SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2004
Commission File No. 000-27237
GENETHERA, INC.
(Exact name of small Business Issuer as specified in its Charter)
Florida 66-0622463
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3930 Youngfield Street, Wheat Ridge CO 80033
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 463-6371
Hand Brand Distribution, Inc.
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [ X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 5,581,642 Shares of $.001 par value
Common Stock outstanding as of March 31, 2004.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GENETHERA, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004
TABLE OF CONTENTS
Page No.
--------
Report of Independent Accountants 2
Consolidated Balance Sheet March 31, 2004 (unaudited) 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2004 and 2003 (unaudited) 4
Consolidated Statements of Stockholders' Equity (Deficit) for the
Three Months ended March 31, 2004 and 2003 (unaudited) 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2004 and 2003 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
GeneThera, Inc.
Wheat Ridge, Colorado
We have reviewed the accompanying consolidated balance sheet of GeneThera, Inc.
and its wholly-owned subsidiary as of March 31, 2004, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the three-month periods ended March 31, 2004 and 2003. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KANTOR, SEWELL & OPPENHEIMER, PA
------------------------------------
KANTOR, SEWELL & OPPENHEIMER, PA
Certified Public Accountants
Hollywood, Florida
May 7, 2004
2
GENETHERA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
Assets
Current assets
Cash $ 36,506
Prepaid expenses 90,000
-----------
Total current assets 126,506
Property and equipment, net 682,167
Other assets
Deposits 5,278
Investment in subsidiary 39,146
Other assets 36,783
-----------
81,207
-----------
$ 889,880
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 61,040
Accrued expenses 509,227
Due to related company 349
Lease payable 6,090
Loan payable - related party 50,000
Notes payable 44,517
Convertible notes payable 214,777
-----------
Total current liabilities 886,000
Stockholders' equity
Preferred stock, $0.001 par value, 20,000,000 shares authorized;
no shares issued and outstanding --
Common stock $.001 par value, authorized 100,000,000 shares;
5,731,404 issued and outstanding 5,731
Additional paid in capital 5,439,533
Accumulated deficit (5,441,384)
-----------
3,880
-----------
$ 889,880
===========
See notes to financial statements.
3
GENETHERA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
2004 2003
----------- -----------
Revenues $ -- $ --
----------- -----------
Expenses
General and administrative expenses 115,380 24,542
Lab expenses 18,476 5,171
Insurance 11,084 2,731
Consulting 235,500 5,190
Professional fees 117,696 564
Salaries 54,724 55,500
Lease expense 34,321 17,078
Depreciation 25,541 7,633
----------- -----------
612,722 118,409
----------- -----------
Loss from operations (612,722) (118,409)
Other income (expenses)
Loss on impairment of long lived assets (25,825) --
Interest expense (4,064) (1,550)
----------- -----------
Net loss $ (642,611) $ (119,959)
=========== ===========
Loss per common share
Basic and dilutive $ (0.12) $ (0.06)
Basic and diluted weighted average
number of shares outstanding 5,446,885 2,029,171
See notes to financial statements.
4
GENETHERA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
Additional
Common Stock Paid in Subscription Accumulated
Shares Amount Capital Receivable (Deficit) TOTAL
----------- ----------- ----------- ------------ ----------- -----------
Balance, January 1, 2003 1,960,000 $ 1,960 $ 691,040 $ -- (1,332,657) $ (639,657)
Recapitalization on March 23, 2003 778,176 778 1,041,122 -- (1,034,354) 7,546
Net loss (119,959) (119,959)
----------- ----------- ----------- ------------ ----------- -----------
Balance, March 31, 2003 (Unaudited) 2,738,176 $ 2,738 $ 1,732,162 $ -- $(2,486,970) $ (752,070)
=========== =========== =========== ============ =========== ===========
See accompanying notes to financial statements.
