SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2004
Commission File No. 000-27237
GENETHERA, INC.
(Exact name of small Business Issuer as specified in its Charter)
Florida 66-0622463
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3930 Youngfield Street, Wheat Ridge CO 80033
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 463-6371
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [ X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 18,425,455 Shares of $.001 par value
Common Stock outstanding as of September 30, 2004.
GENETHERA, INC., AND SUBSIDIARIES
FORM 10-QSB
TABLE OF CONTENTS
Page No.
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GENETHERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(UNAUDITED)
Assets
Current assets
Cash $ --
Prepaid expenses 30,462
------------
Total current assets 30,462
Property and equipment, net 428,083
Other assets
Deposits 5,278
License 326,250
Other assets 4,941
------------
336,470
------------
$ 795,014
============
Liabilities and Stockholders' Deficit
Current liabilities
Bank overdraft $ 13,979
Accounts payable 130,669
Accrued expenses 573,221
Lease payable 2,970
Loan payable - related party 12,428
Notes payable 44,517
Convertible notes payable 116,451
------------
894,235
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;
18,425,455 issued and outstanding 18,425
Additional paid in capital 22,944,897
Accumulated deficit (23,062,542)
------------
(99,220)
------------
$ 795,014
============
See notes to financial statements.
2
GENETHERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from
For the period ended September 30, OCTOBER 5, 1998
Three months ended NINE MONTHS ENDED (INCEPTION) TO
2004 2003 2004 2003 SEPTEMBER 30, 2004
------------------------- ---------------------------- ------------
Income
Sales net of returns $ -- $ -- $ -- $ 40,041 $ 197,057
Research fees -- -- -- 5,000 188,382
------------------------- ---------------------------- ------------
-- -- 45,041 385,439
Cost of sales -- -- -- (16,950) (64,099)
------------------------- ---------------------------- ------------
Gross profit -- -- -- 28,091 321,340
Expenses
General and administrative expenses 47,288 75,656 252,727 177,918 998,883
Sales expenses -- 13,711 -- 25,910 40,399
Lab expenses 15,889 4,060 28,622 6,648 206,704
Insurance 3,893 10,432 18,549 14,936 70,024
Consulting 124,673 -- 860,451 20,684 1,684,835
Professional fees 27,290 22,095 174,319 254,714 426,207
Salaries 873 38,891 109,312 207,280 973,951
Other compensation -- -- 14,405,976 -- 15,569,976
Lease expense 20,246 19,405 74,515 78,592 388,762
Depreciation and amortization 32,776 13,556 58,317 33,296 220,044
------------------------- ---------------------------- ------------
272,928 197,806 15,982,787 819,978 20,579,784
------------------------- ---------------------------- ------------
Loss from operations (272,928) (197,806) (15,982,787) (791,887) (20,258,444)
Other income (expenses)
Other income (expenses),net 10,437 -- 10,437 (77,467) (26,128)
Interest expense (266) (2,554) (1,189,063) (34,554) (1,548,867)
------------------------- ---------------------------- ------------
Net loss from operations $(262,757) $ (200,360) $(17,161,413 $ (903,908) $(21,833,439)
See notes to financial statements.
3
GENETHERA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from
For the period ended September 30, OCTOBER 5, 1998
Three months ended NINE MONTHS ENDED (INCEPTION) TO
2004 2003 2004 2003 SEPTEMBER 30, 2004
------------------------- ---------------------------- ------------
Net loss from operations $(262,757) $ (200,360) $(17,161,413) $ (903,908) $(21,833,439)
Loss from discontinued operations -- -- -- -- (113,026)
Net loss $(262,757) $ (200,360) $(17,161,413) $ (903,908) $(21,946,465)
========================= ============================ ============
Loss per common share $ (0.01) $ (0.10) $ (0.96) $ (1.09) $ (1.22)
See notes to financial statements.
