FORM 10-KSB-A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
Commission file No. 000-27237
GeneThera, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 66-0622463
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3930 Youngfield Street, Wheat Ridge, CO 80033
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 463-6371
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $.001 per share
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes |X| No | |
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. | |
State the issuer's revenues for its most recent fiscal year: $119,541
State the aggregate market value of the issuer's voting stock held by
non-affiliates of the issuer as of February 27, 2004 was $8,886,287.
State the number of shares outstanding as of the issuer's common stock as of
February 27, 2004 was 5,378,674.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format:
Yes |_| No |X|
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Sections of this Form 10-KSB, 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.
PART I.
Item 1. Description of Business
GeneThera, Inc. ("we" or "the Company"), formerly known as Hand Brand
Distribution, Inc., was incorporated in November 1995, under the laws of the
State of Florida. Our Common Stock currently trades on the Over-the-Counter
Bulletin Board ("OTC") under the symbol GTHA. Our executive offices are located
at 3930 Youngfield Street, Wheat Ridge, Colorado 80033 and our telephone number
is 303-463-6371.
For the fiscal year 2003 the Company had two subsidiaries, GeneThera, Inc., a
Colorado corporation,("GeneThera"), and Family Health News, Inc.("FHNI"), a
Florida Corporation. 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. FHNI publishes a quarterly magazine, Family Health
News ("FHNews"), that contains articles on health, nutrition, lifestyle and
innovative health products and therapies. FHNI also distributes a select line of
products related to these topics. FHNI's business is not at the core of our
ongoing business model and as a result the Board of Directors is seeking to
divest the Company of FHNI or to dissolve and liquidate FHNI's assets. FHNI has
produced negligible revenues in its history and has been operating at a loss. We
will seek to resolve this issue in a timely manner.
The Company is a biotechnology company that, through GeneThera, develops
molecular assays and is currently in the process of developing therapeutic
vaccines for the detection and prevention of food contaminating pathogens,
veterinary diseases, and diseases affecting human health.
1
GeneThera, Inc. was considered to be in the development stage for the year ended
December 31, 2003, and the accompanying comparative financial statements
represent those of a development stage company for that year. Activity during
the development stage included organization of the Company, and implementation
and revision of our business plan.
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.
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. 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.
Government Regulations
GeneThera's unique approach to the testing for various diseases allows it to
begin commercialization of its diagnostic tests without the need for a long and
enduring approval process from the USDA. All tests are done utilizing the blood
of animals that can be collected in the field using the Company's proprietary
Field Collection System (FCS). The collected blood is then sent to GeneThera's
laboratory for testing. Since all of the testing for the diseases is done "in
house," meaning tested at laboratories operated by GeneThera and using GeneThera
developed testing methods, the USDA deems GeneThera's test to be under the
category of Veterinary Services. The regulations on Veterinary Services are much
different than that of third party testing. GeneThera's test is not a kit.
The Center for Biologics Evaluation and Research (CBER) regulates human gene
therapy products - products that introduce genetic material into the body to
replace faulty or missing genetic material, thus treating or curing a disease or
abnormal medical condition. CBER uses both the Public Health Service Act and the
Federal Food Drug and Cosmetic Act as enabling statutes for oversight. FDA has
not yet approved any human gene therapy product for sale. However, the FDA is
actively involved in overseeing this activity.
Family Health News, Inc.
In October 1996, the Company acquired FHNI (formerly known as The Family News,
Inc.), which publishes FHNews. FHNews is a subscription-based newsletter and
digest, published quarterly since 1990, that focuses on health, nutrition, and
alternative medical therapies. FHNI also distributes a small line of products,
including dietary supplements and health and nutrition related equipment, books
and tapes. The Company pays a nominal royalty to the author of the books. The
consolidated financial statements of the Company included in the 10-KSB filed
for December 31, 2003 did not include the financial statements of its wholly own
subsidiary Family Health News, Inc. (FHNI). Further evaluation of the applicable
standards revealed that FAS 144 amended ARB 51, and eliminated the exemption to
consolidation for a subsidiary for which control is likely to be temporary. In
reevaluating the accounting treatment, the Company restated the consolidated
financial statements for the year ended December 31, 2003 to include FHNI and
the results of its operations through September 30, 2003, and the effect of its
disposal on October 1, 2003. On August 1, 2004 the Company signed a resolution
agreement with the President of FHNI. As stated in the agreement, the Company
issued 80,000 shares of common stock to the President of FHNI to satisfy all
outstanding convertible notes and accrued interest for funds loaned to the
Company. Additionally, the Company released and conveyed all interest in the
FHNI to its president. Although signed on August 1, 2004, the agreement was
effective nunc pro tunc ("now for then") to October 1, 2003.
2
Product Selection and Supply
FHNI seeks to identify products that represent effective science-based formulas
and technologies. However, as with most vitamins, herbals and nutritional
supplements, such products do not undergo the vigorous scientific validation of
safety and effectiveness and pre-market approval by the United States Food and
Drug Administration ("FDA") required of pharmaceutical products. All products
are manufactured by established manufacturers, including Baywood
Pharmaceuticals, Enguard Health Products, Proper Nutrition, Inc., Neutraceutics,
Lentek and Martek. These products are standard formulations and are generally
sold under the brand name of the manufacturer, but some are labeled under the
Company name.
FHNI does not have any long term supply contracts with the manufacturers of our
products. We believe that virtually all of the products we offer are available
from several sources and have not experienced any inability to obtain products
in the past.
FHNI depends upon the manufacturers of our products to conduct adequate quality
control and compliance with applicable manufacturing and labeling regulations.
FHNI does not undertake independent quality testing of our products after they
are received from the manufacturer. Each manufacturer provides FHNI with
certificates of insurance evidencing their policies of general and product
liability coverage in amounts that conform to industry standards.
Distribution
FHNI distributes its products through a sales force of six to twelve independent
distributors. The sales force is recruited primarily though our catalog and
through FHNews' web site. The primary channels of distribution for our products
are: (i) mass market retailers, which include drug stores, supermarkets, mass
merchandisers and discount stores; (ii) health food stores; (iii) direct sales
organizations; (iv) mail order; and (v) the Internet. The Company does not rely
on any one customer or a few major customers for a significant part of its
revenues.
Competition
Our market is highly competitive. We believe the narrow focus of our product
line and the information that we provide to our customers through FHNews and our
World Wide Web site avoid the confusion of the typical retail location, which
carries a vast selection of products, but generally offers little information on
the products.
We compete against a variety of retail organizations including supermarkets,
drug stores, chain stores and bookstores that carry competing products. There
are also competing mail order and Internet retailers that carry competing
products. These competitors compete on the basis of selection, price, physical
location and personal service availability at some locations. Most of these
competitors have vastly greater resources than the Company.
Government Regulation
The Dietary Supplement Health and Education Act of 1994 (the "DSHEA") was
enacted on October 25, 1994. The DSHEA amends the Federal Food Drug and Cosmetic
Act by defining dietary supplements, which include vitamins, minerals,
nutritional supplements and herbs, as a new category of food, separate from
conventional food. The DSHEA provides a regulatory framework to ensure safe,
quality dietary supplements and the dissemination of accurate information about
such products. Under the DSHEA, the FDA is generally prohibited from regulating
the active ingredients in dietary supplements as drugs unless product claims,
such as claims that a product may heal, mitigate, cure or prevent an illness,
disease or malady, trigger drug status.
On November 18, 1998, the Federal Trade Commission (FTC) issued its "Dietary
Supplements: An Advertising Guide for Industry." Such guide provides an
application of FTC law to dietary supplement advertising and includes examples
of how principles of advertisement interpretation and substantiation apply in
the context of dietary supplement advertising. Such Guide provides additional
explanation but does not substantively change the FTC's existing policy that all
supplement marketers have an obligation to ensure that claims are presented
truthfully and to verify the adequacy of the support behind such claims. The
Company believes that its current advertising is in compliance with the
requirements of the FTC Guide, although no assurances can be given in this
regard.
