceted cell culture and
fermentation capabilities and expertise, enabling it to produce whole cells,
cellular fractions or biological molecules for both research and assay purposes.
CMT has developed bioprocessing techniques and processes to move research cell
lines to the manufacturing floor. Incorporating cell banking through upstream
and downstream process development CMT delivers a well-characterized process.
Using its flexible cell culture facility, CMT prepares reagents derived from a
broad range of host cell types (including whole cells, cellular fractions, or
purified biomolecule proteins) properly formatted for further characterization
or for use in screening assays. CMT also offers the production of enzymes,
receptors, substrates, growth factors, and antibodies.

CMT's facilities give it both adherent (flasks, roller bottles, cell
factories) and suspension (spinners, bioreactors) culture capabilities. CMT's
facilities also feature bioreactor capacity to 150 liters, fractionation and
purification capabilities. Its facilities are well-equipped with a dynamic loop
process water system (including ultrafiltration, carbon adsorption, multiple
rounds of ion exchange, and double distillation), warm/cold rooms, laminar-flow
hoods, centrifuges and cell cryopreservation and storage.

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HTS applications and assay development. New drug discovery methods and
technology investment is most evident in the advent of HTS. HTS utilizes
sophisticated automation and robotics to screen large quantities of cells or
proteins very rapidly. Through HTS the drug discovery community is able to
rapidly screen, identify and develop potential drug candidates for a large
number of targets.

CMT provides whole cells, sub-cellular fractions, and purified proteins
for large-scale HTS programs and secondary assays. These cells and reagents are
tested against the customers specified, stringent quality control standards to
assure performance and reproducibility. The cells and reagents are delivered in
the customer-prescribed format (bulk, multi-well plates, multiple aliquots,
etc.). Customers receive cells or reagents on a regularly scheduled basis
(daily, weekly) and in a format (96 well, 384 well plates) required for the
customer's HTS assays. CMT's services ease the strain on the client's internal
resources and enable customer's screening facilities and equipment to maintain
maximum efficiency and usage times.

CMT's resources in molecular biology, gene cloning, expression, cell
culture, and cell line development, enables it to provide customers with a
multidisciplinary approach to assay development. CMT can transfer developed
technology back to its customers, or contract with the customer to perform the
assay at CMT's own facilities. CMT's services also include the design,
establishment, and execution of quality control standards for the new assay
system.

Mouse genetics. The advent of transgenic mouse technology has allowed
researchers to study the impact of gene deletions, mutations, and additions in a
whole-animal system whose genetics are well understood and can be easily
manipulated. Based on this premise, CMT engineers mouse models of human diseases
for use in the identification and validation of potential drug candidates. CMT
is able to construct sophisticated knock-out and knock-in gene models that can
be used to study transcription activity, gene expression and function by
altering or mutating a specific gene in the mouse. CMT offers quality-tested and
proven embryonic stem cells (supplied by our Specialty Media division) from
several strains of mice, including 129, C57BL6, and DBA1, as well as mitomycin-C
treated mouse embryo fibroblast feeder cells. CMT's animals are housed in a
barrier facility under specific pathogen free (SPF) conditions.

Specialty Media Division (SM)

CMT develops, manufactures, and markets high quality research products
including:

o Media and reagents for the culture of mouse embryos
o Murine Embryonic Stem (ES) cells and reagents
o Reagents for gene transfer and expression
o Standard and custom formulated cell culture media.

CMT also identifies and develops custom research products and reagents
in response to customer feedback and as a result of our MCS services. CMT
manufactures and distributes the aforementioned products in the following
research areas:

Mouse Embryo Media. The genetic manipulation of early stage mouse
embryos allows research scientists to develop animal models for disease states
for the purpose of elucidating the function of genes which have similarities to
human functions. CMT manufactures media and reagents that support the growth of
mouse embryos. In addition to "standard" formulations, CMT has developed novel
media formulations working in collaboration with Harvard University under NIH
funded grants. While mouse embryo media have been traditionally manufactured as
liquids, CMT developed a powder format greatly extending the media's shelf life
and opening the possibility for overseas shipment and distribution. CMT has
derived several unique Murine ES cell lines, as well as providing media and
reagents qualified for the manipulation of ES Cells.

4

Unique Products for General Cell Cultures. A significant portion of the
division's sales revenue is derived from several unique products. Cell culture
freezing media enables researchers to cryogenically archive important cell lines
for future use. CMT's line of enzyme free cell dissociation solutions allows
researchers to remove cells from the vessels on which they are grown while
retaining the functionality of the proteins on their surface. This enables the
cells to be used in assays which rely on cell surface receptors. CMT also
markets a kit containing all of the reagents necessary to introduce foreign
genes into cells, genetically altering the cell line. CMT directly markets these
products and they are also sold by other companies under private label.

Custom Media Manufacture. Researchers demand varying components and amounts
of the nutrient broths in which cells are grown. CMT produces custom
formulations, with a minimum volume of only 2 liters. CMT has the ability to
formulate complex media in a timely fashion and in low volumes. CMT believes
that this low minimum volume ability has enabled it to enter a niche not
otherwise occupied by the several larger companies advertising such custom
capabilities.

Sentigen Corp.

Sentigen is engaged in research to develop innovative, environmentally
sound approaches to prevent insect crop damage and the spread of human disease
by impacting insect behavior. Sentigen intends to provide a safe and effective
alternative to pesticides without contaminating the environment or genetically
modifying insects or crops. Sentigen believes its process will enable
identification of bioactive compounds that allow for specificity and
effectiveness in insect control.

Sentigen intends to biologically pinpoint insect receptors that control
the sense of smell, the primary sense that drives insect behavior. Insects rely
on this sense to locate food, human and animal hosts, and mates. This sense is
highly adapted among different insects, and would enable Sentigen to develop
wholly natural pest management solutions that selectively target detrimental
insect species.

Sentigen intends to first develop its technology for insects that
affect the agricultural industry, as present methods, including pesticides and
genetically modified foods, are becoming increasingly ineffective and
controversial. Over the past decade, pesticides and genetically modified foods
have been placed under intense scrutiny due to concerns over their adverse
effects upon the environment and human health. Governments are increasingly
regulating and prohibiting pesticides and genetically modified foods and public
opposition has led to a significant increase in the market for organic foods.

Sentigen also expects to develop a suite of products for the control of
insects that affect human health. Recent outbreaks of mosquito-borne diseases,
including West Nile encephalitis and dengue fever in the United States, as well
as the appearance of pesticide-resistant disease carrying insects throughout the
world have highlighted the need for safer and more effective insect control
strategies in residential areas. Biting insects are also dependent on smell to
locate human and animal prey, and Sentigen intends to utilize its technology to
develop environmentally friendly and novel approaches to combat the threat posed
by these pests.

Sentigen has an exclusive licensing agreement with The Trustees of
Columbia University in the City of New York for worldwide rights to patent
applications and intellectual property in the areas of chemosensation and
olfaction. Columbia University is at the forefront of research in this field,
and the license covers technologies arising from the initial discovery of
vertebrate olfactory receptors and pheromone receptors and the identification of
the first insect odorant receptors in the laboratory of Dr. Richard Axel at
Columbia University. Sentigen also entered into a consulting agreement with Dr.
Richard Axel. Other consultants hired by Sentigen include Cornelia Bargmann,
PhD, a professor at the University of California, San Francisco; Dr. Gerald M.
Edelman, Director of The Neurosciences Institute, President of Neurosciences
Research Foundation, Chairman of the Department of Neurobiology and Professor at
The Scripps Research Institute; Leslie Vosshall, PhD, an Assistant Professor and
Head of Laboratory at the Rockefeller University; and Wendell Roelofs, The
Liberty Hyde Bailey Professor of Insect Biochemistry at Cornell University's New
York State Agricultural Experiment Station.

Customers

Cell and Molecular Technologies, Inc.

CMT provides its products and services to: manufacturers in the
biotechnology and pharmaceutical industries; hospitals; universities and other
research institutions engaged in the drug discovery process.

5

Molecular Cell Science. For the years ended December 31, 2001, 2000 and
1999, Merck & Co., Inc. accounted for approximately 51%, 51% and 55% of the
division's annual revenues, respectively. We believe that this customer will
continue to account for a significant portion of our revenues in the 2002 and
2003 fiscal years. We cannot assure you, however, that this customer will
continue to generate significant revenues and the loss of this customer, or any
other significant customers could have a material adverse effect on our
business.

Specialty Media. For the years ended December 31, 2001, 2000 and 1999,
Invitrogen accounted for approximately 20%, 24% and 23% of the division's annual
revenues, respectively. We believe that this customer will continue to account
for a significant portion of our revenues in the 2002 and 2003 fiscal years. We
cannot assure you, however, that this customer will continue to generate
significant revenues and the loss of this customer, or any other significant
customers could have a material adverse effect on our business.

Sentigen Corp.

Sentigen Corp. was formed in February 2000 to develop innovative,
environmentally sound approaches to prevent insect crop damage and the spread of
human diseases by impacting insect behavior. Sentigen Corp. has not generated
any revenues to date.

Sales and Marketing

Cell and Molecular Technologies, Inc.