4
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO SEPTEMBER 30, 2004
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
See notes to financial statements.
5
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO SEPTEMBER 30, 2004
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)
See notes to financial statements.
6
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO SEPTEMBER 30, 2004
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------
sub-total 1,960,000 $ 1,960 $ 691,040 $ (704,673) $ (11,673)
Recapitalization on February 25, 2002 697,176 697 1,000,702 (1,116,054) (114,655)
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 -- -- 83,262 83,262
Additional paid in capital - related party -- -- 285,700 285,700
Net loss, 2002 (999,663) (999,663)
----------------------------------------------------------------------
Balance December 31, 2002 2,738,176 2,738 2,101,123 (2,820,390) (716,529)
Additional paid in capital contributed as equipment -- -- 201,976 201,976
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
----------------------------------------------------------------------
sub-total 3,453,176 $ 3,453 $ 3,429,355 $ (2,820,390) $ 612,418
See notes to financial statements.
7
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO SEPTEMBER 30, 2004
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------
sub-total 3,453,176 $ 3,453 $ 3,429,355 $ (2,820,390) $ 612,418
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 4,796,478 4,796 5,114,864 (5,901,130) (781,470)
Shares issued on conversion 934,926 935 650,528 651,463
Shares issued to consultants for
services rendered ($4.11) 50,000 50 205,450 205,500
Shares issued to consultants for
services rendered ($4.00) 30,000 30 119,970 120,000
Beneficial conversion feature -- -- 1,178,107 1,178,107
Shares issued on conversion 371,333 371 362,629 363,000
Shares issued to officer ($1.58) 8,743,339 8,744 13,805,732 13,814,476
----------------------------------------------------------------------
sub-total 14,926,076 $14,926 $21,437,280 $ (5,901,130) $ 15,551,076
See notes to financial statements.
8
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM OCTOBER 5, 1998 (INCEPTION) TO SEPTEMBER 30, 2004
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------
sub-total 14,926,076 $14,926 $21,437,280 $ (5,901,130) $ 15,551,076
Shares issued to officer ($1.30) 455,000 455 591,045 591,500
Shares issued to consultants for
services rendered ($1.58; $1.18) 161,000 161 231,819 231,980
Warrants exercised 2,382,979 2,383 235,915 238,298
Shares issued to consultants for
services rendered ($1.08; $.95;$.76;$.85) 97,250 97 94,575 94,673
Beneficial conversion feature 266 266
Shares issued on conversion 28,150 28 28,122 28,150
Shares issued in connection with VDx 375,000 375 325,875 326,250
Net loss, September 30, 2004 (17,161,413) (17,161,413)
----------------------------------------------------------------------
Balance September 30, 2004 (Unaudited) 18,425,455 $18,425 $22,944,897 $ (23,062,542) $ (99,220)
======================================================================
See notes to financial statements.
9
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM
OCTOBER 5, 1998
Nine months ended September 30, (INCEPTION) TO
2004 2003 SEPTEMBER 30, 2004
------------ --------- ------------
Cash flows from operating activities:
Net loss $(17,161,413) $(903,898) $(21,946,465)
------------ --------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 58,317 33,296 220,044
Compensation in exchange for common stock 15,402,017 -- 17,640,745
Beneficial conversion feature 1,178,107 -- 1,497,328
Loss on discontinued operations -- -- 113,026
(Increase) decrease in accounts receivable -- (6,517) --
(Increase) decrease in inventory -- (10,637) --
(Increase) decrease in other assets (64,417) (319,849) (70,703)
Increase (decrease) in accounts payable
and accrued liabilities (107,025) 745,099 662,095
Increase (decrease) in deferred income -- 80,254 --
------------ --------- ------------
Total adjustments 16,466,999 521,646 20,062,535
------------ --------- ------------
Net cash used in operating activities (694,414) (382,252) (1,883,930)
------------ --------- ------------
Cash flows from investing activities:
Cash payments for the purchase of property (5,508) (16,779) (43,975)
------------ --------- ------------
Net cash used in investing activities (5,508) (16,779) (43,975)
------------ --------- ------------
Cash flows from financing activities:
Bank overdraft 13,979 -- 13,979
Capital contributed as equipment -- -- 272,376
Principal payments on note/leases payable (152,057) (13,829) --
Proceeds from issuance of common stock -- 83,262 155,000
Proceeds from loans payable 838,000 352,560 1,486,550
------------ --------- ------------
Net cash provided by financing activities 699,922 421,993 1,927,905
------------ --------- ------------
Net increase in cash and cash equivalents 0 22,962 0
Cash and cash equivalents, beginning of year -- -- --
------------ --------- ------------
Cash and cash equivalents, end of year $ 0 $ 22,962 $ 0
============ ========= ============
0
Supplemental disclosures of cash flow information:
a) Cash paid during the period for:
Interest expense $ -- $ 2,254 1,616
------------ --------- ------------
10
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
Page No.
