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 September 30, 2006
Commission File No. 000-27237
GENETHERA, INC.
(Exact name of small Business Issuer as specified in its Charter)
Florida 65-0622463
(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
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: 31,721,736 Shares of $.001 par value
Common Stock outstanding as of September 30, 2006 and Series A 4,600 Shares,
Series B 2,250,000 shares of $.001 par value Preferred Stock outstanding as of
September 30, 2006.
GENETHERA, INC., AND SUBSIDIARY
FORM 10-QSB
TABLE OF CONTENTS
Page No.
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GENETHERA, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 2006
GENETHERA, INC. AND SUBSIDIARY
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS
Page No.
--------
Report of Independent Registered Public Accounting Firm 2
Consolidated Balance Sheet September 30, 2006 (unaudited) 3
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2006 and 2005 (unaudited) 5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Period ended September 30, 2006 (unaudited) 6
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2006 and 2005 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 subsidiaries as of September 30, 2006, (unaudited) and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the nine-month periods ended September 30, 2006
and 2005. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the Public
Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board,
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 interim consolidated financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
JASPERS+HALL
Denver, Colorado
November 20, 2006
2
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006
ASSETS
NINE MONTHS ENDED YEAR END
SEPTEMBER 30, 2006 DECEMBER 31, 2005
(Unaudited) (Unaudited)
----------------------------- ------------------------
Current Assets
Cash $ 7 $ 1,669
Accounts receivable 215,562 5,810
Prepaid expenses 6,810 10,551
----------------------------- ------------------------
Total Current Assets 222,379 18,030
----------------------------- ------------------------
Property and equipment 727,428 727,428
Accumulated Depreciation (346,162) (287,399)
----------------------------- ------------------------
Property and equipment, net 381,266 440,029
Other Assets 5,278 15,014
----------------------------- ------------------------
Total Other Assets 5,278 15,014
----------------------------- ------------------------
Total Assets $ 608,923 $ 473,073
============================= ========================
The accompanying notes are integral part of these financial statements.
3
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006
LIABILITIES AND STOCKHOLDERS' EQUITY
NINE MONTHS ENDED YEAR END
SEPTEMBER 30, 2006 DECEMBER 31, 2005
(Unaudited) (Unaudited)
----------------------------- ------------------------
Current Liabilities
Accounts payable $ 334,479 $ 190,229
Accrued expenses 676,818 589,921
Leases payable, current portion 12,040 9,450
Notes payable 159,843 55,775
----------------------------- ------------------------
Total Current Liabilities 1,183,180 845,375
----------------------------- ------------------------
Long Term Liabilities - 4,901
----------------------------- ------------------------
Total Liabilities 1,183,180 850,276
----------------------------- ------------------------
Stockholders' Equity
Preferred stock, $.001 par value, 20,000,000 shares
authorized; Series A 4,600 shares issued and outstanding
Series B 1,500,000 shares issued and outstanding 2,255 5
Common stock $.001 par value, 100,000,000 shares authorized;
24,325,069 shares issued and outstanding 31,723 22,296
Additional paid in capital 14,433,811 13,685,888
Deficit accumulated during development stage (15,042,046) (14,085,392)
----------------------------- ------------------------
Total Stockholders' Equity (574,257) (377,203)
----------------------------- ------------------------
Total Liabilities & Stockholders' Equity $ 608,923 $ 473,073
============================= ========================
The accompanying notes are integral part of these financial statements.