Molecular Cell Science. CMT has focused on providing pre-clinical
contract research and development to entities engaged in the drug discovery
process. Given the rapid development of molecular biology techniques and the
pace of innovation, we believe that the drug discovery community is now focusing
on HTS as opposed to more basic screening methodologies. We also believe that
there is an increasing trend among companies in the drug discovery community to
outsource segments of the HTS process as well as other segments of the drug
discovery process that occur after primary HTS screens are completed. Such
outsourcing is due to a variety of factors including:

o the economies of scale necessary to maintain an efficient and effective
HTS program and remain competitive in the industry
o the reduced "in-house" staffs resulting from corporate down-sizing and
investments in automation and robotics
o the expense and risk inherent in conducting segments of this process
internally
o the expanded capabilities and flexibility offered by third party
research companies without the associated overhead.

The pattern for outsourcing among the drug discovery community has been
to expand from pre- and post-approval activities, including clinical trial
management, manufacturing, quality control and packaging, toward research and
development. At the front end of the development process, drug discovery based
on rapid-throughput synthesis and screening technologies is typically effected
by very large companies. On the other end, smaller technology companies tend to
provide access to "enabling" technologies that facilitate the process of target
identification and lead compound synthesis and identification. CMT intends to
address the opportunity for a combination of these high-throughput discovery
technologies and the relatively mature market for pre- and post-approval
services. Because of the broad, multi-disciplinary range of customer needs
during this phase of research and development, we believe that CMT's synthesis
of multiple biologically based capabilities makes it well positioned in the
industry. We believe that by expanding state-of-the-art facilities, recruiting
world class scientists, and developing and acquiring new technologies, CMT can
benefit from the growing contract research market.

Specialty Media. CMT markets its products to specialized aspects of the
cell culture market. CMT believes that, while the overall available revenue from
this area is less than other areas of the market, the potential margins are
greater. Moreover, in serving these areas, CMT has built up significant customer
loyalty and name recognition, despite relatively minimal marketing activities.
CMT's sales efforts are coordinated by its Chief Operating Officer, whose duties
include oversight of production and development, direct sales and distributor
arrangements. We also utilize the services of PGC Scientifics and VWR
Scientific, national distributors of research products, which are responsible
primarily for sales to customers not serviced regularly by our company.

Sentigen Corp.

Sentigen Corp. is engaged in research to develop innovative,
environmentally sound approaches to prevent insect crop damage and the spread of
human disease by impacting insect behavior. Sentigen Corp. intends to provide a
safe and effective alternative to pesticides without contaminating the
environment or genetically modifying insects or crops. For the years ended
December 31, 2001 and 2000, Sentigen Corp. did not engage in any sales
activities. Sentigen Corp. has been focused on research and development, and has
participated in various scientific and industry conferences and met with leading
agricultural and biotechnology companies in an effort to raise awareness of its
technology among constituents in the agricultural and human health communities.

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Manufacturing, Suppliers and Inventory

The manufacturing, order fulfillment and shipping functions for CMT are
accomplished at our Phillipsburg facilities. The raw materials used in SM's
manufacturing process are purchased from a variety of third-party suppliers. CMT
also has numerous alternative sources of supplies with respect to all the
critical components used in the delivery of its contract R&D services. CMT
maintains adequate inventory at its Phillipsburg facilities to support its
direct sales needs.

Competition

Cell and Molecular Technologies, Inc.

Generally, CMT competes with a combination of national and regional
companies ranging from large companies engaging in contract R&D or reagent
services to companies specializing in one particular aspect of R&D or media
production. Some of these companies have captured a significant, and in certain
cases controlling, share of the market. Many competitors have achieved
significant national, regional and local brand name and product recognition.
These competitors also engage in frequent and extensive advertising and
promotional programs, both generally and in response to efforts by other
competitors entering the market or existing competitors introducing new
products. Many of these companies have substantially greater financial,
technical, marketing, personnel and other resources than CMT.

We believe that entry barriers to these markets are significant,
involving the high costs of specialized scientific equipment, the need to
recruit highly trained professional scientific staff with industrial and
academic experience, and the ability to offer a wide range of services and
expertise. The ability to compete successfully in the industry is affected by
these and other factors, including without limitation price of services, ease of
use, reliability, customer support, geographic coverage and industrial and
general economic trends. In addition, R&D services involve customers dependent
upon government grants and other institutional funding.

We believe that CMT can compete effectively based on its ability to
provide its customers with both (i) Contract R&D Services for early
stage/pre-clinical R&D in the pharmaceutical and biotechnology industries and
(ii) the preparation of reagents for cell culture, molecular biology, and mouse
genetics in the international academic and industrial research markets. We
believe that, although there are a number of large competitors that have
substantially greater resources than CMT, such competitors have well established
businesses in only one of these areas. Available contract research services have
for the most part focused on delivering routine technology at low cost. These
services have flourished because by maximizing the load on their equipment and
labor resources, they can reduce the customer's in-house cost. Such economies of
scale are achieved at a cost to the customer who remains for the most part
responsible for defining protocol and overseeing its implementation to insure
that the results are useable to the customer's in-house projects. In contrast,
CMT offers, in addition to the full range of R&D services, complete experimental
design and consultation throughout the performance of its services.

Molecular Cell Science. CMT believes that the Contract R&D business can
be divided into four markets, consisting of (i) low end R&D, (ii) specialty R&D,
(iii) high end R&D and (iv) technology platform R&D, as follows:

(i) Low End R&D. Services performed in this market are characterized by
low margins and strong competition. These services are generally simple,
process-oriented engagements. These services tend not to lead to higher end,
more complex projects. This market is comprised of small local vendors, some of
which have grown to cover larger markets. CMT offers services in this area,
including those offered by its competitors, usually as part of a larger customer
engagement.

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(ii) Specialty R&D. Services performed in this market tend to be
technical and/or target focused. These services can lead to new and more complex
projects and have the opportunity to grow significantly in scope. The
identification, validation and supply of HTS targets is a rapidly growing
segment of the Contract R&D business as illustrated by a significant increase in
both inquiries and revenue in this area. We believe that CMT is well positioned
to participate in this market due to its breadth of technical expertise and its
experience with existing HTS clients.

(iii) High End R&D. Services performed in this market tend to be high
margin, highly skilled technical and mechanical matters, requiring significant
intellectual input, problem solving capabilities and access to well recognized
academics. These services often require the development of new high end
technologies and lead to more complex projects. Such projects can be used as a
launch pad for developing proprietary technologies. We believe that CMT is well
positioned to participate in this market, offering expert research services,
consultation at all stages of the project problem solving abilities, and lab
capacity.

(iv) Technology Platform R&D. This market is comprised of companies
which have based their business on performing drug screening and/or licensing
their proprietary technology to companies for their in-house screening programs.
These relationships are generally associated with significant licensing costs
and downstream royalties. The application and/or licensing of such proprietary
technology platforms involve large contracts and is highly competitive.
Competition arises from the development of alternative and competing
technologies designed to yield results ever more quickly and inexpensively. CMT
is active in this market as well, developing novel technology platforms through
research performed for its own account, licensing arrangements as well as
through collaborative small business research grants. CMT's proprietary
technologies are principally focused on the rapid identification, expression and
characterization of genes and proteins for use in the screening and discovery of
potential drug candidates in the biotechnology and pharmaceutical industries.
CMT is expanding this effort to include the engineering of cells and cell based
reagents to facilitate their use with existing and emerging drug discovery
platforms.

Specialty Media Division. We believe that the SM market is dominated by
a few very large companies with a number of minor participants. Historically,
the revenue producers in the Specialty Media market have been a limited number
(fewer than 20) of manufacturers of public-domain media formulations (mostly
developed in the 1960's) and the Fetal Bovine Serum (FBS) which has been used to
supplement media. CMT believes that mostly price-based competition exists in
this area.

Sentigen Corp.

Sentigen Corp. is engaged in research to develop innovative,
environmentally sound approaches to prevent insect crop damage and the spread of
human disease by impacting insect behavior. Sentigen Corp. intends to provide a
safe and effective alternative to pesticides without contaminating the
environment or genetically modifying insects or crops. We believe Sentigen
Corp.'s process will enable identification of bioactive compounds that allow for
specificity and effectiveness in insect control.

Sentigen Corp. has not yet developed an actual product or generated any
revenues. Sentigen Corp.'s future competitive position depends on its ability to
develop a product that will be more economically feasible and at the same time
more effective than the elements of a traditional integrated pest management
strategy. While we believe that the Sentigen Corp. approach is unique and
provides a new technological solution which resolves environmental and public
health issues; pesticide manufacturers, genetic engineers and introductory
biologically based solution companies are still considered competitors of our
solution.

Pesticide Manufacturers. In order to alleviate growing negative public
opinion, many pharmaceutical and chemical companies have spun off pesticide
divisions, and are publicly proposing to manufacture "greener" products. At this
point, however, the research and development budget of pesticide companies
remains primarily focused on their core business of pesticides.

Genetic Engineers. Genetically modified varieties of corn, cotton and
potatoes are currently grown that produce their own insecticide. In the mid
1990s, many farmers switched to these "super-seeds," allowing genetically
altered corn and soybeans to enter into the worldwide marketplace quietly.
Recently, various sicknesses and health problems have been caused by the use of
these seeds. As a result, this solution has become increasingly controversial.

Biologically Based Solutions. Biologically based solutions, such as
pheromone mating disruption, represent considerably safer alternatives to
pesticides and genetically modified foods. However, these technologies have been
risky and difficult to produce.

8

Government Regulation

We are subject to many laws and governmental regulations and changes in
these laws and regulations, or their interpretation by agencies and the courts,
occur frequently.