5
GENETHERA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
Additional
Common Stock Paid in Subscription Accumulated
Shares Amount Capital Receivable (Deficit) TOTAL
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 2004 (restated) 4,716,478 $ 4,716 $ 4,283,585 $ -- $(4,798,773) $ (510,472)
Shares issued on conversion 934,926 935 830,528 -- -- 831,463
Issuance of shares to consultants for
services rendered ($4.00) 30,000 30 119,970 120,000
Issuance of shares to consultants for
services rendered ($4.11) 50,000 50 205,450 -- -- 205,500
Net loss (642,611) (642,611)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2004(Unaudited) 5,731,404 $ 5,731 $ 5,439,533 $ -- $(5,441,384) $ 3,880
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
6
GENETHERA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
2004 2003
--------- ---------
Cash flows from operating activities:
Net loss $(642,611) $(119,959)
--------- ---------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 25,541 7,633
Impairement of long lived assets 25,825
Consulting in exchange for common stock 325,500 --
(Increase) decrease in prepaid expenses (90,000) --
(Increase) decrease in other assets (2,470) (15,548)
Increase (decrease) in accounts payable
and accrued liabilities (153,257) 153,076
--------- ---------
Total adjustments 131,139 145,161
--------- ---------
Net cash provided by (used in) operating activities (511,472) 25,202
--------- ---------
Cash flows from investing activities:
Cash payments for the purchase of property (5,509) (1,944)
--------- ---------
Net cash used in investing activities (5,509) (1,944)
--------- ---------
Cash flows from financing activities:
Principal payments on lease payable (12,625) (2,852)
Principal payment on notes and loans payable (148,888) --
Proceeds from convertible notes 715,000 5,000
--------- ---------
Net cash provided by financing activities 553,487 2,148
--------- ---------
Net increase (decrease) in cash and cash equivalents 36,506 25,406
Cash and cash equivalents, beginning of year -- --
--------- ---------
Cash and cash equivalents, end of year $ 36,506 $ 25,406
========= =========
Supplemental disclosures of cash flow information:
a) Cash paid during the period for:
Interest expense $ -- $ 1,550
--------- ---------
See notes to financial statements.
7
GENETHERA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004
NOTE 1 PRINCIPLES OF CONSOLIDATION
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, GeneThera, Inc. (Colorado). All
significant inter-company balances and transactions have been eliminated. The
accounts of Family Health News have not been consolidated because the Company
expects control over Family Health News to be temporary.
NOTE 2 BASIS OF PRESENTATION
The interim financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position, results
of operations, changes in stockholders' deficit and cash flows for the interim
periods. All such adjustments are of a normal, recurring nature. The results of
operations for the first three months of the year are not necessarily indicative
of the results of operations which might be expected for the entire year.
The accompanying consolidated financial statements of the Company have been
prepared in accordance with the instructions to Form 10-Q and, therefore, omit
or condense certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted accounting
principles. It is suggested that these condensed financial statements should be
read in conjunction with the Company's financial statements and notes thereto
included in the Company's audited financial statements on Form 10-K for the
fiscal year ended December 31, 2003.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
--------------------------------
The Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business
Combinations, which establishes revised standards for accounting for business
combinations, eliminating the pooling method, and providing new guidance for
recognizing intangible assets arising in a business combination. Additionally,
SFAS No. 141 requires more prominent and more frequent disclosures in financial
statements about a business combination. This statement is effective for
business combinations initiated on or after July 1, 2001. The adoption of this
pronouncement on July 1, 2001 did not have a material effect on the Company's
financial position, results of operations or liquidity.
8
GENETHERA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
SFAS 142, Goodwill and Other Intangible Assets provides guidance on accounting
for the acquisition of intangibles, except those acquired in a business
combination, which is subject to SFAS 141, and the manner in which intangibles
and goodwill should be accounted for subsequent to their initial recognition.
This statement is effective for all fiscal years beginning after December 15,
2001. The adoption of SFAS 142 on April 1, 2002 did not have a material effect
on the Company's financial position, results of operations, or liquidity.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
provides implementation guidance regarding when and how to measure an impairment
loss, and expands the presentation to include a component of an entity, rather
than strictly a business segment. SFAS 144 also eliminates the current exemption
to consolidation when control over a subsidiary is likely to be temporary. This
statement is effective for all fiscal years beginning after December 15, 2001.
The adoption of SFAS 144 on April 1, 2002 did not have a material effect on the
Company's financial position, results of operations or liquidity.
Earnings per Share
------------------
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during each year. Diluted earnings per share are
computed based on the weighted average number of common shares outstanding
during the period, plus the dilutive effect of potential future issuances of
common shares relating to convertible notes.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31,
2004
---------
Computers $ 38,030
Telephone System 5,118
Furniture & fixtures 1,465
Laboratory equipment 811,019
---------
855,632
Less accumulated depreciation (173,465)
---------
$ 682,167
=========
Depreciation expense for the three months ended March 31, 2004 and 2003 was
$25,541 and $7,633, respectively.