4
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO
SEPTEMBER 30, 2006 (UNAUDITED)
FOR THE PERIOD FROM
THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 5, 1998
SEPTEMBER 30, SEPTEMBER 30, (INCEPTION) TO
2006 2005 2006 2005 SEPTEMBER 30, 2006
-------------------- --------------- ----------------- --------------- ------------------
Income
Sales $ 5,000 $ 80,000 $ 185,000 $ 100,000 $ 453,749
Research fees - - - - 188,382
-------------------- --------------- ----------------- --------------- -------------------
Total income 5,000 80,000 185,000 100,000 642,131
Cost of sales - - - - (30,352)
-------------------- --------------- ----------------- --------------- -------------------
Gross profit 5,000 80,000 185,000 100,000 611,779
-------------------- --------------- ----------------- --------------- -------------------
Expenses
Other compensation - 12,300 - 85,650 3,283,009
Consulting 275,300 296,000 424,800 1,952,040 4,564,217
General and administrative
expenses 156,140 168,569 375,105 664,096 3,143,196
Payroll expenses 58,500 100,765 222,700 295,435 1,785,079
Depreciation 18,251 28,590 58,763 62,586 384,865
Settlement expense - 2,541 - 13,541 57,493
Impairment of long-lived asset - - - 9,600 55,714
Lab expenses 101 4,760 39,592 51,626 294,517
-------------------- --------------- ----------------- --------------- -------------------
Total expenses 508,292 613,525 1,120,960 3,134,574 13,568,090
-------------------- --------------- ----------------- --------------- -------------------
Loss from operations (503,292) (533,525) (935,960) (3,034,574) (12,956,311)
Other income (expenses)
Beneficial conversion expense - (271,739) - (367,196) (1,987,991)
Interest expense - (81) - (2,524) (46,758)
Gain on settlements (36,000) - (43,200) 58,203 15,003
Other income (expenses), net 22,506 3,514 22,506 625 56,075
-------------------- --------------- ----------------- --------------- -------------------
Net loss from continuing operations (516,786) (801,831) (956,654) (3,345,466) (14,919,982)
Gain (loss) from disposal of subs 119,157 -
Loss from discontinued operations - - - (47,768) (122,065)
-------------------- --------------- ----------------- --------------- -------------------
Net loss $ (516,786) $ (801,831) $ (956,654) $ (3,274,077) $ (15,042,044)
==================== =============== ================= =============== ===================
Loss per common share $ (0.020) $ (0.036) $ (0.040) $ (0.16) $ (0.47)
Diluted Weight Average $ - $ - $ - $ -
Weight Average 26,397,714 21,981,187 23,979,513 20,534,776 -
Diluted Per Share $ - $ - $ - $ -
The accompanying notes are integral part of these financial statements.
5
GENETHERA, INC. AND SUBSIDIARY
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD ENDED SEPTEMBER 30, 2006
(UNAUDITED)
DEVELOPMENT
STAGE
PREFERRED STOCK A PREFERRED STOCK B COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 4,600 $ 5 - $ - 22,295,069 $ 22,296 $13,685,888 $ (14,085,392) (377,203)
Shares issued to officers
in lieu of salary 690,000 $ 690 $ 77,910 $ 78,600
Shares issued to replace
cancelled certificate-
settlement 40,000 $ 40 $ 7,160 7200
Shares issued for
consulting services 1,300,000 1,300 164,700 166,000
Share issued to officer 1,500,000 1,500 58,500 60,000
Shares issued for
consulting services 6,396,667 6,397 361,403 367,800
Share issued to officer 750,000 750 29,250 30,000
Shares issued to officers
in lieu of salary 1,000,000 1,000 49,000 50,000
Net Loss September 30, 2006 (956,654) (956,654)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2006
(UNAUDITED) 4,600 $ 5 2,250,000 $2,250 31,721,736 $ 31,723 $14,433,811 $ (15,042,046) $ (574,257)
======================================================================================================
The accompanying notes are integral part of these financial statements.