Environmental Regulation. Our operations are subject to various
evolving federal, state and local laws and regulations relating to the
protection of the environment, which laws govern, among other things, emissions
to air, discharges to ground, surface water, and groundwater, and the
generation, handling, storage, transportation, treatment and disposal of a
variety of hazardous and non-hazardous substances and wastes. Federal and state
environmental laws and regulations often require manufacturers to obtain permits
for these emissions and discharges. Failure to comply with environmental laws or
to obtain, or comply with, the necessary state and federal permits can subject
the manufacturer to substantial civil and criminal penalties. CMT operates a
manufacturing facility and Sentigen Corp. operates a laboratory facility.
Although we believe that these facilities are in substantial compliance with all
applicable material environmental laws, it is possible that there are material
environmental liabilities of which we are unaware. If the costs of compliance
with the various existing or future environmental laws and regulations,
including any penalties which may be assessed for failure to obtain necessary
permits, exceed our budgets for those items, our business could be adversely
affected. In addition, liability to third parties could have a material adverse
effect on our business.

Potential Environmental Cleanup Liability. The Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended, and many
similar state statutes, impose joint and several liability for environmental
damages and cleanup costs on past or current owners and operators of facilities
at which hazardous substances have been discharged, as well as on persons who
generate, transport, or arrange for disposal of hazardous wastes at a particular
site. In addition, the operator of a facility may be subject to claims by third
parties for personal injury, property damage or other costs resulting from
contamination present at or emanating from property on which its facility is
located. Furthermore, certain business operations of CMT also involve shipping
hazardous waste off-site for disposal. As a result, we could be subject to
liability under these statutes. Furthermore, we cannot assure you that we or our
subsidiaries will not be subject to liability relating to manufacturing
facilities owned or operated by us currently or in the past.

Permits. In connections with its business operations, CMT has obtained
permits from the New Jersey Department of Environmental Protection as both a
hazardous waste and medical waste generator. CMT believes that its compliance
with these regulations, however, is on a voluntary basis inasmuch as its
operations produce insufficient levels of chemical waste. We further believe
that none of its medical waste is deemed infectious. In addition, CMT has
obtained a permit from the Nuclear Regulatory Commission for the use of
radioisotopes in connection with its research functions.

Other Regulations. In addition to the foregoing, we may be subject to
various other federal, state and local regulatory and licensing requirements as
the same are promulgated from time to time by the Environmental Protection
Agency, Food and Drug Administration, Nuclear Regulatory Commission, the New
Jersey Department of Environmental Protection and other federal, state and local
regulatory agencies. Failure on our part to comply with any of these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants. We have made, and will continue to
make, capital and other expenditures necessary to monitor and to comply with any
applicable regulations. For the year ended December 31, 2001, we did not have to
make any material expenditures with respect to such matters.

Trademarks, Proprietary Information and Patents

We utilize certain proprietary information in connection with the
provision of our services and the manufacture and sale of our products,
including processes and formulas with respect to cell and embryo culture media
and reagents, and gene expression systems that we believe are proprietary to us.
We rely on customary principles of "work-for-hire" as well as technical measures
to establish and protect the ideas, concepts, and documentation of our
proprietary technology and know-how and, in certain instances, have entered into
non-disclosure agreements with our customers and employees. Such methods,
however, may not afford complete protection, and we cannot assure you that third
parties will not independently develop such know how or obtain access to our
know-how, ideas, concepts, and documentation. Although we believe that our
technology has been developed independently and does not infringe on the
proprietary rights of others, we cannot assure you that the technology does not
and will not so infringe or that third parties will not assert infringement
claims against us in the future. In the case of infringement, we would, under

9

certain circumstances, be required to modify our products or obtain a license.
We cannot assure you that we will have the financial or other resources
necessary to successfully defend a patent infringement or other proprietary
rights infringement action or that we could modify our products or obtain a
license if we were required to do so. Failure to do any of the foregoing could
have a material adverse effect on our business. If our products or technologies
are deemed to infringe upon the rights of others, we could be liable for
damages, which could have a material adverse effect on us.

Cell & Molecular Technologies

During 1999, CMT applied to the United States Patent and Trademark
Office for a trademark, EmbryoMax(R). The EmbryoMax(R) trademark pertains to
Specialty Media's mouse embryo culture media and reagents offered by Specialty
Media to support the generation of transgenic mice.

Sentigen Corp.

During 2000, Sentigen Corp. entered into an exclusive licensing
agreement with Columbia University in the City of New York for worldwide rights
to patent applications and intellectual property in the areas of chemosensation
and olfaction.

Product Liability

As a manufacturer of certain products, we may be exposed to product
liability claims by consumers. We have obtained product liability insurance
coverage in the aggregate amount of $2 million ($1 million per occurrence), and
an umbrella policy that provides a $10 million coverage (per occurrence or in
the aggregate). Although we believe that this amount of insurance is sufficient,
we cannot assure you that it will provide coverage for any claim against us or
will be sufficient to cover all possible liabilities. In the event a successful
suit is brought against us, unavailability or insufficiency of insurance
coverage could have a material adverse effect on our operations. Moreover, any
adverse publicity arising from claims made against us, even if such claims were
not successful, could adversely affect the reputation and sales of our products
and services.

Employees

As of December 31, 2001, we had forty-one (41) full-time and five (5)
part-time employees. Of such employees: four (4) are executive employees; two
(2) are engaged in customer support; eighteen (18) (including 2 part-time
employees) are engaged in contract research and development; five (5) (including
2 part-time employees) are engaged in media production; eight (8) (including 1
part-time employee) are engaged in research and development activities; two (2)
are engaged in sales and marketing; two (2) are engaged in warehousing, shipping
and receiving; and five (5) are engaged in accounting and administration.

None of our employees are covered by collective bargaining agreements.
We believe that we have a good relationship with our employees.

History of Sentigen Holding Corp.

We were incorporated under the laws of the State of Delaware in May
1990 under the name Prime Cellular, Inc. (Prime) to provide management services,
including business planning, marketing, engineering, design and construction
consulting services, to rural service area cellular telephone licensees.
However, preferences of owners of construction permits and the deterioration in
general economic conditions subsequent to Prime's initial public offering in
early August 1990 negatively impacted Prime's business plan and Prime soon
determined that it was prudent for it to explore other uses for Prime's funds.

Prime initially analyzed potential investments in debt and equity
instruments of entities involved in either the cellular or related industries
and subsequently expanded its search to include entities involved in
non-cellular operations.

10

On June 11, 1996, a wholly-owned subsidiary of Prime consummated a
merger (Bern Merger) with Bern Associates, Inc. (Bern) pursuant to that certain
Merger Agreement, dated May 14, 1996 (Bern Agreement), by and among Prime, its
subsidiary, Bern and all of the stockholders of Bern. Bern's business consisted
principally of designing, installing, maintaining, servicing and supporting
computer systems to enable regional telephone companies to provide Internet
access to their subscribers as well as developing Internet related software.
Bern offered its customers an integrated Internet access solution comprised of
off-the-shelf computer hardware and accessories, systems integration, billing
software and twenty-four hour subscriber support. Bern also provided network
management services to regional telephone companies already offering Internet
access. After the Bern Merger, Prime's subsidiary changed its name to "Bern
Communications, Inc." (Bern Communications). The Merger was accounted for as a
reverse acquisition whereby Bern Communications was treated as the acquirer for
financial reporting purposes. From June 11, 1996 until November 30, 1997, Bern
Communications was the sole operating entity of Prime.

On August 28, 1997, Prime entered into a settlement with former
stockholders of Bern (Bern Stockholders) for alleged breaches of certain
representations and warranties made by the Bern Stockholders with respect to the
Bern Merger as well as for on-going disputes concerning the operations and
direction of the business of Bern Communications. Pursuant to the settlement,
Prime (i) purchased all of the shares of common stock in Prime held by the Bern
Stockholders as a result of the Prime Merger, at a purchase price of $.50 per
share (the market price on the date of such purchase), aggregating 676,937
shares of common stock for an aggregate amount of $338,469, (ii) transferred to
certain Bern Stockholders all right and title to the intellectual property
rights with respect to the computer software program WEBSITENOW and certain
computer hardware used in the development of such software program. In exchange,
such Bern Stockholders signed a general release and, to the extent applicable,
confirmed their prior resignations as our officers and/or directors and/or Bern
Communications as well as terminated their respective options to purchase our
common stock. All shares acquired by us pursuant to the settlement were
canceled, effective as of August 28, 1997.

Following the settlement, Bern Communications ceased soliciting further
opportunities or engaging in any further consulting services in connection with
its integrated Internet access system. Moreover, all sales of computer hardware
and/or software of Bern Communications were discontinued effective as of the
settlement. Bern Communications did nevertheless continue to provide help desk
functions as well as network management services pursuant to its existing
contractual arrangements. All such contractual arrangements were terminated on
or about November, 1997.

On May 29, 1998, a newly formed wholly-owned subsidiary of Prime
acquired, by merger, CMT. Pursuant to the Merger Agreement, dated May 29, 1998,
the subsidiary was merged into CMT and all of the outstanding shares of capital
stock of CMT were converted into an aggregate of 1,611,000 shares of common
stock, par value $.01 per share, of Prime (CMT Merger), representing
approximately 26.4% (after consummation of the CMT Merger) of Prime's issued and
outstanding common stock. The CMT Merger was accounted for as a reverse
acquisition whereby CMT was treated as the acquirer for financial reporting
purposes. In connection with the CMT Merger, the company changed its fiscal year
end from May 31, to December 31, which year end corresponds with the fiscal year
end for CMT.