Product Liability Insurance
3
FHNI, like other distributors and retailers of products that are ingested, faces
an inherent risk of exposure to product liability claims if, among other things,
the use of its products results in injury. FHNI does not currently have product
liability insurance for these products. FHNI requires that each of our suppliers
provide the Company with certificates of insurance evidencing policies of
product liability insurance that are adequate in scope and amount based upon
industry standards. Nevertheless, such policies of insurance do not extend such
coverage to the Company and the Company's agreements with such suppliers do not
provide indemnification by the suppliers of any losses incurred by the Company
arising out of any product liability claims.
Employees
As of February 27, 2004, the Company had a total of three (3) full-time
employees and three (3) part-time employees who devote substantial effort on the
Company's behalf. None of the employees of the Company are represented by a
collective bargaining unit.
Risk Factors
We encounter various risks related to our business and our industry. These
include the following risks.
Development Stage Company
We have a history of losses and may never become profitable. Our primary
subsidiary, GeneThera, Inc., is a development stage company. As such, GeneThera,
Inc. will continue to incur high research and development expenses and may not
generate significant revenue with the Company's launch of its CWD and Mad Cow
Disease diagnostic assay. There can be no assurance that the Company will become
profitable.
The Loss of Key Personnel Could Adversely Affect the Company
The Company depends to a large part on the efforts and continued employment of
Antonio Milici, M.D., Ph.D., our President and Chief Executive Officer. The loss
of the services of Dr. Milici could adversely affect our business.
Rapid Growth May Place Significant Demands on our Resources
We expect significant expansion of our operations. Our anticipated future growth
will place a significant demand on our managerial, operational and financial
resources due to:
*the need to manage relationships with various strategic partners and other
third parties;
*difficulties in hiring and retaining skilled personnel necessary to
support our business;
*the need to train and manage a growing employee base; and
*pressures for the continued development of our financial and information
management systems.
If we have not made adequate allowances for the costs and risks associated with
this expansion or if our systems, procedures or controls are not adequate to
support our operations, our business could be harmed.
Government Regulation
The Company is subject to or affected by laws and regulations that govern, for
example: (i) the vaccination of animals for certain diseases. The failure to
comply with these laws and regulations, or to obtain applicable governmental
approvals, could result in the imposition of penalties, cause delays in, or make
impossible, the marketing of our products and services.
Item 2. Description of Property
The Company leases a 5,730 square foot biotechnology laboratory located at 3930
Youngfield Street, Wheat Ridge, Colorado. The lease expires in January 2005 and
the rent is $5,278.05 per month.
Item 3. Legal Proceedings
4
On or about March 8, 2004, GeneThera, Inc. commenced a civil action in the
District Court of Jefferson County, Colorado against Milton and Keith Dailey
individually and d/b/a "Hunting Lease Magazine" for tortious breach of contract
and interference with business advantage, fraud, theft, conspiracy, negligent
misrepresentation and negligence by bailee. The defendants deny all claims and
have asserted counterclaims of fraud, breach of contract and violation of the
Colorado Consumer Protection Act. GeneThera, Inc. has denied all counterclaims.
Damages are to be determined at trial. Trial is scheduled to be held in
November, 2004.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II.
Item 5. Market for Common Equity, Related Stockholder Matters, and Small
Business Issuer Purchases of Equity Securities
Our common stock currently trades on the Over The Counter Bulletin Board under
the symbol GTHA. The following sets forth the range of high and low bid
quotations for the periods indicated as reported by AlphaTrade. Such quotations
reflect prices between dealers, without retail mark-up, markdown or commission,
and may not represent actual transactions.
Year Quarter High Low
---- ------- ---- -----
2003
Fourth 3.42 1.55
Third 2.40 0.89
Second 1.78 0.35
First 1.55 .60
2002 Fourth 3.10 0.95
Third 3.48 1.00
Second 2.325 0.70
First 2.30 0.32
*Source AlphaTrade
There are no restrictions on the payment of dividends. We have paid no dividends
to date and none are anticipated. There were approximately 582 record holders of
common stock as of February 27, 2004.
At various times prior to December 31, 2001, the former President of the
Company, John Taggart, made loans to the Company in the aggregate principal
amount of $15,300. The loans were evidenced by convertible promissory notes that
may be converted into shares of Common Stock. As of December 31, 2003, the notes
were converted to common stock.
At various times prior to December 31, 2001, various third parties made loans to
the Company in the aggregate principal amount of $69,500, which amount remained
outstanding on December 31, 2001. The loans were evidenced by convertible
promissory notes that may be converted into shares of Common Stock.
On January 10, 2002, 2,365,950 shares of common stock valued at $0.105 per share
were issued to an unrelated party for $83,262 in cash.
On August 13, 2002, certain holders exercised their option to convert $10,500 in
convertible notes payable pursuant to an agreement dated August 12, 2002. After
a 2:1 forward stock split, 21,000 shares of common stock were issued.
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 December 12 Note for $.50 per share. As of April 14, 2003, the
December 12 Note has not been converted.
5
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 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 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 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 27
Note for $0.50 per share. As of April 14, 2002, the December 27 Note has not
been converted.
Between October 2003 and February 2004,we issued 2 separate convertible
promissory notes bearing interest at the rate of 8% per annum in the aggregate
amount of $745,000 with a maturity date of one year from the date of their
issuance. The holder of the notes are entitled to convert the principal amount
of the note at the rate of $1.00 per share. As of February 27, 2004, $728,000 in
principal amount of the notes have been converted into 728,000 shares of common
stock, $17,000 in principal amount of these notes still remains outstanding.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto that appear elsewhere herein.
GENETHERA DISCUSSION
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.
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.
RESULTS OF OPERATIONS
Revenues for the three-month period ended December 31, 2003 were $119,541
compared to $82,516 for the same period last year. The increase is attributable
to the increased revenue from our subsidiary.. Sales for the year ended December
31, 2003 were $119,541.
6
Personnel and professional expenses (consulting and professional fees and
salaries) increased from $567,111 for the prior fiscal year ending December 31,
2002 to $890,829 for the year ending December 31, 2003. Comparing the year ended
December 31, 2002 to the year ended December 31, 2003, expenses grew
substantially from $959,729 to $2,698,284. Most of this increase relates to the
development of our management team, as well as professional, legal fees, and
consulting fees incurred as part of the acquisition and preparation of our
periodic and other filings with the Securities and Exchange Commission.
The Company recorded a loss of $3,080,740 compared to $999,663 for the year
ended December 31, 2002.
Total assets of the Company for the year ended December 31, 2003 were $487,150.
Total current liabilities at December 31, 2003 were $1,268,620.
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.
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
7
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.
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.
8
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.
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.
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.
9
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.
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 immuonogenic 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
10
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
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.
Liquidity and Capital Resources
The Company had a cash balance of $-0- as of December 31, 2003. 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.
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.
Item 7. Financial Statements
11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
As stated in the November 20, 2003 8-K filing with the Securities and Exchange
Commission, on September 10, 2003, Sewell & Company, PA ("S&O") declined to
stand for re-election as independent auditor of GeneThera, Inc. (the "Company"),
formerly known as Hand Brand Distribution, Inc. (Commission File No. 000-27237).
During the most recent two fiscal years, S&O's reports on the financial
statements of the Company contained no adverse opinion or disclaimer of opinion
and were not qualified as to uncertainty, audit scope or accounting principles;
with the exception of a "going concern" qualification for the two most recent
fiscal years preceding the date hereof.
During the last two fiscal years and the subsequent interim period, there were
no disagreements (material or immaterial) with the Company on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to S&O's satisfaction,
would have caused S&O to make reference thereto in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(ii) of Regulation
S-K occurred with respect to the Company within the last two fiscal years and
the subsequent interim period to the date of S&O's decision to decline to stand
for re-election.
Subsequently, on February 12, 2004, Kantor, Sewell & Oppenheimer, P.A., the
successor to Sewell & Company, PA agreed to become the Company's auditors. The
attached financials have been certified by Kantor, Sewell & Oppenheimer, P.A.
Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act
Item 8A. 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. 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.
Item 9. Directors, Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act
Below are the names and biographies of our Executive Officers, Directors and
Nominees for Directors as of December 31, 2003:
Directors and Executive Officers
The following persons are currently serving as GeneThera's officers and
directors. Each of the directors below will be elected to serve until the next
annual meeting of stockholders and his successor has been elected and has been
qualified, or until his earlier death, resignation or removal.