Report of Independent Accountants 2
Consolidated Balance Sheet September 30, 2004 (unaudited) 3
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 2004 and 2003 (unaudited) 4
Consolidated Statements of Stockholders' Equity (Deficit) for the
Period From October 5, 1998 (Inception) to September 30, 2004 6
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2004 and 2003 (unaudited) 11
Notes to Consolidated Financial Statements (unaudited) 12
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
GeneThera, Inc.
Wheat Ridge, Colorado
We have reviewed the accompanying consolidated balance sheet of GeneThera, Inc.
(a development stage company) and its wholly-owned subsidiaries as of September
30, 2004 (unaudited), and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the periods ended September
30, 2004 and 2003 and for the period from October 5, 1998 (inception) to
September 30, 2004. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements for them
to be in conformity with U.S. generally accepted accounting principles.
KANTOR, SEWELL & OPPENHEIMER, PA
Certified Public Accountants
Hollywood, Florida
November 15, 2004
12
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NIBE MONTHS ENDED SEPTEMBER 30, 2004
NOTE 1 PRINCIPLES OF CONSOLIDATION
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, GeneThera, Inc. (Colorado) and VDx,
Inc. All significant inter-company balances and transactions have been
eliminated.
NOTE 2 BASIS OF PRESENTATION
The interim financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position, results
of operations, changes in stockholders' deficit and cash flows for the interim
periods. All such adjustments are of a normal, recurring nature. The results of
operations for the first nine months of the year are not necessarily indicative
of the results of operations that might be expected for the entire year.
The accompanying consolidated financial statements of the Company have been
prepared in accordance with the instructions to Form 10-Q and, therefore, omit
or condense certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted accounting
principles. It is suggested that these condensed financial statements should be
read in conjunction with the Company's financial statements and notes thereto
included in the Company's audited financial statements on Form 10-K/A for the
fiscal year ended December 31, 2003. (See Note 9)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business
Combinations, which establishes revised standards for accounting for business
combinations, eliminating the pooling method, and providing new guidance for
recognizing intangible assets arising in a business combination. Additionally,
SFAS No. 141 requires more prominent and more frequent disclosures in financial
statements about a business combination. This statement is effective for
business combinations initiated on or after July 1, 2001. The adoption of this
pronouncement on July 1, 2001 did not have a material effect on the Company's
financial position, results of operations or liquidity.
13
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SFAS 142, Goodwill and Other Intangible Assets provides guidance on accounting
for the acquisition of intangibles, except those acquired in a business
combination, which is subject to SFAS 141, and the manner in which intangibles
and goodwill should be accounted for subsequent to their initial recognition.