On December 22, 1998, each of Prime Cellular of Florida, Inc. and Bern
Communications, Inc., as wholly-owned subsidiaries of Prime no longer conduct
business and merged with and into Prime pursuant to a short-form affiliate
merger.

Sentigen Corp. was formed by Prime in February of 2000. Prime changed
its name to Sentigen Holding Corp. on June 23, 2000, at which time our ticker
symbol changed to SGHL. On January 9, 2002 our common stock began trading on The
Nasdaq SmallCap Market under the symbol SGHL.

ITEM 2. PROPERTIES

Since June 1998, our executive offices have been located at 580
Marshall Street, Phillipsburg, New Jersey 08865 (the Phillipsburg facility). The
Phillipsburg facility consists of approximately 6,651 square feet of laboratory,
manufacturing and office/warehouse space. The property is owned by our
wholly-owned subsidiary, CMT. The Phillipsburg facility was acquired in
connection with the CMT Merger subject to a mortgage and note, dated February
10, 1997, in the aggregate principal amount of $287,600. As of December 31,
2001, the balance due under the note is $259,629.

11

In November 2001, CMT signed a 44-month lease for approximately 11,000
square feet of laboratory and office/warehouse space at 445 Marshall Street,
Phillipsburg, New Jersey 08865. This space is to accommodate growth
opportunities for CMT. Rental expense on this property is $12,530 per month,
beginning in February 2002.

In March 2001, CMT signed a three-year lease for approximately 3,000
square feet of laboratory space at 418 Industrial Drive, North Wales,
Pennsylvania 19454. This space is to accommodate growth opportunities for CMT's
HTS and assay development services. Rental expense on this property totaled
$13,500 for the year ended December 31, 2001.

We conduct Sentigen Corp.'s research and development activities from a
leased facility totaling approximately 2,000 square feet at 3960 Broadway, New
York, New York 10032. The lease expires in April 2002, but contains extension
options through May 2003. We also lease administrative office space at this same
location totaling approximately 1,000 square feet. Total rental expense for this
location was $84,173 for the year ended December 31, 2001.

We also lease approximately 980 square feet of administrative office
space at 434 East Cooper Street, Aspen, Colorado 81611. Rental expense for this
property was $36,492 for the year ended December 31, 2001. The lease expires in
April 2003.

We routinely evaluate our facilities for adequacy in light of our plans
for growth in various geographic markets. Our plans may require us to lease
additional facilities in the future.

ITEM 3. LEGAL PROCEEDINGS

Not Applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

During 2001 our common stock traded on the OTC Bulletin Board under the
symbol SGHL. On January 9, 2002 our common stock began trading on The Nasdaq
SmallCap Market under the symbol SGHL. The following table sets forth the high
and low bid prices for the common stock as reported on the OTC Bulletin Board
through January 8, 2002 and the high and low sales prices from January 9, 2002
until March 24, 2002. The prices represent inter-dealer quotations, which do not
include retail markups, markdowns or commissions and may not necessarily
represent actual transactions. Our stock symbol changed from PCEL to SGHL in
June 2000.

Period High ($) Low ($)
------- --------- -------

Fiscal 2002

First quarter * $ 6.8000 $ 4.000

Fiscal 2001

Fourth quarter $ 5.7500 $ 4.5999
Third quarter 7.0000 5.5000
Second quarter 7.0000 5.7500
First quarter 7.0000 4.5625

12

Fiscal 2000

Fourth quarter $ 10.5000 $ 6.0000
Third quarter 7.2500 4.2500
Second quarter 6.2500 2.2500
First quarter 6.3750 1.6250

* Through March 24, 2002.

On March 26, 2002, the last sale price for our common stock was $6.50,
as reported by The Nasdaq SmallCap Market. As of March 26, 2002, there were
7,451,044 shares of common stock outstanding. We believe that there are in
excess of 300 beneficial owners of our common stock, whose shares are held of
record or in street name.

Dividend Policy

To date, we have not declared or paid any cash dividends on our common
stock. The payment of dividends, if any, in the future is within the discretion
of the Board of Directors and will depend upon our earnings, our capital
requirements and financial condition and other relevant factors. We currently
intend to retain all earnings, if any, to finance our continued growth and the
development of our business. We do not expect to declare or pay any cash
dividends in the foreseeable future.

Recent Sales of Unregistered Shares

During the year ended December 31, 2001, we made the following sales of
unregistered securities:

(1) Options to purchase common stock issued to employees or consultants.

13

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data at and for the years ended
December 31, 2001, 2000, 1999, 1998, and 1997 has been derived from our audited
financial statements for each of the years. Such information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
appearing elsewhere in this Report.

14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Results of Operations

Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000

Revenue for the year ended December 31, 2001 was $6,080,198 as compared
to $4,729,503 for the year ended December 31, 2000. This $1,350,695 or 29%
increase in revenues was the result of a $880,478 or 29% increase in revenues
from the molecular cell science division and a $470,217 or 28% increase in
revenues from the specialty media division. Our revenues are entirely
attributable to the operations of Cell & Molecular Technologies, Inc. ("CMT").

Revenue growth through molecular cell science, was attributable to more
aggressive High Throughput Screening programs employed by our customers. These
programs are running with extended screening times which require more diverse
cell lines, additional products and support from CMT. We also hired a business
development director in the second quarter of 2000, and as a result of increased
sales and marketing efforts, our portfolio of contracts has increased.

Revenue growth through specialty media, was attributable to three
factors: (i) a more effective sales and marketing program, (ii) increased
business from companies private labeling our media, and (iii) increased sales of
our cell line based products.

Income after direct costs for the year ended December 31, 2001 was
$3,804,142 or a 63% margin, as compared to $2,838,854 or a 60% margin for the
year ended December 31, 2000. The increase in margins was due to pricing
increases implemented at the beginning of 2001 and a shift in our revenue mix
towards sales of higher margin contract R&D relationships and media products.

Selling, general and administrative costs of CMT increased from
$1,420,588 for the year ended December 31, 2000 to $2,027,716 for the year ended
December 31, 2001. This increase of $607,128 or 43% can be attributed to the
increased infrastructure costs resulting from our new North Wales, Pennsylvania
facility, additional hiring of new employees during the year and increased sales
and marketing activity.

Research and development costs increased from $467,567 for the year
ended December 31, 2000 to $1,022,490 for the year ended December 31, 2001.
Sentigen Corp. was formed in February of 2000 and did not commence significant
research activities until May of 2000; consequently, research and development
costs for the year ended December 31, 2000 represent approximately seven months
of activity.

Corporate overhead increased from $698,601 for the year ended December
31, 2000 to $1,219,476 for the year ended December 31, 2001. The $520,875 or 75%
increase can be attributed to higher personnel and professional costs.

Non-cash charges for the stock-based compensation of our scientific
consultants decreased from $213,729 for the year ended December 31, 2000 to
$73,146 for the year ended December 31, 2001. The decrease of $140,583 or 66%
can be attributed to the amendments to our consulting agreements with these
scientists. According to the amended agreements dated December 3, 2001 the
consultants' remaining unvested options will vest based on the sole discretion
of the Board of Directors. The amendments to the agreements constituted a change
in accounting estimate for purposes of calculating stock-based compensation.
According to Statement of Financial Accounting Standards 123 "Accounting for
Stock Based Compensation," charges for non-cash stock based compensation for the
unvested options of these consultants were not recognized in 2001, accounting
for the decrease.

Depreciation and amortization increased from $282,753 for the year
ended December 31, 2000 to $484,126 for the year ended December 31, 2001. The
increase of $201,373 or 71% can be attributed to the increased equipment
expenditures in 2001 associated with the build-out of CMT's new North Wales,
Pennsylvania facility, and its expansion at the 445 Marshall Street,
Phillipsburg, New Jersey site.

Interest income, net of interest expenses increased by $316,354, which
is directly attributable to the investment of proceeds from our November 2000
private placement.

15

Our income tax provision increased from $74,322 for the year ended
December 31, 2000 to $133,122 for the year ended December 31, 2001. The increase
is attributable to the increase in the income from operations of CMT. The income
from operations of CMT increased from $1,124,337 for the year ended December 31,
2000 to $1,360,025. This increase of $235,688 or 21% generated additional state
income tax expenses of $58,800 in the year ended December 31, 2001 as compared
to the year ended December 31, 2000.

As a result of the foregoing, our net loss increased from $126,715 for
the year ended December 31, 2000 to $647,589 for the year ended December 31,
2001.

Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999

Revenue for the year ended December 31, 2000 was $4,729,503 as compared
to $3,916,581 for the year ended December 31, 1999. This $812,922 or 21%
increase in revenues was the result of a $620,318 or 26% increase in revenues
from the molecular cell science division and a $192,604 or 13% increase in
revenues from the specialty media division.

The increase in revenues from the molecular cell science division is
due to three factors: (i) a more effective sales and marketing program resulting
from the addition of our business development director (ii) our contract R&D
services offered in molecular biology, protein bio-chemistry, bio-processing and
mouse genetics are transitioning from smaller, shorter-term projects to larger,
long-term research partnerships which carry higher contract values and (iii)
more aggressive HTS programs with extended screening times which require more of
our HTS applications and technology development services.

The increase in revenues from the specialty media division was the
result of three factors: (i) a more effective sales and marketing program, (ii)
increased business from companies private labeling our media and (iii) an
increased use of our ES lines.