Name Age Principal Positions and Directorships
---------------------------------------------------------------------------------------------------
Dr. Antonio Milici..................... 46 Chairman of the Board and Chief Executive Officer
Tannya Irizarry........................ 39 Chief Administrative Officer
Dr. Thomas Slaga....................... 53 Director
Richard Bryans......................... 47 Director
Loretta Zapp (1)....................... 37 Director
12
(1) Ms. Zapp resigned as a member of the Board of Directors in February 2004.
Dr. Antonio Milici founded GeneThera Inc. in 1999 and has served as its chairman
and CEO since inception. Prior to GeneThera, Dr. Milici was CEO and President of
Genetrans, Inc., a genetic diagnostic company. Dr. Milici was also an assistant
professor in the department of Molecular Pathology at the University of Texas
M.D. Anderson Cancer Center.
Tannya Irizarry has a Bachelor in Business Administration from the University of
Puerto Rico. She was an Administrative Manager and Project Coordinator at
University of Texas M.D. Anderson Cancer Center. Ms. Irizarry has over 15 years
experience in the field of biotechnology and medical administration.
Dr. Thomas Slaga has served on GeneThera's Board of Directors since 2003. Dr.
Slaga has investigated cancer causation and prevention for more than thirty-five
years. His current position is Scientific Director of the AMC Cancer Research
Center in Denver, Colorado. He chairs the Center for Cancer Causation and
Prevention at AMC and also serves as Deputy Director of the University of
Colorado Cancer Center. Previously, he served as Director of the Science Park -
Research Division of The University of Texas M. D. Anderson Cancer Center. Dr.
Slaga was co-founder of Molecular Carcinogenesis in 1987 and served as
editor-in-chief until early 2003.
Richard Bryans has served on GeneThera's Board of Directors since 2003. Mr.
Bryans is corporate counsel for GeneThera and manages his own private law firm
in Denver, Colorado.
Loretta Zapp served on GeneThera's Board of Directors in 2003. Ms. Zapp is CEO
and President of Oncology Sciences Corporation (OSC). OSC is a biopharmaceutical
company focused on the discovery, maturation and licensing of novel and
non-toxic drug technologies for the treatment of cancer and related illnesses.
Prior to joining OSC, Zapp was President of Industrial Laboratories Company,
Inc., an independent testing laboratory based in Denver, Colorado. During her
tenure at Industrial Labs, she founded the Institute for Nutriceutical
Advancement (INA) and designed a program to support and promote the production
of consistent, high quality herbal products. In February 2004, Ms. Zapp tendered
her resignation as a member of the Board of Directors to focus her efforts on
other ventures.
It is the Board's intent to increase the size of the Board of Directors in the
near future and to create an Audit Committee and a Compensation Committee
comprised of certain members of the Board. Each Director is elected at the
Company's Annual Meeting of Shareholders and holds office until the next Annual
Meeting of Shareholders, or until the successors are elected and qualified. At
present, the Company's bylaws provide for not less than three or more than seven
Directors. Currently, we have four Director positions. The bylaws permit the
Board of Directors to fill any vacancy and such director may serve until the
next Annual Meeting of Shareholders or until his successor is elected and
qualified. Officers are elected by the Board of Directors and their terms of
office are, except to the extent governed by employment contracts, at the
discretion of the Board. The officers of the Company devote full time to the
business of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
Executive Officers, Directors and 10% Shareholders to file reports regarding
initial ownership and changes in ownership with the SEC. Executive Officers,
Directors, and 10% shareholders are required by SEC regulations to furnish us
with copies of all Section 16(a) forms they file. Our information regarding
compliance with Section 16(a) is based solely on a review of the copies of such
reports furnished to us by our Executive Officers, Directors and 10%
shareholders. These forms include (i) Form 3, which is the Initial Statement of
Beneficial Ownership of Securities, (ii) Form 4, which is a Statement of Changes
in Beneficial Ownership, and (iii) Form 5, which is an Annual Statement of
Changes in Beneficial Ownership. Based upon this information, Antonio Milici,
M.D. Ph.D. and Tannya Irizarry had not filed a Form 3 required by the Security
and Exchange Commission for the shares acquired during fiscal year ended
December 31, 2003. Each of the officers has filed these required forms as of
March 19, 2004.
The Company's Board of Directors does not currently have an audit committee
financial expert on its Board. The Company is currently reviewing potential
candidates to be the audit committee financial expert. The Company cannot
guarantee when or if such a candidate will be found. The Board of Directors is
currently acting as the audit committee for the Company.
The Company has recently adopted a Code of Ethics applicable to its principal
executive officer, principal financial officer, and principal accounting
officer. Our Code of Ethics can be obtained by calling the company at
303-463-6371.
13
Item 10. Executive Compensation
The following table sets forth certain summary information for the fiscal year
ended December 31, 2003 concerning the compensation awarded to, earned by, or
paid to those persons serving as executive officers during fiscal year 2003.
Antonio Milici, M.D., Ph.D., and Tannya L. Irizarry were the only executive
officers during the fiscal year ended December 31, 2003.
SUMMARY COMPENSATION TABLE
The following table summarizes compensation earned in 2003 and 2002 by the named
officers.
Summary Compensation Table
The following table summarizes compensation earned in 2003 and 2002 by the
named officers.
Annual Compensation Long-Term Compensation
------------------------------------------------ -------------------------------
Name and Securities
Principal Position Year Salary Bonus All Other Restricted Underlying All Other
Annual Stock Options/
Compensation Award(s) ($) SARs (#)
Antonio Milici M.D. Ph.D. (1) 2003 $144,000 $-0- $-0- $-0- -0- $-0-
Chief Executive Officer 2002 $144,000 $-0- $-0- $-0- -0- $-0-
Tannya Irizarry (2) 2003 $78,000 $-0- $-0- $-0- -0- $-0-
Chief Administrative Officer 2002 $78,000 $-0- $-0- $-0- -0- $-0-
----------
(1) Dr. Milici was only paid $42,350 for the year 2002 and $-0- in 2003
(2) Ms. Irizarry was only paid $19,500 for the year 2002 and $-0- in 2003
Stock Option Grants in Last Fiscal Year
During the fiscal year ended December 31, 2003, no options were granted to any
executive officer.
Option Exercises and Year End Values
No options were exercised in the fiscal year ended December 31, 2003 by any
executive officer.
Stock Option Grants in Last Fiscal Year
During the fiscal year ended December 31, 2003, no options were granted to the
Executive Officer.
Option Exercises and Year End Values
No options were exercised in the fiscal year ended December 31, 2003 by the
Executive Officer who owns no options.
Compensation of Directors and Executive Officers
14
The Company entered into an employment agreement with Antonio Milici, M.D.,
Ph.D, to serve as the Chief Executive Officer of GeneThera and Chairman of the
Board of Directors and Chief Scientific Officer of the Company through January
7, 2007. In consideration for his services, Dr. Milici will receive a base
salary of $144,000 per annum plus bonuses as may be determined by the Board of
Directors in its sole discretion. As part of his Employment Agreement, Dr.
Milici is subject to non-disclosure and non-competition obligations and has
transferred to the Company of all his interests in any idea, concept, technique,
invention or written work.
The Company entered into an Employment Agreement with Tannya L. Irizarry to
serve as Chief Administrative Officer of GeneThera Inc. through January 1, 2007.
Ms Irizarry's base salary is $78,000 per annum.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table shows, as of February 27, 2004, the Common Stock owned
beneficially by (i) each of our Executive Officers, (ii) each of our current
Directors, (iii) all Executive Officers and Directors as a group, and (iv) each
person known by us to be the beneficial owner of more than five percent of our
Common Stock.
------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Name and Address Amount and Nature
Title of Class of Beneficial Owner of Beneficial Owner Percent of Class
------------------------------------------------------------------------------------------------------------------------
Common Dr. Antonio Milici 1,545,000 30.86%
Stock
Common Tannya Irrizary 660,000 13.18%
Stock
All current executive
officers and directors
as a group 2,205,000 44.04%
POTENTIAL CHANGE IN CONTROL
The Company has entered into a series of consulting agreements with The Regency
Group, a Denver-based public relations consultant, pursuant to which the Company
agreed to issue shares of its common stock or warrants to purchase shares of its
common stock in consideration for services to be provided by The Regency Group.