This statement is effective for all fiscal years beginning after December 15,
2001. The adoption of SFAS 142 on April 1, 2002 did not have a material effect
on the Company's financial position, results of operations, or liquidity.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
provides implementation guidance regarding when and how to measure an impairment
loss, and expands the presentation to include a component of an entity, rather
than strictly a business segment. SFAS 144 also eliminates the current exemption
to consolidation when control over a subsidiary is likely to be temporary. This
statement is effective for all fiscal years beginning after December 15, 2001.
The adoption of SFAS 144 on April 1, 2002 did not have a material effect on the
Company's financial position, results of operations or liquidity.
Earnings per Share
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during each year. Diluted earnings per share are
computed based on the weighted average number of common shares outstanding
during the period, plus the dilutive effect of potential future issuances of
common shares relating to convertible notes.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30,
2004
---------
Computers 38,030
Telephone System 5,118
Furniture & fixtures 1,465
Laboratory equipment 578,043
---------
622,656
Less accumulated depreciation (194,573)
--------
$428,083
========
Depreciation expense for the nine months ended September 30, 2004 and 2003 was
$58,317 and $33,296, respectively.
14
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004
NOTE 5 CONVERTIBLE NOTES PAYABLE
September 30,
2004
----------
Various convertible notes payable to individuals, with
interest ranging from 8-10%; due at various dates from
April 14, 2003 through June 18, 2004; convertible into
shares of common stock at prices of $0.25 - $0.50 per
share. $ 116,451
Less: current portion (116,451)
----------
Total long-term convertible notes payable $ 0
==========
For the nine months ended September 30, 2004 and 2003, interest expense related
to the convertible notes payable amounted to $10,690 and $3,019, respectively.
NOTE 6 STOCKHOLDERS' EQUITY (DEFICIT
Common Stock
During the nine months ended September 30, 2004, the Company issued 1,334,409
shares of common stock pursuant to conversion rights exercised by holders.
On January 16, 2004, the Company issued 30,000 shares pursuant to a one-year
agreement with a consultant for a total of $120,000, based on the closing price
on January 14, 2004. The Company charged one-half, or $60,000 to operations and
the remaining $60,000 has been capitalized and prorated over the life of the
agreement.
On January 26, 2004, the Company issued 211,000 shares for a total of $437,480
based on the closing price on date of issue. These shares were issued to a
consultant for services rendered and resulted in an immediate charge to
operations.
In June 2004, the Company issued 9,198,339 shares for a total of $14,405,976
based on the closing prices on the dates of issue. These shares were issued to
the officer by resolution of the board of directors in conjunction with the
completion of the reverse acquisition.
In August and September 2004, the Company issued 125,400 shares for a total of
$94,673 based on the closing prices on the dates of issue. These shares were
issued to several consultants for services rendered and resulted in immediate
charges to operations.
Asdescribed in Note 8, on September 20, 2004 the Company issued 375,000
restricted common shares in connection with its acquisition of VDx, Inc. These
shares were valued at .87 cents per share.
15
GENETHERA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004
NOTE 7 GOING CONCERN UNCERTAINTY
These financial statements are presented assuming the Company will continue as a
going concern. For the years ended December 31, 2003 and 2002, the Company
showed operating losses of $3,080,740 and $2,431,761, respectively. The
accompanying financial statements indicate that current liabilities exceed
current assets by $863,773 for the nine months ended September 30, 2004.
Previously, the Company was listed as in default for payments on notes payable
in the amount of $44,517, including accrued interest. Subsequently, management
has determined that the notes are not in default and are classified as a
long-term liability in the current financial statements. The disposition of
these notes will be reflected in the year-end financial statement of December
31, 2004. 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.
NOTE 8 SUBSIDIARY- SUBSEQUENT EVENT
On January 14, 2002, the board of directors voted to sell the stock of The
Family Health News, Inc., subject to stockholder approval. On August 1, 2004 a
final agreement was signed to dispose of the subsidiary. This agreement was
effective nunc pro tunc to October 1, 2003. Consequently, the financial
statements for the year ended December 31, 2003 were restated to reflect this
subsequent event, as if it had taken place October 1, 2003.