9
GENETHERA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004
NOTE 5 CONVERTIBLE NOTES PAYABLE
March 31,
2004
---------
Various convertible notes payable to individuals, with
interest ranging from 8-10%; due at various dates from
April 14, 2003 through June 18, 2004; convertible into
shares of common stock at prices of $0.25 - $0.50 per
share $ 214,777
Less: current portion (214,777)
---------
Total long-term convertible notes payable $ 0
=========
For the three months ended March 31, 2004 and 2003, interest expense related to
the convertible notes payable amounted to $4,064 and $0, respectively.
NOTE 6 STOCKHOLDERS' EQUITY
Common Stock
------------
During the three months ended March 31, 2004, the Company issued 934,926 shares
of common stock pursuant to conversion rights exercised by holders.
On January 16, 2004, the Company issued 30,000 shares pursuant to a one-year
agreement with a consultant for a total of $120,000, based on the closing price
on January 14, 2004. The Company charged one-fourth, or $30,000 to operations
and the remaining $90,000 has been capitalized and prorated over the life of the
agreement.
On January 26, 2004, the Company issued 50,000 shares for a total of $205,500
based on the closing price on date of issue. These shares were issued to a
consultant for services rendered and resulted in an immediate charge to
operations.
NOTE 7 UNCONSOLIDATED SUBSIDIARY
On January 14, 2002, the board of directors voted to sell the stock of The
Family Health News, Inc., subject to stockholder approval. This has not been
accomplished as of March 31, 2004. The subsidiary has not been consolidated
because the Company considers control to be temporary.
10
GENETHERA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004
NOTE 8 GOING CONCERN UNCERTAINTY
These financial statements are presented assuming the Company will continue as a
going concern. For the years ended December 31, 2003 and 2002, the Company
showed operating losses of $2,431,761 and $627,984, respectively. The
accompanying financial statements indicate that current liabilities exceed
current assets by $759,494 for the three months ended March 31, 2004.
In addition, the Company is in default for payments on notes payable in the
amount of $94,517, including accrued interest. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plan with
regard to these matters includes raising working capital to assure the Company's
viability, through private or public equity offering, and/or debt financing,
and/or through the acquisition of new business or private ventures.
11
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto that appear elsewhere herein.
RESULTS OF OPERATIONS
Personnel and professional expenses (consulting and professional fees and
salaries) increased from $5,190 for the prior three month period ending March
31, 2003 to $235,500 for the three month period ending March 31, 2004. Comparing
the three month period ending March 31, 2003, to the three month period ending
March 31, 2004, expenses increased substantially from $564 to $117,696.
Based upon the Company's planned divestiture or closure of FHNI and the
acquisition of GeneThera, the above discussion of FHNI's operations is not
anticipated to be indicative of future operating results.
GENETHERA PLAN OF OPERATION
Background
GeneThera is a development stage company (as such term is defined by the
Securities and Exchange Commission ("SEC") and Generally Accepted Accounting
Principles and has had negligible revenues from operations in the last two
years. As a development stage company, its research and development expenditures
have not been capitalized as of this date. The Company acquired 100% of the
outstanding stock of GeneThera Inc., a Colorado corporation, for the issuance of
1,960,000 shares of the Company's common stock.
GeneThera has developed proprietary diagnostic assays for use in the
agricultural and veterinary markets. Specific assays for Chronic Wasting Disease
(among elk and deer) and Mad Cow Disease (among cattle) have been developed and
are available currently on a limited basis. E.coli (predominantly cattle) and
Johne's disease (predominantly cattle and bison) diagnostics are in development.
GeneThera provides genetics-based diagnostic and is currently working on vaccine
solutions to meet the growing demands of today's veterinary industry and
tomorrow's agriculture and healthcare industries. The company is organized and
operated both to continually apply its scientific research to more effective
management of diseases and, in so doing, realize the commercial potential of
molecular biotechnology.
12
The Company believes it will require significant additional funding in order to
achieve its business plan. Over the next 12 months, in order to have the
capability of achieving its business plan, the Company will require at least
$1,000,000. There are no guarantees whether the Company will be able to secure
such a financing, and if the financing is secured, there are no guarantees
whether the Company can achieve the goals laid out in its business plan fully.