The dates of the agreements and the consideration payable by the Company are as
follows:
April 25, 2002 600,000 shares of common stock
April 24, 2003 warrant, issuable on April 24, 2003, to purchase 300,000 shares
of common stock; warrant, issuable on November 1, 2003, to purchase 300,000
shares of common stock; warrant, issuable on May 1, 2004, to purchase 300,000
shares of common stock
February 24, 2004 warrant, issuable on February 24, 2004, to
purchase 1,500,000 shares of common stock
15
In addition, each of the consulting agreements provides that the Company will
register for resale under the Securities Act the common stock to be issued on
April 25, 2002 and the shares of common stock that may be issued pursuant to the
exercise of the warrants described above. Finally, the April 24, 2003 and the
February 24, 2004 consulting agreements provide that the warrants to be issued
thereunder shall contain cashless exercise provisions.
If The Regency Group exercises all of the warrants described above and does not
elect to utilize the cashless exercise features of the warrants, the Company
would be required to issue a total of 2,400,000 shares of its common stock. When
added to the 600,000 shares we issued pursuant to the April 25, 2002 agreement,
The Regency Group could own up to 3,000,000 shares of our common stock. If we do
not issue any additional shares of our common stock other than the shares
described above that were issued or that can be issued to The Regency Group, the
3,000,000 shares would represent approximately 37% of our total common stock
outstanding at that time. Although such ownership would not be sufficient, under
our corporate bylaws, to control the election of our board of directors, it
would represent the largest single block of stock ownership in the Company.
The Company intends to issue additional shares of its common stock to certain
officers of the Company in lieu of salary. The anticipated issuance would then
represent the largest single block of stock ownership in the Company.
Item 12. Certain Relationships and Related Transactions
On December 2, 2003, GeneThera, Inc. and Oncology Sciences Corporation signed a
letter of intent for the use of the genetic coding for the P-65 gene. OSC owns
the licensing rights to the genetic sequence for the P-65 gene. There are strong
evidences that the P65 gene has correlation to certain types of cancers. Loretta
Zapp, the President and CEO of Oncology Sciences Corporation, served as a
director of the Company from March 2003 until February 2004.
Researchers have studied this gene extensively with respect to its role in
breast and prostate cancer. Studies have shown that in a high percentage of
cancer cases, there is an increase in the expression of the P-65 gene. GeneThera
plans to use P-65 to attempt to develop a blood test for breast and prostate
cancer. Future plans include attempting to use GeneThera's PURIVAX(TM)
technology to develop a therapeutic vaccine for breast and prostate cancer. We
cannot give any assurance, however, that GeneThera will be successful in
developing a blood test for either breast or prostate cancer or, if it is
successful in developing one or both of these vaccines, that it will be able to
successfully market and sell them profitably.
GeneThera's plan will utilize their F-PCR technology, which is currently being
used to test the blood of elk and deer for Chronic Wasting Disease, to amplify
and quantify the P-65 gene. This will enable GeneThera to not only test for
breast and prostate cancer with a single drop of blood, but may be able to
detect it much earlier than the current methods.
This letter of intent will be for GeneThera to prove their concept of molecular
identification and quantitation of the target gene in human blood samples to
Oncology Sciences Corporation. After the initial proof of concept period,
GeneThera and OSC will team up to continue the research and development of the
diagnostic test for breast and prostate cancer. They will also further research
the development of therapeutics for these cancers.
The Company will need significant additional capital in order to bring a vaccine
to market. There are no assurances that the Company will be able to raise
sufficient capital to develop a blood test for breast or prostate cancer or to
develop a vaccine for either of these diseases. Furthermore, even if sufficient
capital is raised, we cannot provide any assurance we will be able to validate
such a vaccine. Vaccines, especially for human use, can potentially have a long
and difficult approval process. The FDA has strict guidelines for the validation
of vaccines.
A Reverse Acquisition Agreement was executed on March 28, 2003. One million
(1,000,000) common shares were issued from the Company's authorized shares to
acquire 51% of the ownership of GeneThera from Antonio Milici M.D., Ph.D. On
November 6, 2003, an additional 960,000 shares were issued to shareholders of
GeneThera (Colorado) which includes an additional 545,000 shares issued to
Antonio Milici M.D., Ph.D. Upon completion of the issuance of these additional
shares, GeneThera has become a 100% wholly owned subsidiary of the Company.
Item 13. Exhibits and Reports on Form 8-K
16
(a) Exhibits
The following documents are filed herewith or have been included as exhibits to
previous filings with the SEC and are incorporated herein by this reference:
3.1.1 Articles of Incorporation filed November 8, 1995.
3.1.2 Amendment to the Articles of Incorporation filed on February 4, 1999, to effectuate a 1 for 2
reverse stock split
3.1.3 Amendment to the Articles of Incorporation filed January 15, 2002, to effectuate a 1 for 8
reverse stock split (1)
3.2 Bylaws
4.1.1 Private Equity Line of Credit Agreement between the Company and the Investor dated January 16,
2002 (2)
4.1.2 Registration Rights Agreement between the Company and the Investor dated January 16, 2002 (2)
4.1.3 Warrant Agreement with respect to the shares underlying the Private Equity Line of Credit
Agreement (2)
4.1.4 Amendment to Private Equity Line of Credit Agreement between the Company and the Investor dated
March 4, 2002 (3)
4.2 Registration Rights Agreement between the Company and Vantage dated January 23, 2002 (2)
4.3 Form of Convertible Notes bearing interest at the rate of 6% and maturing on January 15, 2005
(4)
4.4 Amendment #2 to Private Equity Line of Credit Agreement between the Company and the Investor
dated June 1, 2002 (5)
10.1 FHNI Stock Sale Agreement between the Company, FHNI and John Taggart, as amended (3) 10.2.1 Form of
Common Stock Purchase Agreement among the Company and various original holders of the
common stock of GeneThera, Inc. (2)
10.2.2 Form of Letter Agreement between the Company and various original holders of the common stock
of GeneThera, Inc. (4)
10.4 Employment Agreement between Antonio Milici, M.D., and the Company dated January 23, 2002 (4)
10.5 Employment Agreement between Nicolas Wollner and the Company dated February 25, 2002 (2)
10.6 Letter of Intent between the Company and Oncology Sciences Corporation, November 6, 2003
21 List of Subsidiaries (6)
31.1 Certification of the President and Chief Executive Officer pursuant to Rule 13a-14
31.2 Certification of the Interim Chief Financial Officer pursuant to Rule 13a-14
32.1 Certification of the President and Chief Executive Officer pursuant to Section 1350
32.2 Certification of the Interim Chief Financial Officer pursuant to Section 1350
(1) Incorporated by reference from an Exhibit to the Current Report on Form 8-K, as filed with the
SEC on January 17, 2002.
(2) Incorporated by reference from an Exhibit to the Company's Current Report on Form 8-K, as filed
with the SEC on March 4, 2002.
(3) Incorporated by reference from an Exhibit to the Company's Schedule 14-C Preliminary
Information Statement, as filed with the SEC on May 23, 2002.
(4) Incorporated by reference from an Exhibit to the Company's Current Report on Form 10KSB, as
filed with the SEC on June 4, 2002.
(5) Incorporated by reference from an Exhibit to the Company's Report on Form 10QSB as filed with
the SEC on June 14, 2002.
(6) Incorporated by reference to Exhibit 21 filed with the Company's Annual Report on Form 10-KSB
filed with the SEC on May __, 2003.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the SEC during the last
quarter of the fiscal year ended December 31, 2003.
Item 14. Principal Accounting Fees and Services
17
Audit Fees
The aggregate fees billed for each of the last 2 fiscal years for professional
services rendered by our principal accountant for the audit of the Company's
annual financial statements and review of financial statements included in the
registrant's Form 10-Q was as follows:
2002 $47,000
2003 $30,000
Audit-Related Fees
The aggregate fees billed in each of the last 2 fiscal years for assurance and
related services by our principal accountant that are reasonably related to the
performance of the audit and not reported in Audit Fees was $-0-.
Tax Fees
The aggregate fees billed in each of the last 2 fiscal years for services
rendered by our principal accountant for tax compliance, tax advice, and tax
planning was $-0-.
All Other Fees
The aggregate fees billed in each of the last 2 fiscal years for products and
services provided by our principal accountant other than those described above
was $-0-.