On September 20, 2004, the Company completed its acquisition of VDx, Inc. VDx,
Inc. was acquired for 375,000 shares of common restricted stock with no
registration rights. The full agreement is contained in the 8-K filing filed
with the SEC on September 25, 2004.
NOTE 9 RESTATEMENTS
The Company restated the consolidated balance sheet at December 31, 2003 and the
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year then ended. The restatement was made to reflect the proper
accounting in accordance with accounting principles generally accepted in the
United States in connection with beneficial conversion features on convertible
debentures, revaluation of fixed assets, consolidation and disposal of a
previously unconsolidated subsidiary, and impairment of long-lived assets.
The effect on the financial statements of the Company is as follows:
As Originally
As Restated Reported
-------------- -----------------
Accumulated deficit - December 31, 2002 $ (2,820,390) $ (2,367,011)
Loss (3,080,740) (2,431,761)
-------------- -----------------
Accumulated deficit - December 31, 2003 $ (5,901,130) $ (4,798,772)
=============== =================
16
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto that appear elsewhere herein.
RESULTS OF OPERATIONS
Gross profits for the three-month period ended September 30, 2004 were $0
compared to $0 for the same period last year. Personnel (salaries) decreased
from $38,891 for the prior three month period ending September 30, 2003 to $873
for the three month period ending September 30, 2004.Professional expenses
(consulting and professional fees) comparing the three month period ending
September 30, 2003, to the three month period ending September 30, 2004,
decreased from $182,619 to $27,920.
GENETHERA PLAN OF OPERATION
Background
GeneThera is a development stage company (as such term is defined by the
Securities and Exchange Commission ("SEC") and Generally Accepted Accounting
Principles and has had negligible revenues from operations in the last two
years. As a development stage company, its research and development expenditures
have not been capitalized as of this date.
GeneThera has developed proprietary diagnostic assays for use in the
agricultural and veterinary markets. Specific assays for Chronic Wasting Disease
(among elk and deer) and Mad Cow Disease (among cattle) have been developed and
are available currently on a limited basis. E.coli (predominantly cattle) and
Johnne's disease (predominantly cattle and bison) diagnostics are in
development. With the acquisition of VDx, Inc., we have a commercial NEFA test
currently available.
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.
On September 20, 2004, we closed on the acquisition of VDx, Inc., a Wisconsin
Corporation. VDx will be run as a wholly owned subsidiary of the company. A
manufacturer and distributor of veterinary diagnostic equipment and tests, VDx
currently markets and sells specialized tests for bovine IgG, NEFA for the dairy
industry, and Equine IgG. VDx has already made a significant impact within the
dairy cattle industry with their NEFA test and nutritional supplement program to
maximize output for the dairy farmer. The NEFA test offers farmers the ability
to test the health and nutrition of their cattle before giving birth and also
test the health of the new calves once born. Future milk output from dairy
cattle is directly affected by the nutrition just prior to calving.
16
GeneThera will immediately begin to benefit from the existing revenues being
generated by VDx. This working capital will enable GeneThera to further their
research in areas such as Mad Cow disease, Chronic Wasting disease, and Johnne's
disease. GeneThera hopes to not only expand on the number of tests available to
the existing customers, but also to work closely within their industries to
develop new tests with their state-of-the-art technology for the detection and
vaccination of diseases specific to those industries.
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
$1,200,000. There are no guarantees whether the Company will be able to secure
such a financing, and if the financing is secured, there are no guarantees
whether the Company can achieve the goals laid out in its business plan fully.
RESEARCH AND DEVELOPMENT
We anticipate that R&D will be the source for both assay development and vaccine
design/development. If we are able to develop assays for different diseases, we
intend to formalize the procedure into a commercial application through a series
of laboratories to be owned and operated by GeneThera. To date, we have
introduced our diagnostic solution for Chronic Wasting Disease and Mad Cow
Disease on a very limited basis. We anticipate that R&D will be ongoing during
the life of the Company, as this is the source for new products to be introduced
to the market. Our plan is to seek new innovations in the biotechnology field.