RESEARCH AND DEVELOPMENT
R&D serves is the source for both assay development and vaccine
design/development. As assays for different diseases are developed, the Company
plans to formalize the procedure into a commercial application through a series
of laboratories to be owned and operated by GeneThera. To date, we have
introduced our diagnostic solution for Chronic Wasting disease and Mad Cow
disease on a very limited basis. We cannot assure you that we will be successful
in developing or validating any new assays or, if we are successful in
developing and validating any such assays, that we can successfully
commercialize them or earn profits from sales of those assays. Furthermore, we
cannot assure you that we will be able to design, develop, or successfully
commercialize any vaccines.
COMMERCIAL DIAGNOSTIC TESTING
The Diagnostic Testing labs are the second division of the Company. The Company
intends to locate laboratories geographically proximate to the primary sources
of individual diseases and/or according to specific available operating
efficiencies. The specific number of labs to be built and operated will be based
on assay demand (demand facilitated by the number of specific disease assays
GeneThera develops), our ability to obtain the capital to build the labs, and
our ability to successfully manage them from our principal office.
LICENSING
Through our third division, Licensing, we intend to manage the marketing and
sale of the vaccines developed by GeneThera's Research & Development division.
As GeneThera does not intend to be a vaccine manufacturer, we plan to use our
Licensing division to license the technology related to any vaccines that may be
developed and to manage the revenue potential available from the successful
development and validation of specific vaccines. We cannot assure you that we
will develop any vaccines or that, if they are developed, we will be able to
license them successfully or that any such license will produce significant
revenues.
13
R&D SERVICES
Molecular, Cellular, Viral Biology Research and Consulting Services:
GeneThera Inc. is committed to providing global access to cutting edge
biotechnology services to fellow scientists in academia, the pharmaceutical
industry, and the biotechnology industry. Primarily, GeneThera's expertise
focuses on technology relevant to animal and human immunotherapy. GeneThera is
dedicated to furnishing dependable, high quality, cost-effective and prompt
client consulting services. These services are backed by the cumulative
experiences of greater than 100 years of research and development in both
government and industry by GeneThera's senior scientists. GeneThera develops a
commercial-scale implementation of Adenovector Purification Process to support
R&D material production. Furthermore, GeneThera evaluates and tests commercially
available expression vectors and incorporates them into its vector repertoire.
These technologies are well established within the repertoire of GeneThera's
scientific staff.
Research & Development Services:
Molecular Biology:
o Synthetic cDNA Construction
o Prokaryotic Expression Vector Construction & Development
o E. coli Expression Strain Evaluation
o Pilot Scale Fermentation
o Mammalian Expression Vector Construction & Development
o Baculovirus Expression
o Protein Isolation
o Protein Engineering: Complement Determining Region Conjugated Proteins
Monoclonal Antibody Production Chimerization & Humanization
o Vector design for Prokaryotic Expression of Antibody Fragments (Fab)
and Single Chain Antibody (ScFv)
o Pilot Scale- up Development
o Process Purification & Characterization
o Assay Development & Quality Control Pharmaceutical Dosage and
Formulation
Molecular Biology Potential Agreement Structure
Stage (I): cDNA Construction & Expression Vector Development Stage (II):
Pilot Scale Expression & Protein Purification Stage (III): Assay
Development & Quality Control Development Stage (IV): Bioprocess
Development & Optimization Stage (V): Dosage & Formulation
Gene Therapy Testing services
GeneThera Services offers GLP testing programs for somatic cell, viral and
naked DNA-based gene therapies. With over eight years experience in
providing fully integrated bio-safety testing programs for the cell and
gene therapy fields, we have supported a number of successful BLA and IND
applications.
14
Replication-Competent Viral Vector Testing
Sensitive in vitro cell culture assays are used to detect
replication-competent retroviruses or adenoviruses. GeneThera can work with
clients to provide custom replication-competent virus detection assays for
the particular vector construct.
Complete Somatic Cell and Viral Vector Packaging and Producer Cell Line
Characterization
GeneThera offers all of the assays mandated by regulatory authorities
worldwide for the bio-safety analysis and characterization of cells and
cell lines used in gene therapy products.
Vector Stock Characterization
Custom purity and potency testing is available for gene therapy viral
vector stocks.