The Company's audit committee, which consists of all directors, approved the
services described above.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GeneThera, Inc.
By: /s/ Antonio Milici
Antonio Milici, M.D., Ph.D. President
By: /s/ Tannya L. Irizarry
Tannya L. Irizarry
Interim Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Antonio Milici
Antonio Milici, M.D., Ph.D. President April 14, 2004
/s/ Tannya L. Irizarry
Tannya L. Irizarry Interim Chief April 14, 2004
Financial Officer
/s/ Tannya L. Irizarry
Tannya L. Irizarry Principal Accounting April 14, 2004
Officer
18
/s/ Antonio Milici
Antonio Milici, M.D., Ph.D. Director April 14, 2004
/s/ Richard Bryans
Richard Bryans Director April 14, 2004
/s/ Dr. Thomas Slaga
Dr. Thomas Slaga Director April 14, 2004
17
GENETHERA, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
TABLE OF CONTENTS
Page No.
Independent Registered Public Accounting Firm's Report F-2
Consolidated Balance Sheets - December 31, 2003 and 2002 F-4
Consolidated Statements of Operations for the
Period From October 5, 1998 (Inception) to December 31, 2003 F-6
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the
Period From October 5, 1998 (Inception) to December 31, 2003 F-7
Consolidated Statements of Cash Flows for the
Period From October 5, 1998 (Inception) to December 31, 2003 F-11
Notes to Consolidated Financial Statements F-12
F-1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT
To the Board of Directors
GeneThera, Inc. and Subsidiary
Wheat Ridge, CO
We have audited the accompanying consolidated balance sheets of GeneThera, Inc.
and Subsidiary (a development stage company) as of December 31, 2003 and 2002,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for the period from October 5, 1998 (inception)
to December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
GeneThera, Inc. and Subsidiary as of December 31, 2003 and 2002, and the
consolidated results of its operations, and its cash flows for each of the years
in the period ended December 31, 2003, in conformity with U.S. generally
accepted accounting principles.
F-2
As discussed in Note 12 to the accompanying consolidated financial statements,
the Company has restated the consolidated balance sheets as of December 31,
2003, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the period from October 5, 1998 (inception)
to December 31, 2003.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 15 to the
consolidated financial statements, the Company has no established source of
revenue, recurring losses from operations, cash used in operations and
accumulated deficit. This raises substantial doubt about its ability to continue
as a going concern. Management's plan in regard to these matters is also
described in Note 15. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KANTOR, SEWELL & OPPENHEIMER, PA
Hollywood, Florida
February 15, 2004, except for Note 12, as to which the date is July 20, 2004
F-3
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
Assets
2003 2002
Restated Restated
----------- -----------
Current assets
Cash $ -- $ 9,144
Accounts receivable, net -- 5,517
Inventory -- 24,999
----------- -----------
Total current assets -- 39,660
Property and equipment, net 480,872 238,874
Other assets
Deposits 5,278 5,929
Goodwill and trademark, net -- 32,020
Other assets 1,000 31,960
----------- -----------
6,278 69,909
----------- -----------
$ 487,150 $ 348,443
=========== ===========
The notes to consolidated financial statements are an integral part of the above
statement.
F-4
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
Liabilities and Stockholders' Deficit
2003 2002
Restated Restated
----------- -----------
Current liabilities
Bank overdraft $ 35,486 $ --
Accounts payable 122,514 180,020
Accrued expenses 611,126 342,668
Deferred income -- 5,900
Due to related company 500 --
Lease payable 18,715 6,367
Loan payable - related party -- 50,000
Notes payable 193,405 131,683
Convertible notes payable 286,874 61,000
----------- -----------
Total current liabilities 1,268,620 777,638
Long term lease payable -- 26,534
Long term notes payable -- 25,200
Long term convertible notes payable -- 235,600
----------- -----------
-- 287,334
Stockholders' deficit
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;
4,796,478 and 2,738,176 shares issued and outstanding at
December 31, 2003 and 2002 respectively 4,796 2,738
Additional paid in capital 5,114,864 2,101,123
Accumulated deficit (5,901,130) (2,820,390)
----------- -----------
(781,470) (716,529)
----------- -----------
$ 487,150 $ 348,443
=========== ===========
The notes to consolidated financial statements are an integral part of the above
statement.
F-5
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from
October 5, 1998
Year ended December 31, (inception) to
2003 2002 December 31, 2003
Restated Restated Restated
----------- ----------- -----------
Income
Sales net of returns $ 119,541 $ 77,516 $ 197,057
Research fees -- 5,000 188,382
----------- ----------- -----------
119,541 82,516 385,439
Cost of sales (33,747) (30,352) (64,099)
----------- ----------- -----------
Gross profit 85,794 52,164 321,340
----------- ----------- -----------
Expenses
Salaries 248,440 301,198 864,639
Professional fees 34,639 218,249 252,888
General and administrative expenses 363,390 164,853 737,628
Lease expense 104,509 98,457 316,498
Lab expenses 58,600 51,606 178,082
Consulting 607,750 47,664 824,384
Depreciation and amortization 69,344 44,383 161,727
Sales expenses 21,576 18,823 40,399
Other compensation 1,164,000 -- 1,164,000
Insurance 26,036 14,496 56,753
----------- ----------- -----------
2,698,284 959,729 4,596,998
----------- ----------- -----------
Loss from operations (2,612,490) (907,565) (4,275,658)
Other income (expenses)
Other income (expenses), net (9,492) (78,003) (36,565)
Interest expense (345,732) (14,095) (359,827)
----------- ----------- -----------
Net loss from operations (2,967,714) (999,663) (4,672,050)
Loss from discontinued operations (113,026) -- (113,026)
----------- ----------- -----------
Net loss $(3,080,740) $ (999,663) $(4,785,076)
=========== =========== ===========
Loss per common share, basic and diluted $ (0.98) $ (0.39) $ (2.92)
The notes to consolidated financial statements are an integral part of the above
statement.