We cannot assure you that we will be successful in developing or validating any
new assays or, if we are successful in developing and validating any such
assays, that we can successfully commercialize them or earn profits from sales
of those assays. Furthermore, we cannot assure you that we will be able to
design, develop, or successfully commercialize any vaccines as a result of our
research and development efforts.
COMMERCIAL DIAGNOSTIC TESTING
In the event that we are able to develop assays for the detection of diseases in
animals, we intend to establish a series of diagnostic testing laboratories
geographically proximate to the primary sources of individual diseases and/or
according to specific available operating efficiencies. The specific number of
labs to be built and operated will be based on assay demand (demand facilitated
by the number of specific disease assays GeneThera develops), our ability to
obtain the capital to build the labs, and our ability to successfully manage
them from our principal office. As of the date of this filing, we are in
negotiation to establish a diagnostic testing laboratory outside of our Colorado
facility.
LICENSING
Through our third division, Licensing, we intend to manage the marketing and
sale of the vaccines developed by GeneThera's Research & Development division.
As GeneThera does not intend to be a vaccine manufacturer, we plan to use our
Licensing division to license the technology related to any vaccines that may be
developed and to manage the revenue potential available from the successful
development and validation of specific vaccines. We cannot provide any assurance
that we will develop any vaccines or that, if they are developed, we will be
able to license them successfully or that any such license will produce
significant revenues.
R&D SERVICES
Molecular, Cellular, Viral Biology Research, and Consulting Services. We intend
to provide independent research services to scientists in academia, the
pharmaceutical industry, and the biotechnology industry. Primarily, GeneThera's
expertise focuses on technology relevant to animal and human immunotherapy.
These services are backed by the cumulative experiences of greater than 50 years
of research and development in both government and industry by GeneThera's
senior scientists. The non-executive employee that makes a significant
contribution to our research and development services is Henry Wei. GeneThera
intends to develop a commercial-scale implementation of Adenovector Purification
Process to
17
support R&D material production. Furthermore, GeneThera intends to evaluate and
test commercially available expression vectors and incorporate them into its
vector repertoire. These technologies are well established within the repertoire
of GeneThera's scientific staff. WE cannot provide any assurance, however, that
we will be able to successfully offer these services or that, if offered, we can
provide them profitably/
Research & Development Services:
Molecular Biology:
Synthetic cDNA Construction
Prokaryotic Expression Vector Construction & Development
E. coli Expression Strain Evaluation
Pilot Scale Fermentation
Mammalian Expression Vector Construction & Development
Baculovirus Expression
Protein Isolation
Protein Engineering: Complement Determining Region Conjugated Proteins
Monoclonal Antibody Production Chimerization & Humanization
Vector design for Prokaryotic Expression of Antibody Fragments (Fab) and Single
Chain Antibody (ScFv)
Pilot Scale-up Development
Process Purification & Characterization
Assay Development & Quality Control Pharmaceutical Dosage and Formulation
Molecular Biology Potential Agreement Structure
Stage I
cDNA Construction & Expression Vector Development Stage
A specific gene sequence is cloned in an expression vector and screened by
restriction enzyme analysis
Stage II
The expession vector is grown into bacteria and the protein produced is purified
by chromatography techniques
Stage III
Assay for the protein stability and activity
Stage IV
Quantitation of protein yield per each cell line used for protein expression
Stage V
Experimental animal model development for determination of proper biological
active concentration and stability and determination of proper storage.