Vector Purification Process Validation for Viral Clearance
Most biopharmaceuticals require viral clearance studies to validate the
removal of potential contaminants, such as those from bovine components or
from helper viruses (adenovirus in AAV production). GeneThera can provide
custom design and performance of viral studies for various vector
purification processes.
Custom Bio-safety Testing Programs for Somatic Cell, Ex Vivo Cell, and
Tissue Therapies
GeneThera can guide our clients through the unique process of designing and
implementing a bio-safety testing program that meets the needs of each
specific project.
GeneThera is currently seeking contracts for these services. There is no
assurance that any contracts will be signed or that the company will generate
significant profits from these contracts.
Business Model
GeneThera's business is based on its Integrated Technology Platform (ITP) that
combines a proprietary diagnostic solution called Gene Expression Assay
(GEA(TM)) with PURIVAX(TM), its system for analyzing large-scale DNA sequencing.
The first part of this platform is the ongoing development of molecular
diagnostic assays solutions using real time Fluorogenic Polymerase Chain
Reaction (F-PCR) technology to detect the presence of infectious disease from
the blood of live animals. The second part of the ITP is the development of
therapeutic vaccines using RNA interference technology. It also allows for the
efficient, effective, and continuous testing, management and treatment of animal
populations. These facts distinguish the technology from any alternative testing
and management methodology available to agriculture today -- all of which
require the destruction of individual animals and even entire herds. Our testing
and data analysis processes also allow us not only to separate infected from
clean animals, but also to gain knowledge vital to development of preventative
vaccines.
15
Each individual assay utilizes the proprietary Field Collection System (FCS) for
the collection and transportation of blood samples to GeneThera's laboratory.
The FCS allows GeneThera to maintain the integrity of each sample by the
addition of specific reagents to test tubes contained in the system. GeneThera's
FCS is designed to be an easy-to-use method of gathering blood samples from
harvested or domesticated animals. It ensures consistency of samples as well as
increased assurance of each sample's integrity.
To date, GeneThera has successfully developed the ability to detect Chronic
Wasting Disease, a disease affecting elk and deer in North America. The release
of commercialized Field Collection Systems and laboratory diagnostic testing
occurred in October of 2003. GeneThera has also successfully developed an assay
for the detection of Mad Cow Disease, a disease recently found in the United
States, but has been in Europe for many years. The Field Collection Systems are
available for purchase from the Company. Chronic Wasting Disease and Mad Cow
Disease are both in the family of diseases called Transmissible Spongiform
Encephalopathy (TSE). Diagnostic assays for E.coli O157:H7 and Johnne's Disease
are in the final stages of development. Vaccines for Chronic Wasting Disease and
E.coli O157:H7 are in advanced stages of development. The Company will need the
approval of the USDA before the vaccines can be sold. There are no assurances
that such an approval will be granted, or if granted, whether the Company will
be able to produce and sell such vaccines following such an approval in
commercial quantities or to make a profit from such production and sales.
INTEGRATED TECHNOLOGY PLATFORM (ITP)
GeneThera's integrated technology platform is the foundation for "fast-track"
rDNA vaccine development. ITP is the assembly of GEA(TM) and PURIVAX(TM) rAD and
rAAV systems. This integrated technology platform yields fast-track vaccine
development. Leveraging its ITP, GeneThera can develop a prototype vaccine
within 4 to 6 months versus the current standard of 18 to 24. The GEA(TM)
applied modular unit system utilizes robotics and is based on nucleic acid
extraction in conjunction with F-PCR technology to develop gene expression
assays. Using GEA(TM) assays, vaccine efficacy can be measured in real time.
This means not having to wait for the antibody response to measure how well the
vaccine is working. F-PCR allows effective quantification of the precise number
of viral or bacterial genetic particles before, during and after vaccine
injection(s). The more effective the vaccine is, the stronger the decrease of
the infectious disease particles will be.
GEA(TM) SYSTEM
GEA(TM) is a proprietary assay development system. The core of GEA(TM) is
Fluorogenic Polymerase Chain Reaction technology (F-PCR). GeneThera solves the
technical problems related to the use of conventional PCR in molecular
diagnostics via our modular unit concept. Specifically, the modular unit
consists of an Automated Nucleic Acid Workstation (ANAW) and a Sequence
Detection System (SDS) that are fully integrated, allowing an operator to
perform the entire procedure of DNA extraction and F-PCR analysis within a
closed computerized system. This system results in minimal intervention and no
post-PCR manipulation.