F-6
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
---------- ------ ---------- -------------- -----------
Issuance of common stock to founders for consulting
services rendered at an aggregate of $36,000 $ 420,000 $ 420 $ 35,580 $ -- $ 36,000
Issuance of common stock in exchange for equipment
supplies and cash 100,000 100 99,900 ~ 100,000
Issuance of common stock according to a contract for
computer services and financing 60,000 60 59,940 ~ 60,000
Issuance of common stock in exchange for cash 5,000 5 4,995 ~ 5,000
Net loss 1999 ~ ~ ~ (84,350) (84,350)
---------- ------ ---------- -------------- -----------
Balance December 31, 1999 585,000 585 200,415 (84,350) 116,650
Issuance of common stock in exchange for consulting
services rendered 25,000 25 24,975 ~ 25,000
---------- ------ ---------- -------------- -----------
sub-total 610,000 $ 610 $ 225,390 $ (84,350) $ 141,650
F-7
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
---------- ------ ---------- -------------- -----------
sub-total 610,000 $ 610 $ 225,390 $ (84,350) $ 141,650
Issuance of common stock in exchange for an agreement
for management and financing for $80,000 40,000 40 39,960 ~ 40,000
Issuance of common stock in exchange for a consulting
agreement 10,000 10 11,990 ~ 12,000
Net loss 2000 ~ ~ ~ (226,659) (226,659)
---------- ------ ---------- -------------- -----------
Balance December 31, 2000 660,000 660 277,340 (311,009) (33,009)
Issuance of common stock to an officer in lieu of salary 1,125,000 1,125 238,875 ~ 240,000
Issuance of common stock to an employee in lieu of salary 60,000 60 59,940 ~ 60,000
Issuance of common stock to an employee in lieu of salary 15,000 15 14,985 ~ 15,000
Issuance of common stock in exchange for consulting
services 100,000 100 99,900 ~ 100,000
Net loss, 2001 ~ ~ ~ (393,664) (393,664)
---------- ------ ---------- -------------- -----------
Balance December 31, 2001 1,960,000 $1,960 $ 691,040 $ (704,673) $ (11,673)
F-8
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
---------- ------ ---------- -------------- -----------
sub-total 1,960,000 $1,960 $ 691,040 $ (704,673) $ (11,673)
Additional paid in capital - related party -- -- 83,262 ~ 83,262
---------- ------ ---------- -------------- -----------
Balance before recapitalization 1,960,000 1,960 774,302 (704,673) 71,589
Recapitalization on February 25, 2002 697,176 697 1,000,702 (1,116,054) (114,655)
---------- ------ ---------- -------------- -----------
Balance after recapitalization February 25, 2002 2,657,176 2,657 1,775,004 (1,820,727) (43,066)
Issuance of shares of common stock in connection
with convertible notes payable 21,000 21 10,479 ~ 10,500
Issuance of shares of common stock in connection
with conversion 60,000 60 29,940 ~ 30,000
Additional paid in capital - related party -- -- 285,700 ~ 285,700
Net loss, 2002 ~ ~ ~ (999,663) (999,663)
---------- ------ ---------- -------------- -----------
Balance December 31, 2002, Restated 2,738,176 2,738 2,101,123 (2,820,390) (716,529)
Additional paid in capital contributed as equipment -- -- 201,976 ~ 201,976
---------- ------ ---------- -------------- -----------
sub-total 2,738,176 $2,738 $2,303,099 $ (2,820,390) $ (514,553)
F-9
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
---------- ------ ---------- -------------- -----------
sub-total 2,738,176 $2,738 $2,303,099 $ (2,820,390) $ (514,553)
Additional paid in capital - related party -- -- 200,000 ~ 200,000
Beneficial conversion feature ~ ~ 319,221 ~ 319,221
Shares issued in exchange for services 715,000 715 607,035 ~ 607,750
Shares issued to officer 600,000 600 1,163,400 ~ 1,164,000
Shares issued on conversion 663,302 663 330,989 ~ 331,652
Shares issued on conversion 80,000 80 191,120 ~ 191,200
Net loss, 2003 ~ ~ ~ (3,080,740) (3,080,740)
---------- ------ ---------- -------------- -----------
Balance December 31, 2003, Restated 4,796,478 $4,796 $5,114,864 $ (5,901,130) $ (781,470)
F-10
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period from
October 5, 1998
Year ended December 31, (inception) to
2003 2002 December 31, 2003
Restated Restated Restated
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(3,080,740) $ (999,663) $(4,785,076)
----------- ----------- -----------
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation and amortization 69,344 44,383 161,727
Compensation in exchange for common stock 1,771,750 -- 2,238,750
Beneficial conversion feature 319,221 -- 319,221
(Increase) decrease in accounts receivable 5,517 (5,517) --
(Increase) decrease in inventory 24,999 (24,999) --
(Increase) decrease in other assets 44,090 (39,802) 36,748
Increase (decrease) in accounts payable
and accrued liabilities 205,553 495,564 734,140
----------- ----------- -----------
Total adjustments 2,440,474 469,629 3,490,586
----------- ----------- -----------
Net cash used in operating activities (640,266) (530,034) (1,294,490)
----------- ----------- -----------
Cash flows from investing activities:
Cash payments for the purchase of property (8,735) (11,535) (35,069)
----------- ----------- -----------
Net cash used in investing activities (8,735) (11,535) (35,069)
----------- ----------- -----------
Cash flows from financing activities:
Bank overdraft 35,486 -- 35,486
Capital contributed as equipment 201,976 -- 272,376
Principal payments on note/leases payable (31,155) (34,807) (70,815)
Proceeds from capital contributions -- 418,962 443,962
Proceeds from loans payable 433,550 165,410 648,550
----------- ----------- -----------
Net cash provided by financing activities 639,857 549,565 1,329,559
----------- ----------- -----------
Net increase in cash and cash equivalents (9,144) 7,996 --
Cash and cash equivalents, beginning of year 9,144 1,148 --
----------- ----------- -----------
Cash and cash equivalents, end of year $ -- $ 9,144 $ --
=========== =========== ===========
Supplemental disclosures of cash flow information:
a) Cash paid during the period for:
Interest expense $ 3,462 $ 1,666 $ 6,744
----------- ----------- -----------
F-11
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACOUNTING POLICIES
Nature of Operations GeneThera, Inc. (the Company), formerly known as Hand Brand
Distribution, Inc., was incorporated in November 1995, under the laws of the
State of Florida. During 2002, the Company acquired GeneThera, Inc. (Colorado).
GeneThera, Inc. (Colorado) is a biotechnology company that develops molecular
assays for the detection of food contaminating pathogens, veterinary diseases
and genetically modified organisms. The Company also owned Family Health News, a
subsidiary that was sold in 2003.
GeneThera, Inc. (Colorado) is considered to be in the development stage.
Activity during the development stage includes organization, and implementation
and revision of the business plan. GeneThera, Inc. (Colorado) also provides
research services to unrelated parties.
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 been consolidated
through September 30, 2003.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment Property and equipment are stated at cost. Depreciation
is computed using the straight-line method based on the estimated useful lives
of the assets, which is 5 - 10 years.
Revenue Recognition Revenues are recognized when services are rendered.
Loss per Share Basic loss per share for each year is computed by dividing loss
for the year by the weighted average number of common shares outstanding during
the year. Diluted loss per share includes the effects of common stock
equivalents to the extent they are dilutive. At December 31, 2003 and 2002 all
common stock equivalents were antidilutive and therefore diluted loss per share
equaled basic loss per share.
F-12
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACOUNTING POLICIES -
continued
Advertising
Advertising costs are charged to operations in the year incurred. There were no
advertising expenses for the years ended December 31, 2003 and 2002.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements, which may apply to the Company. Statement No. 141,
Business Combinations (SFAS 141) establishes revised standards for accounting
for business combinations. Specifically, the statement eliminates the pooling
method, provides new guidance for recognizing intangible assets arising in a
business combination, and calls for disclosure of considerably more information
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.
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets supercedes Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (SFAS 121). Though it retains
the basic requirements of SFAS 121 regarding when and how to measure an
impairment loss, SFAS 144 provides additional implementation guidance. SFAS 144
excludes goodwill and intangibles not being amortized among other exclusions.
SFAS 144 also supersedes the provisions of APB 30, Reporting the Results of
Operations, pertaining to discontinued operations. Separate reporting of a
discontinued operation is still required, but SFAS 144 expands the presentation
to include a component of an entity, rather than strictly a business segment as
defined in SFAS 131, Disclosures about Segments of an Enterprise and Related
Information. 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. SFAS 144 was
implemented on these consolidated financial statements as explained in Note 13.
F-13
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 2 CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
include cash on deposit with three financial institutions. Financial
institutions insure depositors for up to $100,000 through the U.S. Federal
Deposit Insurance Corporation. The Company had a bank overdraft at December 31,
2003.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2003 and 2002 consisted of the following:
2003 2002
--------- ---------
(As Restated) (As Restated)
Computers $ 32,523 $ 12,372
Office equipment 0 5,414
Telephone system 5,119 3,400
Furniture & fixtures 1,465 76,743
Laboratory equipment 578,041 277,194
--------- ---------
617,148 375,123
Less accumulated depreciation (136,276) (136,249)
--------- ---------
$ 480,872 $ 238,874
========= =========
Depreciation expense for the years ended December 31, 2003 and 2002 was $66,093
and $40,824, respectively.
During the year ended December 31, 2002, the Company entered into capital lease
agreements to acquire laboratory equipment and a computer. (See Note 4)
NOTE 4 LEASES
Operating Leases The Company leases office space and vehicles under
non-cancelable operating leases for its Colorado facility, which have initial
terms in excess of one year.
Total lease expense for the years ended December 31, 2003 and 2002 was $104,509,
and $98,457, respectively.
F-14
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 4 LEASES - continued
Capital Leases
The Company's property under capital leases is included in property and
equipment (See Note 3) and is summarized as follows:
2003 2002
-------- --------
(As Restated) (As Restated)
Laboratory Equipment $ 31,574 $ 31,574
Computer 2,672 2,672
-------- --------
34,246 34,246
Less: Accumulated depreciation (6,441) (1,306)
-------- --------
Net assets under capital leases $ 27,805 $ 32,940
======== ========
Future minimum lease payments under these non-cancelable operating leases and
capital leases at December 31, 2003 were as follows:
Operating Capital
Leases Leases
------------ ------------
2004 $ 63,337 $ 12,135
2005 0 1,035
2006 0 691
2007 0 0
2008 and thereafter 0 0
------------ ------------
$ 63,337 $ 13,861
========= ==========
Total interest expense, including late fees, under capital leases was $2,510 and
$634 for the years ended December 31, 2003 and 2002, respectively.