Income after direct costs for the year ended December 31, 2000 was
$2,838,854 or a 60% margin, as compared to $2,290,378 or a 58% margin for the
year ended December 31, 1999. The increase in margins was due to a more
efficient utilization of facilities and headcount during the year and a shift
towards higher margin contract R&D relationships.

Research and development costs increased from $28,960 for the year
ended December 31, 1999 to $467,567 for the year ended December 31, 2000. This
increase was due to the research activities of Sentigen Corp. which was not in
existence in 1999.

Selling, general and administrative costs of CMT increased from
$1,007,935 for the year ended December 31, 1999 to $1,420,588 for the year ended
December 31, 2000. This increase of $412,653 or 41% was due to higher wages and
increased sales and marketing expenses.

Corporate overhead resulted in net expense of $698,601 for the year
ended December 31, 2000 as compared to a net expense of $533,262 for the year
ended December 31, 1999. The increase of $165,339 or 31% is the result of higher
personnel and professional costs during the year.

Non-cash charges for the stock-based compensation of the scientific
advisory board were $213,729 for the year ended December 31, 2000. The
scientific advisory board did not exist in 1999.

Depreciation and amortization increased from $239,457 for the year
ended December 31, 1999 to $282,753 for the year ended December 31, 2000. The
increase of $43,296 or 18% can be attributed to capital expenditures made in
2000.

Interest income, net of interest expenses increased by $31,641 or 20%,
primarily due to higher yields on our investment securities in 2000.

As a result of the foregoing, net income declined from $641,114 for the
year ended December 31, 1999 to a net loss of $126,715 for the year ended
December 31, 2000.

16

Liquidity and Capital Resources

At December 31, 2001 we had $4,889,272 in cash, $4,898,490 in
investment securities and working capital of $9,929,995. During the year ended
December 31, 2001 we financed our operations primarily through working capital
and we financed capital expenditures through bank loans.

During the first quarter of 2001 we leased approximately 3,000 square
feet of laboratory space to accommodate growth opportunities for CMT's High
Throughput Screening applications and assay development services. In connection
with this new facility, CMT borrowed $404,337 under a $720,000 loan commitment
to finance capital equipment expenditures. We are required to pay interest at
the prime rate plus 50 basis points on principal amounts borrowed during the
first year of the loan commitment. At the conclusion of the first year of the
loan commitment (June 2002) or when we have borrowed the entire amount under the
loan commitment, whichever is sooner, the outstanding principal will be repaid
over seven years with interest at the prime rate plus 50 basis points. In March
2002, CMT borrowed the remaining $315,663 under this loan commitment.

In June 2001, Sentigen Corp. borrowed an additional $60,000 under its
existing $500,000 five-year loan commitment to finance equipment expenditures,
for a total of $300,000 borrowed to date, at an interest rate of 8.75%. Sentigen
Corp. now has $200,000 in available funds under this loan commitment.

Sentigen Corp. was formed in February of 2000 and is focusing on
research and development activities . Our licensing agreement with The Trustees
of the Columbia University in New York calls for us to contribute a minimum of
$1,000,000 into Sentigen Corp. within one year of the date of the agreement (by
April 2001) or we must be involved in active negotiations to raise $1,000,000 in
additional funding. We satisfied this provision through the consummation of our
private placement in November 2000 in which we sold 863,834 shares of our common
stock at $6.00 per share for aggregate gross proceeds of $5,183,004.

Another provision of the agreement calls for a minimum of $50,000 per
six month period or $100,000 per annual period to be spent on bona fide research
and development of the patents and licenses subject to the agreement from the
second through the fourth years of the agreement (April 2002 through April 2004)
or we must be involved in active negotiation to raise $1,000,000 in additional
funding. We satisfied this provision through April 2002. We believe that we have
enough capital resources to meet the financial requirements of this provision
for the agreement years 2002 and beyond.

Five stockholders and one of their related parties advanced $500,000,
in aggregate, to CMT during 1997. The promissory notes bear 5% simple interest,
payable at maturity, and had an original due date of July 14, 2002. As a result
of the CMT merger, the above loans' maturity dates were accelerated to May 1,
2000. During 1999, the stockholders agreed to extend the above loans' maturity
date to May 1, 2001. In July 2001, the stockholders agreed to extend the
maturity date of the loans until September 1, 2001. On September 1, 2001 CMT
repaid principal and interest of $603,125 to retire the loans.

We believe our financial resources will be sufficient to fund our
operations and capital requirements for the foreseeable future. However, we may,
in the future, deem it advisable to obtain additional debt or equity financing
if interest rates and other terms are favorable.

Significant Accounting Policies

We do not believe that any of the accounting policies we have adopted
involve a high degree of complex or subjective judgment in their application or
choices among alternatives that would lead to materially different results. A
summary of our significant accounting policies is provided in Note 2 of the
Financial Statements

Inflation

Inflation has historically not had a material effect on our operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This information appears in a separate section of this report following
Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable.

18

PART III

ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

The following are our current executive officers, directors and key
employees:

Name Age Position

Executive Officers
and Directors:

Joseph K. Pagano 56 President, Chairman of the Board and Director

Fredrick B. Rolff 30 Chief Financial Officer, Vice President
and Treasurer

Thomas Livelli 49 Director and President and Chief Executive
Officer of CMT

Frederick R. Adler 76 Director

Gerald Greenwald 66 Director

Joel M. Pearlberg 64 Director

Samuel A. Rozzi 56 Director

Key Employees:

Kevin J. Lee, PhD 39 Executive Vice President -
Research, Sentigen Corp.

Richard Malavarca 48 Chief Operating Officer
and Vice President of CMT

Joseph K. Pagano has served as our President since June 1994. Mr.
Pagano has also served as a Director since 1991, as Chairman of the Board since
June 1996 and as Chief Financial Officer from June 1994 until July 1996. From
1991 until April 1999, we had engaged Mr. Pagano as a consultant, commencing an
employment relationship thereafter. Mr. Pagano has been a private investor for
more than the past five years. Mr. Pagano has been active in venture capital for
over 20 years, with investments in a wide variety of industries, including,
among others, computers, medical equipment, biotechnology, communications,
retailing and outsourcing. He was a founding investor in Ribi Immunochem, one of
the earliest biotechnology companies to go public and one of the first to focus
on cancer vaccines. He participated in the early round financing of Amcell
Cellular Communication, which was sold to Comcast. He was a founding investor of
NMR of America, the first MRI center business to go public and was also a
founding Director of Office Depot, the first office warehouse to go public.

Fredrick B. Rolff, has served as our Chief Financial Officer, Vice
President and Treasurer since January 2001. Mr. Rolff joined our company in
November 2000 as corporate controller. From April 1999 until November 2000, Mr.
Rolff was Director, Financial Strategy for Rare Medium Group, Inc., an internet
development and venture capital firm. From January 1998 until April 1999, Mr.
Rolff attended Fordham University Graduate School of Business, where he earned
an MBA in Finance. From September 1993 until January 1998, Mr. Rolff was
employed by KPMG LLP where he provided audit and business advisory services to
private and public companies in the financial services industry. Mr. Rolff holds
a BS in Accounting from Villanova University, is a Certified Public Accountant
and a candidate in the Chartered Financial Analyst program. Mr. Rolff is the
nephew of Samuel A. Rozzi.

Thomas Livelli has been a Director since June 1998. He has been the
President and Chief Executive Officer of CMT since May 1997. He was also
President of CMT's predecessor companies from 1987 until May 1997. From January
1986 until July 1997, Mr. Livelli was a laboratory manager at the Howard Hughes
Medical Institute at Columbia University. Prior to 1986, Mr. Livelli worked at
Merck Research Laboratories and Cistron Biotechnology, directing their
respective gene expression programs. While at Cistron, Mr. Livelli was a
visiting scholar at Columbia University. Mr. Livelli maintains a part-time
faculty appointment at Columbia University College of Physicians & Surgeons in
the Department of Neurobiology and Behavior.

19

Frederick R. Adler has been a Director since May 1996. Mr. Adler is
Managing Director of Adler & Company, a venture capital management firm he
organized in 1968, and a general partner of its related investment funds. Since
January 1996, Mr. Adler has been of counsel to the law firm of Fulbright &
Jaworski L.L.P. and was a senior partner in the firm for more than five years
prior to that. Mr. Adler is also chairman and director of Shells Seafood
Restaurants, Inc., as well as a director of various private companies. Mr. Adler
is a member of the Board of Managers of Memorial Sloan-Kettering Cancer Center
(New York, NY) and a member of the Dean's Advisory Board of the Harvard Law
School (Cambridge, MA).

Gerald Greenwald has been a Director since June 2001. Mr. Greenwald
recently founded Greenbriar Equity Group with Joel Beckman and Reginald Jones.
Greenbriar Equity Group has formed a strategic alliance with Berkshire Partners
to make private equity investments in the global transportation sector. Mr.
Greenwald is presently Chairman Emeritus of UAL Corporation and United Airlines,
its principal subsidiary. From 1994 until his retirement in July 1999, Mr.
Greenwald was Chairman and Chief Executive Officer of United Airlines. Mr.
Greenwald has also served as Managing Director of Dillon Read & Co., an
investment banking company, and as President of Olympia & York Developments,
Ltd., a real estate development company. His career started in the automobile
industry at Ford Motor Company, where he worked in several positions including
Controller, Director of Ford's operations in Europe and as President of Ford of
Venezuela. Mr. Greenwald later was employed by Chrysler Corporation, where he
worked in various positions, including Corporate Controller and Chief Financial
Officer, before being promoted to Vice Chairman, where he shared full
responsibility with the Chief Executive Officer for the operations of the
company. Mr. Greenwald graduated cum laude from Princeton University's Woodrow
Wilson School and received a masters degree in economics from Wayne State
University. Mr. Greenwald is a member of the Board of Directors of Aetna, Inc.
His term began in September 1993 and expires in April 2006. Mr. Greenwald is
also a member of the Board of Directors of Calpine Corp. His term began in July
2001 and expires in July 2003.