16
The Automated Nucleic Acid Workstation is a highly flexible robotic system that
extracts and purifies acids from a variety of complex samples, preparing them
for F-PCR analysis. Data management system software includes a database to
manage all run phases and record sample processing.
The Sequence Detection System detects the fluorescent signal generated by the
cleavage of the reporter dye during each PCR cycle. This process confers
specificity without the need of post-PCR hybridization. Most important, the SDS
offers the advantage of monitoring real time increases in fluorescence during
PCR. Specifically, monitoring real-time progress of the PCR completely changes
the approach to PR-based quantitation of DNA and RNA, most particularly in
improving the precision in both detection and quantitation of DNA and RNA
targets.
GeneThera currently faces no competition in the use of F-PCR technology and the
modular unit concept for commercial testing of either infectious disease in
animals or food pathogen contamination. Currently, most labs utilize
conventional microbiology, immunological or conventional PCR methods for either
veterinary diseases or food pathogen contamination detection. Specific to
microbiology and immunological techniques, the drawbacks of these approaches
are:
1. the antibodies-based culture media used to detect the presence of
infectious diseases has a low level of sensitivity;
2. high background due to non-specific binding of antibodies and/or
culture contamination;
3. sample preparation and storage creates artifacts; and
4. long, cumbersome protocols necessary to perform these tests.
A major technical limitation of conventional PCR is the risk of contaminating a
specimen with the products of previously amplified sequences. Known as
cross-contamination, this phenomenon represents a constant challenge to any lab
using conventional PCR. Managing these challenges is cumbersome and difficult to
streamline.
Fluorogenic PCR (F-PCR) overcomes these drawbacks by making it possible for PCR
to efficiently test large numbers of samples even when major laboratory
facilities are not readily available. A novel methodology, F-PCR allows
quantitative and qualitative detection of specific nucleic acid sequences in a
very sensitive, highly accurate and rapid fashion.
PURIVAX(TM)TECHNOLOGY
GeneThera has developed a large-scale process for highly purified and high viral
titer Adenovirus and AAV recombinant vectors. This technology enables GeneThera
to develop Adenovirus and AAV based recombinant DNA vaccines for veterinary
diseases and food pathogens.
17
GeneThera's PURIVAX(TM) is a multi-resin anion exchange chromatography system
that dramatically improves biological purity and viral titer of recombinant
Adenovirus and AAV vectors. PURIVAX(TM) completely eliminates toxic side effects
associated with adenoviruses and AAV vectors thereby making it possible to
develop highly immunogenic and safe recombinant DNA vaccines. Importantly,
recombinant DNA (rDNA) vaccine technology represents a powerful tool for an
innovative vaccine design process known as "genetic immunization."
Recombinant Adenovirus (rAD) and AAV (rAAV) vectors are the ideal candidates for
a gene delivery system. These viruses can efficiently deliver genetic material
to both dividing and non-dividing cells, thereby overcoming some of the
obstacles encountered with first generation retroviral vectors.
Equally important, rAd and rAAV are engineered virus genomes that contain no
viral gene. One of the key features for rAd and rAAV is their ability to
transduce a large variety of cells. However, two technical challenges had to be
overcome to fully utilize rAd and rAAV in the development of rDNA vaccines:
1. lack of large scale purification system;
2. low viral titer
Traditional technologies and first generation chromatography processes are
inadequate both in terms of purity and yield. And, due to the limitation of
these purification technologies, adequate viral titers cannot be achieved. The
result is no efficient system to deliver immunogenic genetic sequences into
cells.
This is the significance of GeneThera's PURIVAX(TM), rAD and rAAV system for
rDNA vaccine development. Succinctly stated, it is able to achieve both high
purity and high viral titer (up to 10e16 viral particles/eulate) based on its
proprietary multi-resin anion exchange chromatography system. Biological
contaminants such as endogenous retrovirus, bacterial, mycoplasma, non-specific
nucleic acids, lipids, proteins, carbohydrates and endotoxins are eliminated
during the purification process.