NOTE 5 LOAN PAYABLE
The Company has an outstanding loan payable to a related party as follows:
2003 2002
-------- --------
(As Restated) (As Restated)
Loan payable with no interest, due on demand, unsecured $ 0 $ 50,000
Less current portion (0) (50,000)
-------- --------
Total long-term loan payable $ 0 $ 0
======== ========
There was no interest expense for the years ended December 31, 2003 and 2002.
F-15
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 6 NOTES PAYABLE
The Company has outstanding notes payable at December 31, 2003 and 2002 as
follows:
2003 2002
--------- ---------
(As Restated) (As Restated)
Various notes payable with interest rates ranging from 0% to 14%; various
terms; secured by equipment and personal guarantees $ 193,405 $ 156,883
Less current portion: (193,405) (131,683)
--------- ---------
Total long-term note payable $ 0 $ 25,200
========= =========
Total interest expense for the year ended December 31, 2003 and 2002 was $1,692
and $3,404, respectively.
NOTE 7 CONVERTIBLE NOTES PAYABLE
2003 2002
------------- ------------
(As Restated) (As Restated)
Various convertible notes payable, with interest at 6%; due January 5, 2005;
convertible into shares of common stock at $1.00 per share. $ 0 $ 85,600
Note payable - line of credit loan not to exceed one million dollars. For each
draw, the borrower will issue a convertible promissory note bearing a 6%
interest rate per year through January 14, 2004, and 12% interest rate from
January 15, 2004; convertible into shares of common stock at $1.40 per share,
subject to adjustment. 0 150,000
Various convertible notes payable to individuals, with interest at 8%; due at
various dates from April 14, 2003 through June 18, 2004; convertible into shares
of common stock at a price of $0.50 per share. 223,124 61,000
F-16
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 7 CONVERTIBLE NOTES PAYABLE - continued
2003 2002
---------- -----------
(As Restated) (As Restated)
A convertible note payable to an individual, with interest at 10%; due May 16,
2004; convertible into shares of common stock at a price of $0.25 per share. As
of the balance sheet date, the option to convert into shares of common stock was
not exercised. 63,750 0
---------- -----------
286,874 296,600
Less: current portion (286,874) (61,000)
---------- -----------
Total long-term convertible notes payable $ 0 $ 235,600
========== ===========
Interest expense for the years ended December 31, 2003 and 2002 was $15,677 and
$10,215, respectively.
NOTE 8 EQUITY LINE OF CREDIT
During 2002, the Company entered into an agreement to obtain a private equity
line of credit for up to $30,000,000, in exchange for common stock and warrants,
for a period of 36 months.
The Company agreed to pay a commission fee of $300,000, plus legal fees totaling
$30,000, with rights to convert into shares of common stock at $1 per share on
or before September 15, 2002. On September 28, 2002, 660,000 shares (after 2:1
forward stock split) were issued pursuant to the agreement. On May 12, 2003, the
board of directors resolved to nullify the transaction due to failure of
consideration, following General Counsel's advice. Consequently, the 660,000
shares were canceled and the financial statements were adjusted to reflect the
cancellation.
NOTE 9 STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock On March 5, 1999, the Company issued 420,000 of common stock valued
at $36,000 according to an employment agreement, approved by the board of
directors, to a founder for services rendered during 1999. Accordingly,
consultant expense of $36,000 was charged to operations.
F-17
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 9 STOCKHOLDERS' DEFICIT - continued
Common Stock
On March 5, 1999, 100,000 shares of common stock were issued in exchange for
used equipment with a fair market value of $34,586, supplies, and other items
totaling $25,414, and $40,000 in cash from an unrelated party. Accordingly, lab
equipment was recorded at $34,586, supplies at $21,414, and glassware at $4,000
- the market value for these items.
On April 1, 1999, according to a contract agreement to provide computer
services, the Company issued 60,000 shares of common stock valued at $60,000, in
exchange for computer & consulting services in the amount of $55,000, and $5,000
in cash. Accordingly, consultant expense of $55,000 was charged to operations.
On April 1, 1999, 5,000 shares of common stock valued at $1.00 per share were
issued to an unrelated party for $5,000 in cash.
On January 1, 2000, 25,000 shares of common stock valued at $1.00 per share were
issued in exchange for services rendered. Accordingly, consultant expense of
$25,000 was charged to operations.
On April 10, 2000, according to a contract agreement to provide management
services, the Company issued 40,000 shares of common stock valued at $40,000, in
exchange for management services. Accordingly, consultant expense of $40,000 was
charged to operations.
On May 15, 2000, according to a contract agreement to provide consulting
services, the Company issued 10,000 shares of common stock valued at $12,000.
Accordingly, consultant expense of $12,000 was charged to operations.
On February 15, 2001, the Company issued 1,125,000 shares of common stock valued
at $240,000 according to an employment agreement, approved by the board of
directors, to an officer in lieu of salary for services rendered during 2000 &
2001. Accordingly, salary expense of $120,000 was charged to operations at
December 31, 2001 and $120,000 in 2000.
On February 15, 2001, the board of directors of the Company approved the
issuance of 60,000 shares of common stock valued at $60,000 to an officer in
lieu of salary for services rendered. Accordingly, salary expense of $60,000 was
charged to operations.
F-18
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 9 STOCKHOLDERS' DEFICIT - continued
Common Stock
On February 15, 2001, the board of directors of the Company approved the
issuance of 15,000 shares of common stock valued at $15,000 to an officer in
lieu of salary for services rendered. Accordingly, salary expense of $15,000 was
charged to operations.
On October 1, 2001, according to a contract agreement to provide consulting
services, the Company issued 100,000 shares of common stock valued at $100,000.
Accordingly, consultant expense of $100,000 was charged to operations.
As a result of the recapitalization on February 25, 2002, the Company is deemed
to have issued 697,176 common shares to the stockholders of GeneThera, Inc.
(f/k/a Hand Brand Distribution, Inc.).
During November 2002, certain holders exercised their option to convert $40,500
in convertible notes payable per various agreements dated in 2002. As a result,
81,000 shares of common stock were issued.
In June 2003, the Company issued 715,000 shares of common stock in exchange for
consulting services. The fair market value of the shares was $.85 on the date of
issuance. Accordingly, consultant expense of $607,750 was charged to operations.
On November 15, 2003, the Company issued 600,000 shares of common stock as
"officer incentive" to an officer of the Company following a resolution of the
board of directors. The fair market value of the shares was $1.94 on the date of
issuance. Accordingly, salary expense of $1,164,000 was charged to operations.
During 2003, certain holders exercised their option to convert $331,652 in
convertible notes payable per various agreements dated in 2002 and 2003. As a
result, 663,302 shares of common stock were issued.
On October 1, 2004, the Company issued 80,000 shares of common stock to the
President of FHNI to satisfy all outstanding convertible notes and accrued
interest for funds loaned to the Company. Additionally, the Company released and
conveyed all interest in the FHNI to its president. Although signed on August 1,
2004, the agreement was effective nunc pro tunc ("now for then") to October 1,
2003.
F-19
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 10 INCOME TAXES
The Company has no current or deferred income tax due to its operating losses.
The Company has a federal net operating loss carryforward at December 31,
2003 and 2002 of approximately $4,930,000 and $2,600,000, respectively, subject
to annual limitations prescribed by the Internal Revenue Code, that are
available to offset future taxable income through 2023. A 100% valuation
allowance has been recorded to offset the net deferred taxes due to uncertainty
of the Company's ability to generate future taxable income.
The provision (benefit) for income taxes is comprised of the following:
2003 2002
----------- -----------
(As Restated) (As Restated)
Current taxes $ 0 $ 0
Deferred tax benefit:
Net operating loss carryforward 972,000 267,000
Accrued wages 76,000 72,000
Change in valuation allowance (1,048,000) (339,000)
----------- -----------
Total provision (benefit) for income taxes $ 0 $ 0
=========== ===========
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred tax assets (liabilities) were as follows:
2003 2002
----------- -----------
(As Restated) (As Restated)
Deferred tax assets
Loss carryforward, including recapitalization $ 1,858,000 $ 884,000
Accrued wages 148,000 74,000
----------- -----------
Total deferred tax assets 2,006,000 958,000
Valuation allowance (2,006,000) (958,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
F-20
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 11 AMENDMENT TO ARTICLES OF INCORPORATION
Following a resolution of the board of directors, the Company amended its
articles of incorporation effective June 16, 2003, to change the Company's name
from Hand Brand Distribution, Inc. to GeneThera, Inc., and to provide for a
maximum of 100,000,000 shares of common stock and 20,000,000 shares of preferred
stock.