Joel M. Pearlberg has been a Director since February 2001. Mr.
Pearlberg is General Partner of Steinhardt Partners, L.P., a private hedge fund
he joined in January 1991. Mr. Pearlberg graduated from New York University with
a B.S. in Accounting and is a Certified Public Accountant. In 1962, he joined
the public accounting firm of Harry Goodkin & Co. where he rose to the position
of Managing Partner. In April 1983, he started the firm of J.M. Pearlberg &
Company, a public accounting firm specializing in investment partnerships,
security taxation and tax planning for high net worth individuals. In April
1989, he joined HPB Associates, L.P., a private investment partnership as
Controller.

Samuel A. Rozzi has been a Director since January 1997. He previously
served as a Director from 1991 until June 1996. Mr. Rozzi has been the President
of Corporate National Realty, Inc., a corporate real estate brokerage and
services firm, since September 1988. Mr. Rozzi is the uncle of Fredrick B.
Rolff.

Kevin J. Lee, PhD has served as the Executive Vice President - Research
for our wholly owned subsidiary, Sentigen Corp. since March 2000. Since 1985,
Dr. Lee has been using molecular genetic techniques to study neurobiology in the
fruit fly Drosophila melanogaster and the mouse at various universities
including the University of California and the Massachusetts Institute of
Technology. When working with Drs. Lily and Yuh Nung Jan at the University of
California at San Francisco, he was involved in the cloning of the Shaker
potassium channel gene. Dr. Lee was also a pioneer in the development of
enhancer trapping, a technique that has had a profound impact on gene discovery
and analysis in Drosophila. In subsequent work with Dr. Hermann Steller at MIT,
he used these techniques to analyze the development of the visual system in the
fruit fly. Dr. Lee is a graduate of the University of Michigan and MIT, Dr. Lee
was a postdoctoral fellow and an Associate Research Scientist in the Center for
Neurobiology and Behavior at Columbia University where he worked with Dr. Thomas
Jessell. Dr. Lee was a National Science Foundation fellow at MIT and a Life
Sciences Foundation Fellow of the Howard Hughes Medical Institute at Columbia
University.

Richard Malavarca has been Vice President of CMT and its predecessor
company since 1987 and Chief Operating Officer of CMT since January 2000. Mr.
Malavarca served as a director from June 1998 to December 2000. Prior to May
1987, Mr. Malavarca worked at the Harvard Medical School, The Roche Institute
for Molecular Biology, Merck Research Laboratories and Cistron in basic research
involving developmental biology, molecular and cell biology.

Directors are elected annually by the stockholders. Officers are
elected annually by the Board of Directors and serve at the discretion of the
Board of Directors.

20

Scientific Consultants

In connection with the formation of Sentigen Corp. we engaged a group
of scientists to act as consultants to Sentigen Corp. in the field of olfaction
and chemosensation. The consultants generally advise us concerning long-term
scientific planning, research and development, and also evaluate our research
programs, recommend personnel to us and advise us on specific scientific and
technical issues. The consultants generally meet at least once per quarter, and
some individual scientific advisors consult with and meet informally with us on
a more frequent basis. None of our consultants is employed by us, and any or all
of our consultants may have commitments to or consulting or advisory contracts
with their employers or other entities that may conflict or compete with their
obligations to us. These consultants were issued stock options and will be
compensated at the rate of $2,500 plus out-of-pocket expenses for each formal
meeting. On December 3, 2001 we restructured the consulting agreements with all
but one consultant to provide unvested stock options granted to such consultants
will vest based on the sole discretion of the Board of Directors instead of in
accordance with a pre-determined vesting schedule.

The consultants to Sentigen Corp. are:

Dr. Richard Axel Professor at Columbia University

Cornelia Bargmann, PhD Professor at the University of California,
San Francisco

Dr. Gerald M. Edelman Director of The Neurosciences Institute, President
of Neurosciences Research Foundation, Chairman of
the Department of Neurobiology and Professor at
The Scripps Research Institute

Wendell L. Roelofs, PhD Liberty Hyde Bailey Professor of Insect
Biochemistry at Cornell University's New York State
Agricultural Experiment Station

Leslie Vosshall, PhD Assistant Professor and Head of Laboratory at
the Rockefeller University

Dr. Richard Axel is a graduate of Columbia College and The Johns
Hopkins School of Medicine. In early work, Dr. Axel and his colleagues developed
gene transfer techniques that permitted the introduction of virtually any gene
into any cell, allowing analysis of gene function in vivo. These experiments in
cell transformation led to the isolation and functional analysis of the gene for
the T-cell surface protein, CD4, the cellular receptor for HIV.

More recently, Dr. Axel has been applying the techniques of molecular
biology to problems in neurobiology and his work has been largely concerned with
the molecular logic of olfactory perception. This research has provided
important insights into how the recognition of odors is translated into an
internal representation of sensory quality in the brain.

In recognition of his work in molecular genetics, Dr. Axel has received
numerous awards: the Passano Foundation Young Scientist Award, the Alan T.
Waterman Award from the National Science Foundation, the Eli Lilly Award in
Biological Chemistry, the New York Academy of Sciences Award in Biological and
Medical Sciences, the Lounsbery Award from the National Academy of Sciences, the
John Jay Award from Columbia University, and the Science Pour L'Art Award, LMVH,
Paris. Dr. Axel was the 1996 co-recipient of the Unilever Science Award, and in
1997 was the co-recipient of the Rosenstiel Award. In 1998, he received the
Bristol Meyers Squibb Award for Excellence in Neuroscience, and in 1999, the
Hamilton Medal from Columbia University. Dr. Axel is a member of the National
Academy of Sciences, and the American Academy of Arts and Sciences.

Cornelia Bargmann, PhD did her graduate work with Dr. Robert Weinberg
at the Whitehead Institute for Biomedical Research, where she participated in
the discovery of several human oncogenes, and her postdoctoral work with Dr. H.
R. Horvitz at MIT, where she characterized chemosensory responses of the
nematode C. elegans.

Her work focuses on olfactory signaling mechanisms and on the genetics
of behavior. Her lab's experimental approach combines behavioral approaches with
classical genetics and molecular biology. Dr. Bargmann's lab was the first to
identify an odorant receptor that recognizes a specific odor, and to demonstrate
that the loss of the receptor led to a behavioral defect in the odor response.
The lab demonstrated that the behavioral response to an odor is encoded by the
olfactory neuron, and that misexpressing an odorant receptor in an inappropriate
neuron can alter the behavioral response to the odor. In addition, the lab has
characterized the genetic basis of natural behavioral variation, identifying a
neuropeptide receptor as the regulator of a social feeding response.

21

Dr. Bargmann has been the recipient of numerous prizes and awards for
her research, including the Charles W. Herrick Award, the W. Alden Spencer
Award, and the Takasago Award. She serves as an editor of the scientific
journals Cell, Neuron, and Genes and Development, and as a scientific advisor to
the Klingenstein Fund for Epilepsy Research, the National Institutes of
Neurological Disorders and Stroke, and the Damon Runyon-Walter Winchell Cancer
Research Fund.

Dr. Gerald M. Edelman has made significant research contributions in
biophysics, protein chemistry, immunology, cell biology, and neurobiology. His
early studies on the structure and diversity of antibodies led to the Nobel
Prize for Physiology in 1972. He then began research into the mechanisms
involved in the regulation of primary cellular processes, particularly the
control of cell growth and the development of multicellular organisms. He has
focused on cell-cell interactions in early embryonic development and in the
formation and function of the nervous system. These studies led to the discovery
of cell adhesion molecules (CAMs), which have been found to guide the
fundamental processes by which an animal achieves its shape and form, and by
which nervous systems are built. One of the most significant insights provided
by this work is that the precursor gene for the neural cell adhesion molecule
gave rise in evolution to the entire molecular system of adaptive immunity.

Dr. Edelman has formulated a detailed theory to explain the development
and organization of higher brain functions in terms of a process known as
neuronal group selection. This theory was presented in his 1987 volume Neural
Darwinism, a widely known work. Dr. Edelman's continuing work in theoretical
neuroscience includes designing new kinds of machines, called recognition
automata, that are capable of carrying out tests of the self-consistency of the
theory of neuronal group selection and promise to shed new light on the
fundamental workings of the human brain. A new, biologically based theory of
consciousness extending the theory of neuronal group selection is presented in
his 1989 volume The Remembered Present. His most recent book, Bright Air,
Brilliant Fire, published in 1992, continues to explore the implications of
neuronal group selection and neural evolution for a modern understanding of the
mind and the brain.

Dr. Edelman was born in New York City in 1929. He earned his B.S.
degree at Ursinus College and an M.D. at the University of Pennsylvania. He
spent a year at the Johnson Foundation of Medical Physics, and after a medical
house officership at the Massachusetts General Hospital, he served as a Captain
in the Army Medical Corps. In 1960 he earned his PhD at The Rockefeller
Institute (now University). In addition to the Nobel Prize, Dr. Edelman has been
the recipient of numerous awards and honors, including many honorary degrees. He
is a member of the National Academy of Sciences, the American Philosophical
Society, and several foreign societies, including the Academy of Sciences,
Institute of France. He is author of over 450 research publications.