6
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM
NINE MONTHS ENDED SEPTEMBER 30, OCTOBER 5, 1998
(INCEPTION) TO
2006 2005 SEPTEMBER 30, 2006
------------------ ------------------- -----------------------
Cash flows from operating activities:
Net loss $ (956,654) $ (2,461,451) $ (15,042,046)
------------------ ------------------- -----------------------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 58,763 33,996 $ 76,406
Compensation in exchange for common stock 669,600 1,729,390 $ 8,560,214
Beneficial conversion feature - 167,611 $ 1,987,990
Loss on impairment - 9,600 $ -
Changes in operating assets and liabilities
(Increase) Decrease in:
Accounts receivable (209,752) (6,399) $ (215,562)
Inventory - - $ -
Prepaid expenses 3,741 (53,013) $ (6,810)
Other assets 9,736 328,450 $ 7,278
Increase in account payable
and accrued liabilites 231,147 (260,825) $ 941,442
------------------ ------------------- -----------------------
Total adjustments 763,235 1,948,810 11,350,958
------------------ ------------------- -----------------------
Net cash used in operating activities (193,419) (512,641) (3,691,088)
------------------ ------------------- -----------------------
Cash flows from investing activities:
Cash payments for the purchase of property - (109,663) (299,072)
------------------ ------------------- -----------------------
Cash flows from financing activities:
Bank overdraft - 35,486
Capital contributed as equipment 272,376
Principal payments on notes & leases payable (14,927) (240,119)
Stock Issued for Conversion of NP -
Payment of lease payable (2,311) - 143,325
Proceeds from issuance of stock 90,000 1,100,000 1,933,882
Proceeds from loans payable 104,068 - 1,602,661
Proceeds from Subscription Recievable - - 100,040
Repurchase of Common Stock - (1,480) (1,610)
Reciept of APIC - - 20,000
Payment of Perfered Dividends - (36,429) (46,338)
------------------ ------------------- -----------------------
Net cash provided by financing activities 191,757 1,047,164 3,819,703
------------------ ------------------- -----------------------
Net increase (decrease) in cash (1,662) 424,860 (170,457)
------------------
Cash, beginning of year 1,669 7,402 -
------------------ ------------------- -----------------------
Cash, end of year $ 7 $ 432,262 $ 7
================== =================== =======================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest expense $ - $ 1,714 $ 46,758
================== =================== =======================
Cash paid during the period for Taxes $ - $ - $ -
================== =================== =======================
Non-Cash Items for the period $ - $ - $ -
================== =================== =======================
The accompanying notes are integral part of these financial statements.
7
GENETHERA, INC. AND SUBSIDIARY
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2006
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.
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' equity (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-KSB/A as
amended for the fiscal year ended December 31, 2005.
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
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2006
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:
September 30,
2006
-------------
Computers $ 42,987
Office Equipment 39,891
Furniture & fixtures 1,465
Laboratory equipment 643,084
---------
727,428
Less accumulated depreciation (346,162)
--------
$381,266
========
Depreciation expense for the nine months ended September 30, 2006 and 2005 was
$58,763 and $62,586, respectively.
9
GENETHERA, INC. AND SUBSIDIARY
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2006
NOTE 5 STOCKHOLDERS' EQUITY
Common Stock
In March 2006, the Company issued 40,000 shares valued at $7,200 in settlement
of a lawsuit previously filed by OR Surgical and resulted in an immediate charge
to operations.
In March 2006, the Company issued 90,000 shares valued at $12,600 to two
officers in lieu of salary and resulted in an immediate charge to operations.
In May 2006, the Company issued 500,000 shares valued at $65,000 to a marketing
consulting group and resulted in an immediate charge to operations.
In May 2006, the Company issued 50,000 shares valued at $6,500 to consulting
services for lab work and resulted in an immediate charge to operations.
In May 2006, the Company issued 600,000 shares valued at $78,000 to marketing
consulting group and resulted in an immediate charge to operations.
In June 2006, the Company issued 750,000 shares valued at $82,500 to consulting
services of operations and resulted in an immediate charge to operations.
In August 2006, the Company issued 2,130,000 shares valued at $131,800 to
consulting services of operations and resulted in an immediate charge to
operations.
In August 2006, the Company issued 625,000 shares valued at $37,500 to the line
of credit fees of operations and resulted in an immediate charge to operations.
In September 2006, the Company issued 3,041,667 shares valued at $162,500 to
consulting services of operations and resulted in an immediate charge to
operations.
In September 2006, the Company issued 600,000 shares valued at $36,000 to a
settlement and resulted in an immediate charge to operations.
In September 2006, the Company issued 1,000,000 shares valued at $50,000 to lieu
of salary and resulted in an immediate charge to operations.
As of September 30, 2006, there were 31,721,736 shares of our common stock
issued and outstanding.
10
Preferred Stock
On May 5, 2006, we issued 1,500,000 shares of our Series B Convertible Preferred
Stock to our Chief Executive Officer, Antonio Milici, M.D., Ph.D. ("the
Purchaser"), for $0.04 per share, or an aggregate of $60,000.
On September 1, 2006, we issued 750,000 shares of our Series B Convertible
Preferred Stock to our Chief Administer Officer, Tannya Irizarry, ("the
Purchaser"), for $0.06 per share, or an aggregate of $30,000.
As of September 30, 2006, there were 4,600 shares of our Series A, Convertible
Preferred Stock ("Series A") issued and outstanding, and 2,250,000 shares of our
Series B, Convertible Preferred Stock ("Series B") were issued and outstanding.