Gene Therapy Testing Services. GeneThera offers GLP testing
programs for somatic cell, viral and naked DNA-based gene therapies. Our
scientists have over eight years experience in providing fully integrated
bio-safety testing programs for the cell and gene therapy fields and have
supported a number of successful BLA and IND applications. To date, the Company
has not generated any
18
revenues with regard to these services, and there is no assurance that we will
generate any revenues from such services.
Replication-Competent Viral Vector Testing. Sensitive in
vitro cell culture assays are used to detect replication-competent retroviruses
or adenoviruses. GeneThera can work with clients to provide custom
replication-competent virus detection assays for the particular vector
construct.
Complete Somatic Cell and Viral Vector Packaging and
Producer Cell Line Characterization. GeneThera offers all of the assays mandated
by regulatory authorities worldwide for the bio-safety analysis and
characterization of cells and cell lines used in gene therapy products.
Vector Stock Characterization. Custom purity and potency
testing is available for gene therapy viral ector stocks.
Vector Purification Process Validation for Viral Clearance.
Most biopharmaceuticals require viral clearance studies to validate the removal
of potential contaminants, such as those from bovine components or from helper
viruses (adenovirus in AAV production). GeneThera can provide custom design and
performance of viral studies for various vector purification processes.
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 revenues or profits from any such contracts.
BUSINESS MODEL
Summary. GeneThera's animal disease assay development business is
based on its Integrated Technology Platform (ITP) that combines a proprietary
diagnostic solution called Gene Expression Assay (GEATM) with PURIVAXTM, its
system for analyzing large-scale DNA sequencing. The first part of this platform
is the ongoing development of molecular diagnostic assays solutions using real
time Fluorogenic Polymerase Chain Reaction (F-PCR) technology to detect the
presence of infectious disease from the blood of live animals. The second part
of the ITP is the development of therapeutic vaccines using RNA interference
technology. It also allows for the efficient, effective, and continuous testing,
management and treatment of animal populations. These facts distinguish the
technology from any alternative testing and management methodology available to
agriculture today -- all of which require the destruction of individual animals
and even entire herds. Our testing and data analysis processes also allow us not
only to separate infected from clean animals, but also to gain knowledge vital
to development of preventative vaccines.
Each individual assay utilizes the proprietary Field Collection
System (FCS) for the collection and transportation of blood samples to
GeneThera's laboratory. The FCS allows GeneThera to maintain the integrity of
each sample by the addition of specific reagents to test tubes contained in the
system. GeneThera's FCS is designed to be an easy-to-use method of gathering
blood samples from harvested or domesticated animals. It ensures consistency of
samples as well as increased assurance of each sample's integrity.
To date, GeneThera has successfully developed the ability to detect
Chronic Wasting Disease, a disease affecting elk and deer in North America. The
release of commercialized Field Collection Systems and laboratory diagnostic
testing occurred in October of 2003. GeneThera has also successfully developed
an assay for the detection of Mad Cow Disease, a disease recently found in the
United States, but which has been in Europe for many years. The Field Collection
Systems are available for purchase from the Company. Chronic Wasting Disease and
Mad Cow Disease are both in the family of diseases called Transmissible
Spongiform Encephalopathy (TSE). Diagnostic assays for E.coli O157:H7 and
Johnne's Disease are in the final stages of development.
19
The Company, through GeneThera, is also developing vaccines for
Chronic Wasting Disease and E.coli O157:H7. The Company will need the approval
of the USDA before the vaccines can be manufactured or sold. The approval
process for animal vaccines is time-consuming and expensive. We anticipate that
such approval, if it is obtained, may require more than $5 million and may
require more than two years for each vaccine for which approval is sought.
Currently we do not have the capital necessary to seek approval of any of our
candidate vaccines, and we cannot provide any assurance that we will be able to
raise the capital necessary for such approval on terms that are acceptable to
us, if at all. In addition, even if we are successful in raising the capital
necessary to seek approval of any vaccine, there are no assurances that such an
approval will be granted, or if granted, whether we will be able to produce and
sell such vaccines following such an approval in commercial quantities or to
make a profit from such production and sales.