FIELD COLLECTION SYSTEM
GeneThera's Field Collection System (FCS) is a commercial product designed to
permit a standardized manner for drawing, stabilizing and handling blood samples
intended for GeneThera's diagnostic assay testing. Each package is referred to
as a "System" because it is just that. There are two different FCS packages: one
for hunters and one for breeders or ranchers. GeneThera's FCS is designed to be
an easy-to-use method of gathering blood samples from harvested or domesticated
animals. It ensures consistency of samples as well as increased assurance of
each sample's integrity.
Common to each FCS are two test tubes, each containing a separate reagent. The
process, as described in the packaging, ensures that each individual sample of
blood will be stabilized, thereby increasing the integrity of that sample for
diagnostic testing. Additionally, this common method of receiving blood samples
at the GeneThera laboratory(s) increases the efficiency of handling the volume
of samples received. We believe this will enable us to provide a fast, efficient
process, capable of posting results within 24 hours of receipt at a low cost to
the consumer. All testing using the FCS must be done by GeneThera and no third
18
parties can test the blood collected. The Company is currently offering the FCS
for hunters, breeders, or ranchers directly through the Company on a limited
basis. The Company intends to begin a marketing campaign through the addition of
key personnel to achieve higher volumes of sales for the FCS. The Company
projects that no capital will be needed to hire the additional personnel as they
will be hired on a strictly commission based.
FHNI DISCUSSION AND ANALYSIS
FHNI has had a long history of losses and flat to negative growth in revenues.
FHNI's business is not at the core of our ongoing business model. The Company's
belief is that the GeneThera business holds greater promise for long-term growth
and value. As a result, the Board of Directors is seeking to divest the Company
of FHNI or to dissolve and liquidate FHNI's assets.
As stated numerous times in this report, the Company has been unable to obtain
financial information from FHNI. Management of FHNI has refused to provide the
Company with the financial information necessary for the Company to discuss the
financial condition and results of operations of FHNI, despite several attempts
on the part of the Company to obtain such information.
Liquidity and Capital Resources
The Company had a cash balance of $36,506 as of March 31, 2004. It is estimated
that it will require outside capital for the year 2004 for the commercialization
of GeneThera's molecular assays as well as the development of their therapeutic
vaccines. The Company intends to raise these funds by means of one or more
private offerings of debt or equity securities or both. As discussed in this
filing, the Company has raised $715,000 through Convertible Notes to certain
individuals in late 2003 and early 2004. These individuals have converted as of
the date of this filing. Currently the company is in discussions with two groups
to obtain financing through either debt and/or equity. No definitive agreements
have been signed. There are no guarantees whether the Company will be able to
secure such a financing, and if the financing is secured, there are no
guarantees whether the Company can achieve the goals laid out in its business
plan fully.
Convertible Notes
To relieve its cash flow crisis, the Company has issued convertible notes to
certain individuals.
On December 12, 2002, the Company issued a convertible promissory note bearing
interest at the rate of 8% per annum in the principal amount of Fifty Thousand
Dollars ($50,000) to Fidra Holdings Ltd. Under the terms of the convertible
promissory note, the holder of the note is entitled to convert all sums due
under the December12 Note for $.50 per share. As of April 14, 2003, the December
12 Note has not been converted.
19
On December 24, 2002, the Company issued a Convertible Promissory Note bearing
interest at the rate of 8% per annum in the principal amount of Ten Thousand
Dollars ($10,000). Under the terms of the Convertible Promissory Note, the
holder of the Note is entitled to convert all sums due under the December 24
Note for $0.50 per share. As of April 14, 2002, the December 24 Note has not
been converted.
On December 27, 2002, the Company issued a Convertible Promissory Note bearing
interest at the rate of 8% per annum in the principal amount of One Thousand
Dollars ($1,000). Under the terms of the Convertible Promissory Note, the holder
of the Note is entitled to convert all sums due under the December 27 Note for
$0.50 per share. As of April 14, 2003, the December 27 Note has not been
converted.
Between October 2003 and January 2004, the Company issued 2 separate Convertible
Promissory Notes bearing interest at the rate of 8% per annum. An aggregate
amount of Seven Hundred and Fifteen Thousand Dollars ($715,000) were raised.