NOTE 6 GOING CONCERN UNCERTAINTY
These financial statements are presented assuming the Company will continue as a
going concern. For the periods ended September 30, 2006 and 2005, the Company
showed operating losses of $956,654 and $3,274,077 respectively. The
accompanying financial statements indicate that current liabilities exceed
current assets by $960,801 for the nine months ended September 30, 2006.
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 and significant assets and resources 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
Gross profits for the three-month period ended September 30, 2006 were $185,000
compared to $100,000 for the same period last year. Gross profit increase is
attributable to the continuance of two contracts that started in the second
quarter for the Company's R&D Services. Professional expenses (consulting and
professional fees) comparing the nine month period ending September 30, 2006, to
the nine month period ending September 30, 2005, decreased from $1,952,040 to
$424,800 with the decrease attributable to the non-use of consultants throughout
the quarter.
GENETHERA PLAN OF OPERATION
Background
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
Johnne's disease (predominantly dairy 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.
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
$3,000,000. 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
We anticipate that R&D will be the source for both assay development and vaccine
design/development. If we are able to develop assays for different diseases, we
intend 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 anticipate that R&D will be ongoing during
the life of the Company, as this is the source for new products to be introduced
to the market. Our plan is to seek new innovations in the biotechnology field.
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 as a result of our
research and development efforts.
12
COMMERCIAL DIAGNOSTIC TESTING
In the event that we are able to develop assays for the detection of diseases in
animals, we intend to establish a series of diagnostic testing 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. As of the date of this filing, we are in
negotiation to establish two diagnostic testing laboratories outside of our
Colorado facility.
13
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 provide any assurance
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.
R&D SERVICES
Molecular, Cellular, Viral Biology Research, and Consulting Services. We intend
to provide independent research services to scientists in academia, the
pharmaceutical industry, and the biotechnology industry. Primarily, GeneThera's
expertise focuses on technology relevant to animal and human immunotherapy.
These services are backed by the cumulative experiences of greater than 50 years
of research and development in both government and industry by GeneThera's
senior scientists. GeneThera intends to develop a commercial-scale
implementation of Adenovector Purification Process to support R&D material
production. Furthermore, GeneThera intends to evaluate and test commercially
available expression vectors and incorporate them into its vector repertoire.
These technologies are well established within the repertoire of GeneThera's
scientific staff. We cannot provide any assurance, however, that we will be able
to successfully offer these services or that, if offered, we can provide them
profitably. Two contracts were executed on May 28, 2005 for R&D Services with
Xpention Genetics, Inc. for the Company to provide Adenovector Purification.
Research & Development Services:
Molecular Biology:
Synthetic cDNA Construction
Prokaryotic Expression Vector Construction & Development
E. coli Expression Strain Evaluation
Pilot Scale Fermentation
Mammalian Expression Vector Construction & Development
Baculovirus Expression
Protein Isolation
Protein Engineering: Complement Determining Region Conjugated Proteins
Monoclonal Antibody Production Chimerization & Humanization
Vector design for Prokaryotic Expression of Antibody Fragments (Fab) and Single
Chain Antibody (ScFv)
Pilot Scale-up Development
Process Purification & Characterization
Assay Development & Quality Control Pharmaceutical Dosage and Formulation
14
Molecular Biology Potential Agreement Structure
Stage I
cDNA Construction & Expression Vector Development Stage
A specific gene sequence is cloned in an expression vector and screened by
restriction enzyme analysis
Stage II
The expression vector is grown into bacteria and the protein produced is
purified by chromatography techniques
Stage III
Assay for the protein stability and activity
Stage IV
Quantitation of protein yield per each cell line used for protein expression
Stage V
Experimental animal model development for determination of proper biological
active concentration and stability and determination of proper storage.
Gene Therapy Testing Services. GeneThera offers GLP testing programs for somatic
cell, viral and naked DNA-based gene therapies. Our scientists have over eight
years experience in providing fully integrated bio-safety testing programs for
the cell and gene therapy fields and have supported a number of successful BLA
and IND applications. To date, the Company has not generated any revenues with
regard to these services, and there is no assurance that we will generate any
revenues from such services.
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 ector 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.
15
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 and is in the final
negotiation stage with a publicly traded company to perform these services on an
annual basis. There is no assurance that any contracts will be signed or that
the company will generate significant revenues or profits from any such
contracts.