Wendell L. Roelofs, PhD obtained a B.S. in Chemistry in 1960 from
Central College in Pella, Iowa, and a PhD in Organic Chemistry in 1964 from
Indiana University. He served at the Massachusetts Institute of Technology as a
postdoctoral fellow in Chemistry and then as an Assistant Professor at Cornell
University Entomology Department's Agricultural Experiment Station, where he
currently serves as The Liberty Hyde Bailey Professor of Insect Biochemistry.
For three decades Dr. Roelofs' research efforts have led to promising
non-pesticidal, sustainable pest management technologies based on behavioral,
physiological and biochemical insect traits. Dr. Roelofs research has identified
pheromone blends of more than 50 major agricultural pests. These advances have
led to a worldwide pheromone industry worth over $100 million. Dr. Roelofs
received the Kenneth A. Spencer Award in Food and Agricultural Chemistry from
the American Chemical Society in February 2001. Dr. Roelofs has received
numerous other awards for his research efforts including: Alexander Humbolt
Award, The Wolf Foundation Prize in Agriculture and The National Medal of
Science. He is author or co-author of over 320 research publications.

Leslie Vosshall, PhD is Assistant Professor and Head of Laboratory of
Neurogenetics and Behavior at the Rockefeller University. Her lab studies the
molecular genetics of insect olfaction. Dr. Vosshall was a postdoctoral fellow
and Associate Research Scientist at the Center for Neurobiology and Behavior at
Columbia University, where she worked with Dr. Richard Axel to identify the
Drosophila odorant receptors. She graduated with an A.B. in Biochemistry from
Columbia University, where she was a John Jay Scholar. Her Ph.D. work was
conducted at the Rockefeller University, and involved the behavior genetics of
biological rhythms. Dr. Vosshall has been named a Beckman Young Investigator, a
McKnight Fellow, and was the recipient of a National Science Foundation CAREER
award in 2000 and a Presidential Early Career Award for Scientists and Engineers
in 2001.

22

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who beneficially own more than 10 percent of
a registered class of our equity securities, file certain reports of ownership
and changes in ownership with the Securities and Exchange Commission. Officers,
directors, and greater than 10 percent beneficial stockholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.

Based solely on our review of the copies of such forms received by us,
or representations obtained from certain reporting persons, we believe that
during the year ended December 31, 2000 all filing requirements applicable to
its officers, directors, and greater than 10 percent beneficial stockholders
were complied with, except that Joel Pearlberg, a director of our company filed
one Form 3 late and Thomas J. Livelli, a director and executive officer of our
company filed one Form 4 late, which Form 4 reported one transaction.

ITEM 11. EXECUTIVE COMPENSATION

The following table discloses the compensation awarded by us to (i)
each of our President and Chief Financial Officer and (ii) the President of CMT,
for the years ended December 31, 2001, 2000 and 1999. During the most recent
twelve (12) month period ended December 31, 2001, none of our or our
subsidiaries' other officers received a total salary and bonus that exceeded
$100,000 during such twelve (12) month period.

(1) Mr. Pagano, was elected as our President on June 15, 1994. Mr. Pagano
received a consulting fee of $75,000 per annum plus reimbursement of
documented expenses incurred on behalf of our company until May 1999,
at which time he became an employee at a salary of $85,000 per annum.
On March 1, 2001, Mr. Pagano's annual salary was increased to $175,000
per annum.

(2) On September 15, 2000, we granted Mr. Pagano stock options to purchase
an aggregate of 200,000 shares of our common stock at $9.00 per share,
of which options to purchase 66,000 shares of our common stock expire
on September 15, 2005 and options to purchase 134,000 shares of our
common stock expire on September 15, 2010. The options vest in four
equal annual installments commencing on September 15, 2001.

23

(3) On May 14, 1996, we granted Mr. Pagano stock options to purchase an
aggregate of 217,000 shares of our common stock at $1.625 per share,
which options were immediately exercisable upon grant. On April 30,
1999, we extended the expiration date of the options to April 30, 2004.

(4) Mr. Rolff joined our company on November 13, 2000 at an annual salary
of $75,000. On May 25, 2001, Mr. Rolff's salary was increased to
$115,000 per annum.

(5) The employees of CMT and the Chief Financial Officer of our company
were paid a bonus based on 5% of the respective individual's annual
salary rate. Each individual's bonus was prorated for months of service
for the year ended December 31, 2001.

(6) Management of CMT and the Chief Financial Officer of our company was
paid a bonus based on CMT's pre-tax income for the year ended December
31, 2000. Each individual's bonus was prorated for months of service
for the year ended December 31, 2000.

(7) On December 20, 2000, Mr. Rolff was granted options to purchase 50,000
shares of our common stock at $6.25 per share. The options vest in five
equal annual installments commencing on December 20, 2001 and expire on
December 20, 2010.

(8) In June 2001, we entered into a separation agreement and a consulting
agreement with Mr. Reinhart. Pursuant to the agreements, we agreed to
pay Mr. Reinhart $10,416 per month from January 20, 2001 through July
19, 2001 and $2,500 per month from July 20, 2001 through July 19, 2002.
We also agreed to pay his medical and dental benefits until July 19,
2001.

(9) Reflects Mr. Livelli's guaranteed annual bonus per his employment
agreement dated May 23, 2001.

(10) On May 23, 2001, we granted Mr. Livelli stock options to purchase
25,000 shares of our common stock at $9.00 per share, which expire on
May 22, 2011. The options vest in five equal annual installments
commencing on January 1, 2002.

Compensation Arrangements for Current Executive Officers

On May 24, 1999, we entered into an employment agreement with Joseph K.
Pagano to serve as our president, replacing the consulting agreement that we had
with Mr. Pagano. The agreement was for an initial term of one year. Mr. Pagano
is currently serving under an automatic renewal provision in his employment
agreement, which provides for one year extensions upon the expiration of each
one year term if no notice is given by us or Mr. Pagano that such party desires
not to extend the employment agreement. The employment agreement provides for an
annual base compensation of $85,000. In connection with the employment
agreement, the termination date of 217,000 options previously granted to Mr.
Pagano under the 1990 Plan were extended an additional three years to April 30,
2004. On September 15, 2000, we granted Mr. Pagano stock options to purchase an
aggregate of 200,000 shares of our common stock at $9.00 per share, of which
options to purchase 66,000 shares of our common stock expire on September 15,
2005 and options to purchase 134,000 shares of our common stock expire on
September 15, 2010. The options vest in four equal annual installments
commencing on September 15, 2001. In March 2001, we increased Mr. Pagano's
annual base compensation to $175,000.

In connection with the merger of CMT, we assumed the employment
agreement with Thomas Livelli, pursuant to which Mr. Livelli served as President
and Chief Executive Officer of CMT through May 22, 2001. As of May 23, 2001, we
entered into a new employment agreement with Mr. Livelli to serve in the same
capacity until the earlier of May 22, 2006 or the two year anniversary of "a
change in control" (as such term is defined in the employment agreement). The
employment agreement provides for an annual base compensation of $150,000, with
automatic cost of living adjustments on each one year anniversary of the
agreement. Mr. Livelli is also entitled to participate in CMT's bonus plan,
which is based on CMT's net profits and allocated each year by the Board of
Directors. Mr. Livelli's agreement provides that his bonus shall be at least
$20,000 for each full fiscal year of employment. If such bonus payment exceeds
Mr. Livelli's allocated bonus under the plan, the excess shall be credited
against any future allocated bonuses in excess of $20,000. The employment
agreement provides for Mr. Livelli's employment on a full-time basis and
contains a provision that the employee will not compete with us during the term
of the employment agreement and for a period of two years thereafter. Pursuant
to the employment agreement, we granted Mr. Livelli stock options to purchase
25,000 shares of our common stock at $9.00 per share, which options expire on
May 22, 2011. The options vest in five equal annual installments commencing on
January 1, 2002.

We do not have an employment agreement with Fredrick B. Rolff.

24

Director Compensation

Directors receive no cash compensation for serving on the Board of
Directors or for attending Board or Committee meetings (if any). We reimburse
directors for out-of-pocket expenses incurred in connection with attending board
meetings. Non-employee directors are eligible to be granted non-qualified stock
options under our 2000 Performance Equity Plan. Nonqualified stock options may
be exercised for up to 10 years from the date of grant at such exercise prices
as the Board of Directors may determine.

Compensation Committee Interlocks and Insider Participation

Our compensation committee is comprised of Frederick R. Adler and Joel
Pearlberg. Neither of these individuals served as officers of ours or of our
subsidiaries.

At the time of the CMT Merger, there were loans outstanding from CMT to
six of its shareholders, in the aggregate principal amount of $500,000, as
evidenced by promissory notes from CMT to each such shareholder. Mr. Adler was
among these shareholders and, at the time of the CMT Merger, held a promissory
note in the principal amount of $112,500. The promissory note bears 5% simple
interest, payable at maturity, and had an original due date of July 14, 2002. As
a result of the CMT merger, the above loans' maturity dates were accelerated to
May 1, 2000. During 1999, the stockholders agreed to extend the above loans'
maturity date to May 1, 2001. In July 2001, the stockholders agreed to extend
the maturity date of the loans until September 1, 2001 under the existing terms
of the loans. On September 1, 2001 CMT repaid principal and interest of $603,125
to retire the loans.