NOTE 12 RESTATEMENT
On February 25, 2002, GeneThera, Inc., f/k/a Hand Brand Distribution, Inc., (the
Company), entered into an agreement to acquire GeneThera, Inc. (Colorado). The
Company was to issue 6 shares of common stock (after a 2:1 forward stock split)
for each share of GeneThera, Inc. (Colorado). At the end of the transaction the
Company would have issued a total of 16,611,900 shares of common stock and own
approximately 91% of GeneThera, Inc. (Colorado). At the time the agreement was
signed, the Company did not have sufficient authorized shares of common stock to
complete the transaction. The stockholders of GeneThera, Inc. (Colorado) decided
to proceed with the acquisition and agreed to delay receipt of the shares until
the Company increased the number of authorized shares. This did not occur until
late in 2003. In the 10-K filed for the year ended December 31, 2002, the
Company reported a total of 18,621,476 shares issued, but only 2,009,576
outstanding. The 16,611,900 shares of common stock related to the acquisition
were never issued due to the insufficient number of authorized shares of common
stock of the Company.
The assets of GeneThera, Inc. (f/k/a Hand Brand Distribution, Inc.) and
GeneThera, Inc. (Colorado) are at historical cost as of December 31, 2001. The
value of the net assets of GeneThera, Inc. at the time of the acquisition is the
same as the historical negative book value of ($114,654). For the
recapitalization, equity accounts of GeneThera, Inc. (Colorado) have been
restated, based on the ratio of exchange of 1 (one) share of the Company for 1
(one) share of GeneThera, Inc. (Colorado).
The financial statements became those of GeneThera, Inc. (Colorado), with
adjustments to reflect the changes in equity structure. The operations are those
of GeneThera, Inc. (Colorado) from inception, October 5, 1998 to December 31,
2003, and those of GeneThera, Inc. (f/k/a Hand Brand Distribution, Inc.) from
February 25, 2002, the recapitalization date.
During the first quarter of 2003, the agreement of February 25, 2002 was
rescinded and a new acquisition agreement was signed. At this time, the board of
directors of the Colorado corporation resolved to restructure the equity of the
Colorado corporation, whereby of the 3,039,050 shares of common stock issued and
outstanding (including the minority interest) at the time of the first
agreement, only 1,960,000 shares of common stock remained at March 23, 2003.
F-21
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 12 RESTATEMENT - continued
The canceled shares had the following effect on the Colorado corporation:
Shares of Additional Accumulated
Common Stock Paid in Capital Deficit
----------- ----------- -----------
As reported February 25, 2002 - before
acquisition 18,234,300 $ 1,048,428 $ (995,073)
Adjustments
Reversal 3:1 (2:1 fwd stock split) (15,195,250) 10,463 0
Cancelled shares (290,400) (290,109) 290,400
Cancelled shares (788,650) 5,520 0
----------- ----------- -----------
Total adjustments (16,274,300) (274,126) 290,400
----------- ----------- -----------
As restated - retroactive to
February 25, 2002 acquisition 1,960,000 $ 774,302 $ (704,673)
=========== =========== ===========
During 2002, the Company issued a total of 1,312,400 shares--652,400 related to
convertible notes, and the remaining 660,000 shares associated with a credit
line commitment fee having an option to convert. By resolution of the Board of
Directors a total of 1,231,400 shares were canceled.
Following is the aggregate effect on the consolidated financial statements of
the Company at December 31, 2002, reflecting the cancellation of shares by both
the Colorado corporation and the Company, as well as the retroactive effect of
the initial acquisition as per the terms of the new agreement dated March 23,
2003.
Shares of Additional Accumulated
Common Stock Paid in Capital Deficit
------------ ------------ ------------
As reported December 31, 2002 18,621,476 $ 2,433,240 $ (3,401,716)
Adjustments
Rescission/Acquisition (16,274,300) (274,126) 290,400
Reversal minority interest 1,622,400 270,778 (62,998)
Cancelled shares (660,000) (329,340) 330,000
Cancelled shares (571,400) 571 0
FHNI adjustment COGS 0 0 23,924
------------ ------------ ------------
As restated retroactive December 31, 2002 $ 2,738,176 $ 2,101,123 $ (2,820,390)
============ ============ ============
F-22
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 12 RESTATEMENT - continued
The consolidated financial statements of the Company included in the 10-KSB for
December 31, 2003 depicted the new acquisition as of March 23, 2003, and
considered the 2002 reverse acquisition null and void. The historical
information was that of the Colorado corporation. After reviewing FAS 141,
Business Combination and all facts surrounding the original acquisition, the
rescission and consequent re-acquisition, the Company determined that even
though the January 2002 acquisition agreement was rescinded, control of the
Company remained continuously with the Colorado corporation through its major
shareholders. Consequently, the consolidated financial statements for December
31, 2003 are restated as follows:
Shares of Additional Accumulated
Common Stock Paid in Capital Deficit
----------- ----------- -----------
As reported December 31, 2003 4,749,976 $ 4,300,500 $(4,798,772)
Adjustments
Additional liabilities 0 0 (26,989)
Reclassification of supplies 0 0 (33,314)
Revaluation of fixed assets 0 (248,024) 11,649
Related party debt 0 568,962 (518,962)
Beneficial conversion features 0 319,221 (319,221)
Correction of shares converted (33,498) (16,915) 0
Consolidation of FHNI 0 0 (93,457)
Disposal of subsidiary 80,000 191,120 (122,064)
----------- ----------- -----------
As restated December 31, 2003 4,796,478 $ 5,114,864 $(5,901,130)
=========== =========== ===========
NOTE 13 CONSOLIDATION AND DIVESTITURE OF SUBSIDIARY
The consolidated financial statements of the Company included in the 10-KSB
filed for December 31, 2003 did not include the financial statements of its
wholly own subsidiary Family Health News, Inc. (FHNI). Further evaluation of the
applicable standards revealed that FAS 144 amended ARB 51, and eliminated the
exemption to consolidation for a subsidiary for which control is likely to be
temporary. In reevaluating the accounting treatment, the Company restated the
consolidated financial statements for the year ended December 31, 2003 to
include FHNI and the results of its operations through September 30, 2003, and
the effect of its disposal on October 1, 2003. On August 1, 2004 the Company
signed a resolution agreement with the President of FHNI. As stated in the
agreement, the Company issued 80,000 shares of common stock to the President of
FHNI to satisfy all outstanding convertible notes and accrued interest for funds
loaned to the Company. Additionally, the Company released and conveyed all
interest in the FHNI to its president. Although signed on August 1, 2004, the
agreement was effective nunc pro tunc ("now for then") to October 1, 2003.
F-23
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM
OCTOBER 5, 1998 (INCEPTION) TO DECEMBER 31, 2003
NOTE 13 CONSOLIDATION AND DIVESTITURE OF SUBSIDIARY - continued
As a result of the disposition the Company recorded a loss of $113,026. FHNI had
net sales of $119,445 and a net loss of $9,039 through September 31, 2003, which
is included as loss from operations on the consolidated financial statements.
At December 31, 2003, there were no assets related to discontinued operations on
the consolidated balance sheet.
NOTE 14 CONTINGENCIES & LITIGATIONS
In the normal course of business, GeneThera, Inc. had a dispute with a company
for failing to perform services, and is pursuing damages relating to the
non-performance. The Company has reserved $10,000 to resolve this matter.
The ultimate outcome of this matter is unknown at this time. In the opinion of
management, the outcome will have no adverse effect on the financial statements.
NOTE 15 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 restated operating losses of $2,967,714 and $999,663, respectively. The
accompanying financial statements indicate that current liabilities exceed
current assets by $1,268,620 and $737,978 for the restated years ended December
31, 2003 and 2002, respectively.
In addition, the Company is in default for payments on notes payable in the
amount of $116,405 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.
F-24