BUSINESS MODEL
Summary. GeneThera's animal disease assay development 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.
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 which 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.
The Company, through GeneThera, is also developing vaccines for Chronic Wasting
Disease and E.coli O157:H7. The Company will need the approval of the USDA
before the vaccines can be manufactured or sold. The approval process for animal
vaccines is time-consuming and expensive. We anticipate that such approval, if
it is obtained, may require more than $5 million and may require more than two
years for each vaccine for which approval is sought. Currently we do not have
the capital necessary to seek approval of any of our candidate vaccines, and we
cannot provide any assurance that we will be able to raise the capital necessary
for such approval on terms that are acceptable to us, if at all. In addition,
even if we are successful in raising the capital necessary to seek approval of
any vaccine, there are no assurances that such an approval will be granted, or
if granted, whether we 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.
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INTEGRATED TECHNOLOGY PLATFORM (ITP)
GeneThera's integrated technology platform is the foundation for "fast-track"
rDNA vaccine development. At the present stage we are working on the development
of a recombinant DNA vaccine for transmissible spongiform encephalopathy (TSE)
and Johnnes disease. Both vaccine developments are in the "in Vitro" stage. We
expect to initiate experimental animal studies for Johnnes in the next 2-3
months. A longer time frame (6-8 months) will be needed to initiate experimental
animal studies for TSE. 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 believes that it can develop a
prototype vaccine within 4 to 6 months versus the current standard of 18 to 24.
The cost to bring these vaccines to market is $2-5 Million from start to finish.
There is no assurance that we will be able to raise the capital necessary to
bring a vaccine to market and if the capital is raised, that we will be able to
overcome the government regulations involved in bringing such a product to
market. 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. GEA(TM) was developed in
2001. To date the system has been used to develop our TSE molecular assay.
GEA(TM) is a gene expression system to be used solely in our laboratory .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. GEA(TM) is a molecular genetic base system that utilizes
fluorogenic polymerase chain reaction (F-PCR). To perform GEA(TM), specific
laboratory equipment is needed. This involves some substantial initial costs to
set up the laboratory operations. However, the use of F-PCR represents a great
advantage over other available systems because of its greater sensitivity, speed
and accuracy.
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.
17
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.
PURIVAXTM 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.
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) is intended to completely eliminate
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:
18
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 designed to be 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. GeneThera believes that biological contaminants such as
endogenous retrovirus, bacterial, mycoplasma, non-specific nucleic acids,
lipids, proteins, carbohydrates and endotoxins are eliminated during the
purification process.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $7 as of September 30, 2006. Accounts
receivable as of September 30, 2006 was $215,562. It is estimated that it will
require outside capital for the remainder of fiscal year 2006 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. 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. We will require
significant additional funding in order to achieve our business plan.
Our longer-term working capital and capital requirements will depend upon
numerous factors, including revenue and profit generation, pre-clinical studies
and clinical trials, the timing and cost of obtaining regulatory approvals, the
cost of filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
collaborative arrangements. Additional capital will be required in order to
attain such goals. Such additional funds may not become available on acceptable
terms and we cannot give any assurance that any additional funding that we do
obtain will be sufficient to meet our needs in the long term.
19
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,
* 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. These evaluations was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer are effective in timely alerting management to material
information relating to us that is required to be included in our periodic SEC
filings. 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.
20
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about July 23, 2004, Sisu Media sued the Company in Jefferson County
District Court for breach of an alleged contract for website services for which
the plaintiff seeks compensatory damages, plus costs, interest, and attorney's
fees in amounts to be determined at trial.
Trial was held on August 4, 2005, wherein the court determined that Sisu Media
was entitled to compensation based only upon the breach of contract claim.
Plaintiff's claims in quantum meruit and for unjust enrichment were dismissed.
The court also dismissed defendant GeneThera, Inc.'s claim of aiding and
abetting a breach of fiduciary duty by third party. Entry of judgment was
entered in favor of the plaintiff for approximately $49,000.00. The Company has
appealed this judgment.