Option Grants

The following table represents the stock options granted in the fiscal
year ended December 31, 2001 to our executive officers identified in the Summary
Compensation table above.

(1) The above information concerning five percent and ten percent assumed
annual rates of compounded stock price appreciation is mandated by the
Securities and Exchange Commission. There is no assurance provided to
any executive officer or to any other optionee that there will be
appreciation of the stock price over the option term or that the
optionee will realize any gains with respect to the options. The
closing price of our common stock on December 31, 2001 was $4.75 per
share.

The following table sets forth the fiscal year end option values of
outstanding options at December 31, 2001 and the dollar value of unexercised,
in-the-money options for our executive officers identified in the Summary
Compensation table above.

25

(1) These values are based on the difference between the closing sale price
of our common stock on December 31, 2001 of $4.75 and the exercise
prices of the options, multiplied by the number of shares of common
stock subject to the options.

(2) Includes (a) 217,000 stock options granted by the board of directors as
of May 14, 1996 under our 1990 Stock Option Plan having an exercise
price of $1.625 per share, which options are currently exercisable and,
as amended, expire April 30, 2004 and (b) 50,000 stock options granted
by the board of directors as of September 15, 2000 under our 2000
Performance Equity Plan having an exercise price of $9.00 per share.
These options were part of an aggregate grant of 200,000 options at
$9.00 per share, of which options to purchase 66,000 shares of our
common stock expire on September 15, 2005 and options to purchase
134,000 shares of our common stock expire on September 15, 2010. The
options vest in four equal annual installments commencing on September
15, 2001.

Stock Plans

We have two stock option plans: the 1990 Stock Option Plan and the 2000
Performance Equity Plan. We are no longer able to grant options under the 1990
plan. The 2000 plan provides for grants of options to purchase up to 2,000,000
shares of common stock. Under the 2000 plan, we may grant options to employees,
directors, consultants, agents and other persons that we deem to be valuable to
our company or any of our subsidiaries. The 2000 plan permits our board of
directors or a stock option committee to issue incentive stock options, as
defined in Section 422 of the Internal Revenue Code (Code), and stock options
that do not conform to the requirements of that Code section. The exercise price
of each incentive stock option may not be less than 100% of the fair market
value of the common stock at the time of grant, except that in the case of a
grant to an employee who owns (within the meaning of Code Section 422) 10% or
more of our outstanding stock or that of any of our subsidiaries, the exercise
price may not be less than 110% of such fair market value. The exercise price of
each non-incentive stock option also may not be less than 100% of the fair
market value of the common stock at the time of grant.

Options that have been granted under the 1990 plan may not be exercised
prior to the first anniversary, or on or after the tenth anniversary, or fifth
anniversary in the case of an incentive stock option granted to a 10%
stockholder, of their grant. These options may not be transferred during the
lifetime of the option holder.

Under the 2000 plan, the Board of Directors may award stock
appreciation rights, restricted stock, deferred stock, stock reload options and
other stock-based awards in addition to stock options. The 2000 plan is
administered by the Board of Directors and may be administered by a committee
chosen by the board of directors. Subject to the provisions of the Plans, the
Board of Directors or such committee have the authority to determine the
individuals to whom the stock options are to be granted, the number of shares to
be covered by each option, the option price, the type of option, the option
period, the restrictions, if any, on the exercise of the option, the terms for
the payment of the option price and other terms and conditions. Under the 2000
plan, no more than 200,000 shares in the aggregate may be granted to any one
holder in any one calendar year.

At December 31, 2001, options to purchase an aggregate of 305,450 and
1,051,800 shares of our common stock were outstanding under the 1990 plan and
2000 plan, respectively.

We have also granted from time to time non-plan options and warrants to
certain officers, employees and consultants. Non-plan options and warrants to
purchase an aggregate of 312,810 shares of our common stock were outstanding at
December 31, 2001.

26

Equity Compensation Plan Information

The following table sets forth certain information at December 31, 2001
with respect to our equity compensation plans that provide for the issuance of
options, warrants or rights to purchase our securities.

(1) In connection with a private placement which we consummated in November
2000, we issued a warrant to Mr. Theodore M. Serure to purchase 44,810
shares of our common stock as compensation for introducing to us
investors who purchased shares of common stock in the private
placement. The holder may exercise the warrant at $6.00 per share until
November 21, 2005. The exercise price and the number of shares of
common stock issuable upon exercise of the warrant are subject to
adjustment in some circumstances including a stock dividend,
recapitalization, reorganization, merger or consolidation. However, the
warrant is not subject to adjustment for issuance of common stock at a
price below the exercise price of the warrant.

On July 7, 1998, we granted to Dr. Paul Marks a non-plan option to
purchase 18,000 shares of our common stock as compensation for scientific
consulting provided to CMT. Dr. Marks may exercise the option at $2.00 per share
until July 9, 2002.

On January 16, 1998, we granted to Frederick Adler and Richard Axel
options to purchase 150,000 and 100,000 shares of our common stock,
respectively, at an exercise price at $0.75 per share until January 16, 2002.
Both Mr. Adler and Mr. Axel exercised all of these options in January 2002. The
options were issued to Mr. Adler for serving as a director for the Company. Mr.
Axel's options were issued as compensation for acting as a consultant to the
Company.

The warrant and the non-plan options are the only equity compensation
"plans" not approved by our shareholders.

27

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 26, 2002
(except as otherwise noted in the footnotes), regarding the beneficial ownership
of our common stock by: (i) each person or group known by us to own beneficially
more than five percent of the outstanding shares of our common stock; (ii) each
director of our company; (iii) each executive officer of our company whose
compensation exceeded $100,000 in 2001; and (iv) all directors and executive
officers of the company as a group.

* Less than 1%

(1) Beneficial ownership is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934 and includes all outstanding shares
of common stock owned by the holder plus, for each person or group, any
shares of common stock that the person or the group has the right to
acquire within 60 days pursuant to options, warrants, conversion
privileges or other rights. Except as otherwise indicated, all of the
shares of common stock are owned of record and beneficially and the
persons identified have sole voting and investment power with respect
thereto.

(2) Includes (i) 25,000 shares of common stock held of record by the Joseph
K. Pagano, Jr. Trust established for Mr. Pagano's son, and (ii) 267,000
shares of common stock issuable upon exercise of options. Excludes
options to purchase up to 150,000 shares of common stock.

(3) These shares of common stock are held by the Frederick R. Adler
Intangible Asset Management Trust of which Mr. Adler is the settlor and
beneficiary. Does not include 1,124,859 shares of common stock over
which Mr. Adler is trustee pursuant to a voting trust among us, D.H.
Blair Investment Banking Corp. and Mr. Adler. The voting trust
agreement provides that Mr. Adler will vote those shares in the same
manner as the public, on a proportionate basis, excluding the votes of
our officers, directors and greater than ten-percent stockholders.
However, with respect to a vote or consent in connection with either a
"Rule 13e-3 Transaction" (as defined in Rule 13e-3 promulgated under
Securities Exchange Act of 1934) or a transaction in which stockholders
are afforded appraisal rights under Section 262 of the Delaware General
Corporation Law, Mr. Adler will vote these shares as directed D. H.
Blair, or by the actual holders of the shares.

28

(4) Includes 5,000 shares of common stock issuable upon exercise of
options. Excludes options to purchase 20,000 shares of common stock.

(5) Represents 20,000 shares of common stock issuable upon the exercise of
options.

(6) Includes 10,000 shares of common stock issuable upon exercise of
options. Excludes options to purchase 40,000 shares of common stock.

(7) J. Morton Davis is the sole stockholder of D.H. Blair Investment
Banking Corp. The amount reported includes 10,000 shares owned by Mr.
Davis' wife of which Mr. Davis disclaims beneficial ownership. The
information with respect to D.H. Blair Investment Banking Corp. and J.
Morton Davis is based upon the Schedule 13G/A, dated May 23, 2001,
filed by such persons with the Securities and Exchange Commission. All
the shares beneficially owned by D.H. Blair Investment Banking Corp.
have been placed in trust, pursuant to the trust agreement described in
footnote 3. The voting trust agreement does not limit D. H. Blair's
ability to make public sales of the shares in the open market pursuant
to an effective registration statement under the Securities Act of 1933
or pursuant to Rule 144 thereunder or to make private sales of the
shares pursuant to Section 4(1) of the Securities Act of 1933,
provided, however, that shares sold in private sales will continue to
be subject to the voting trust agreement until certain conditions are
met. In addition, D.H. Blair agreed that, during the term of the voting
trust agreement, it will not acquire additional shares of our common
stock or other securities convertible into our common stock.

(8) Includes 302,000 shares of common stock issuable upon the exercise of
options. Excludes options to purchase 210,000 shares of common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

At the time of the CMT Merger, there were loans outstanding from CMT to
six of its shareholders, in the aggregate principal amount of $500,000, as
evidenced by promissory notes from CMT to each such shareholder. Messrs. Pagano
and Adler were among these shareholders and, at the time of the CMT Merger, held
promissory notes in the principal amounts of $218,333 and $112,500,
respectively. The promissory notes bear 5% simple interest, payable at maturity,
and had an original due date of July 14, 2002. As a result of the CMT merger,
the above loans' maturity dates were accelerated to May 1, 2000. During 1999,
the stockholders agreed to extend the above l