Under the terms of the Convertible Promissory Notes, the holder of the Note is
entitled to convert all sums due under the Note for $1.00 per share with the
notes maturing one year from the date the money is received by the Company. The
Company received Thirty Thousand Dollars ($30,000) as of December 31, 2003 and
the balance of Six Hundred Eighty-Five Thousand Dollars ($685,000) was received
as of February 1, 2004. As of February 27, 2004, Six Hundred Ninety-Eight
Thousand Dollars ($698,000) was converted into 698,000 shares, $17,000 still
remains outstanding under the Note.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Sections of this Form 10-qSB, including the Management's Discussion and Analysis
or Plan of Operation, contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
Section 21E of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and the Private Securities Litigation Reform Act of 1995, as
amended. These forward-looking statements are subject to risks and uncertainties
and other factors that may cause our actual results, performance or achievements
to be materially different from the results, performance or achievements
expressed or implied by the forward-looking statements. You should not unduly
rely on these statements. Forward-looking statements involve assumptions and
describe our plans, strategies, and expectations. You can generally identify a
forward-looking statement by words such as "may," "will," "should," "would,"
could," "plan," "goal," "potential," "expect," "anticipate," "estimate,"
"believe," "intend," "project," and similar words and variations thereof. This
report contains forward-looking statements that address, among other things,
* our financing plans,
* regulatory environments in which we operate or plan to operate, and
* trends affecting our financial condition or results of operations, the impact
of competition, the start-up of certain operations and acquisition
opportunities.
Factors, risks, and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements ("Cautionary
Statements") include, among others,
20
* our ability to raise capital,
* our ability to execute our business strategy in a very competitive
environment,
* our degree of financial leverage,
* risks associated with our acquiring and integrating companies into our own,
* risks relating to rapidly developing technology,
* regulatory considerations;
* risks related to international economies,
* risks related to market acceptance and demand for our products and services,
* the impact of competitive services and pricing, and
* other risks referenced from time to time in our SEC filings.
All subsequent written and oral forward-looking statements attributable to us,
or anyone acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. We do not undertake any obligations to publicly release
any revisions to any forward-looking statements to reflect events or
circumstances after the date of this report or to reflect unanticipated events
that may occur.
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that due to recent developments within FHNI
which are beyond the control of the Company as more fully explained below, our
disclosure controls and procedures are ineffective in timely alerting management
to material information relating to us that is required to be included in our
periodic SEC filings. In connection with the preparation and filing of this
report, management of FHNI has refused to provide the Company with the financial
information of FHNI necessary for the Company to prepare consolidated financial
statements that include the financial condition and results of operations of
FHNI, despite several attempts on the part of the Company to obtain such
information. Consequently, the Company is prevented from being able to obtain
the necessary financial information regarding FHNI. As is discussed elsewhere in
this report, the Board of Directors of the Company is seeking to divest the
Company of FHNI or to dissolve and liquidate FHNI's assets.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
GeneThera Inc. has commenced a civil action against individuals Milton and Keith
Dailey d/b/a "Hunting Lease Magazine" based upon a commercial transaction. The
Company is seeking compensatory and exemplary damages. It is too early in the
proceeding to determine any likelihood of an unfavorable outcome.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
No defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders as of March 31, 2004.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(A) Financial Statements
Reference is made to the financial statements listed on the Index to
Financial Statements in this Form 10-QSB.
(B) Exhibits
99.1 Certification of the President and Chief
Executive Officer
99.2 Certification of the Chief Financial Officer
1. Reports on Form 8-K
22
SIGNATURES
In accordance with the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENETHERA, INC.
Date: May 14, 2004
By: /s/ Antonio Milici
----------------------
Antonio Milici, M.D., Ph.D.
Chief Executive Officer
23
CERTIFICATIONS
I, Antonio Milici, Chief Executive Officer of Hand Brand Distribution, Inc. (the
"Registrant"), certify that;
(1) I have reviewed this quarterly report on Form 10-QSB of GeneThera, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report.
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2004
By: /s/ Antonio Milici
----------------------
Antonio Milici, M.D., Ph.D.
Chief Executive Officer
CERTIFICATIONS
I, Tannya L. Irizarry, Chief Financial Officer of Hand Brand Distribution, Inc.
(the "Registrant"), certify that;
(1) I have reviewed this quarterly report on Form 10-QSB of GeneThera, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report.
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures(as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 17, 2004
By: /s/ Tannya L. Irizarry
--------------------------
Tannya L. Irizarry
Chief Financial Officer