On or about August 5, 2004, Gary Langstaff, Nick Wollner and Springloose.com,
LLC sued the Company in Jefferson County District Court to gain access to
corporate records and seeking an accounting, a declaratory judgment determining
their status as shareholders, and alleging unpaid wages owed to Mr. Langstaff
and Mr. Wollner as employees in the amounts of $60,000.00 and $18,000.00
respectively, plus costs, interest, expert fees and attorney's fees in amounts
to be determined at trial. The trial date in July was vacated, to be reset upon
notice based upon the plaintiffs' counsel's decision to possibly call GeneThera,
Inc.'s counsel as an adverse witness at trial, thereby creating a conflict of
interest for defense counsel, requiring him to withdraw from representation.
GeneThera, Inc. has retained other trial counsel. A new trial date was schedule
for May 16-19, 2006. The plaintiffs settled with the Company on May 12, 2006. On
July 20, 2006, a Fairness Hearing was scheduled in which the plaintiffs,
Langstaff and Wollner, settled with GeneThera in the amount of 300,000 shares
each and a $55,000 cash award for the plaintiff's legal debt with Cage Williams
Law Firm instead of the millions of shares the plaintiffs were demanding.
Currently, due to short selling of the Company's shares, no cash award has been
given to the plaintiffs; only common stock shares. GeneThera requested from the
plaintiffs to sell their 600,000 shares it was given to them so they can pay
their own legal fees.
New Trends Holdings, Inc. from British Columbia sued the Regency Group and
GeneThera, Inc. in U.S. District Court for the District of Colorado on or about
August 4, 2005 based upon a breach of contract claim arising from Regency
Group's acting on behalf of GeneThera, Inc. to engage New Trends for the
performance of services. GeneThera filed a Motion to Dismiss it from the action
on the grounds that the contract was between Regency and New Trends. Regency and
New Trends settled the case and reimbursed GeneThera for all costs incurred in
defending the action.
21
OR Surgical, Inc. sued GeneThera, Inc. to recover money and/or stock it claims
was owed as the result of a business arrangement involving an equipment lease OR
Surgical defaulted on the payments. The parties settled the matter without
further litigation and OR Surgical was issued 40,000 shares instead of 75,000
shares the plaintiff wanted in March 2006.
On or about September 21,2006, MAG Capital, a California Limited Liability
Company (Mercator Momentum III, LP; Mercator Momentum Fund LP; Monarch Pointe
Fund, Ltd; a British Virgin Islands Corporation), served GeneThera, Inc. with a
Summons with the Federal Court, which was quashed. On October 11, 2006, the
above entities filed Superior Court State Complaint against GeneThera for breach
of written contract. The remaining 4,600 preferred stock has not and will not be
converted due to the above claim from MAG Capital.
On November 15, 2006, GeneThera, Inc.; Antonio Milici; Tannya L. Irizarry; GTI
Corporate Transfer Agents, LLC; and Laura Bryan's attorney, Mark Shoemaker from
California, filed a cross-complaint against MAG Capital, LLC; Mercator Momentum
Fund III LP; Mercator Momentum Fund LP; and Monarch Pointe Fund, Ltd. for
Declaratory Relief; Breach of Implied Covenant of Good Faith and Fair Dealing;
Negligent Misrepresentation; Fraud and Negligence.
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 September 30,
2006.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 10-QSB.
(A) Financial Statements
Reference is made to the financial statements listed on the Index to
Financial Statements in this Form 10-QSB.
(B) Exhibits
33.1 Certification pursuant to section 302 of the
Sarbanes-Oxley act of 2002
33.2 Certification pursuant to section 302 of the
Sarbanes-Oxley act of 2002
99.1 Certification of the President and Chief Executive Officer
99.2 Certification of the Chief Financial Officer
22
Signatures
Pursuant to the requirements of the Securities Act of 1933 the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Wheat Ridge, Colorado on this 13th
day of November, 2006.
GENETHERA, INC.
By: /s/ Antonio Milici
------------------------------
Name: Antonio Milici
Title: President and Chief Executive Officer
23
Pursuant to the requirements of the Securities Act of 1933 this Registration
Statement has been signed by the following persons in the capacities indicated
on October 31, 2006:
SIGNATURE TITLE(S)
/s/ Antonio Milici President, Chief Executive Officer and Director
---------------------------
Antonio Milici (principal executive officer)
/s/ Tannya L Irizarry Chief Financial Officer (Interim)
---------------------
Tannya L Irizarry
/s/ Thomas J. Slaga Director
----------------------------
Thomas J. Slaga
24