INTEGRATED TECHNOLOGY PLATFORM (ITP)
GeneThera's integrated technology platform is the foundation for "fast-track"
rDNA vaccine development. At the present stage we are working on the development
of a recombinant DNA vaccine for transmissible spongiform encephalopathy (TSE)
and Johnnes disease. Both vaccine developments are in the "in Vitro" stage. We
expect to initiate experimental animal studies for Johnnes in the next 2-3
months. A longer time frame (6-8 months) will be needed to initiate experimental
animal studies for TSE. ITP is the assembly of GEA TM and PURIVAX TM rAD and
rAAV systems. This integrated technology platform yields fast-track vaccine
development. Leveraging its ITP, GeneThera believes that it can develop a
prototype vaccine within 4 to 6 months versus the current standard of 18 to 24.
The cost to bring these vaccines to market is $2-5 Million from start to finish.
There is no assurance that we will be able to raise the capital necessary to
bring a vaccine to market and if the capital is raised, that we will be able to
overcome the government regulations involved in bringing such a product to
market. The GEA TM applied modular unit system utilizes robotics and is based on
nucleic acid extraction in conjunction with F-PCR technology to develop gene
expression assays. Using GEATM 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.
GEATM SYSTEM
GEATM is a proprietary assay development system. GEA was developed
in 2001. To date the system has been used to develop our TSE molecular assay.
GEA is a gene expression system to be used solely in our laboratory .The core of
GEATM is Fluorogenic Polymerase Chain Reaction technology (F-PCR). GeneThera
solves the technical problems related to the use of conventional PCR in
molecular diagnostics via our modular unit concept. Specifically, the modular
unit consists of an Automated Nucleic Acid Workstation (ANAW) and a Sequence
Detection System (SDS) that are fully integrated, allowing an operator to
perform the entire procedure of DNA extraction and F-PCR analysis within a
closed computerized system. This system results in minimal intervention and no
post-PCR manipulation. GEA is a molecular genetic base system that utilizes
fluorogenic polymerase chain reaction (F-PCR). To perform GEA, specific
laboratory equipment is needed. This involves some substantial initial costs to
set up the laboratory operations. However, the use of F-PCR represent a great
advantage over other available systems because of its greater sensitivity, speed
and accuracy.
The Automated Nucleic Acid Workstation is a highly flexible robotic
system that extracts and purifies acids from a variety of complex samples,
preparing them for F-PCR analysis. Data management system software includes a
database to manage all run phases and record sample processing.
The Sequence Detection System detects the fluorescent signal
generated by the cleavage of the reporter dye during each PCR cycle. This
process confers specificity without the need of post-PCR hybridization. Most
important, the SDS offers the advantage of monitoring real time increases in
fluorescence during PCR. Specifically, monitoring real-time progress of the PCR
completely changes the
20
approach to PR-based quantitation of DNA and RNA, most particularly in improving
the precision in both detection and quantitation of DNA and RNA targets.
GeneThera currently faces no competition in the use of F-PCR
technology and the modular unit concept for commercial testing of either
infectious disease in animals or food pathogen contamination. Currently, most
labs utilize conventional microbiology, immunological or conventional PCR
methods for either veterinary diseases or food pathogen contamination detection.
Specific to microbiology and immunological techniques, the drawbacks of these
approaches are:
1. the antibodies-based culture media used to detect the presence of
infectious diseases has a low level of sensitivity;
2. high background due to non-specific binding of antibodies and/or
culture contamination;
3. sample preparation and storage creates artifacts; and
4. long, cumbersome protocols necessary to perform these tests.
A major technical limitation of conventional PCR is the risk of
contaminating a specimen with the products of previously amplified sequences.
Known as cross-contamination, this phenomenon represents a constant challenge to
any lab using conventional PCR. Managing these challenges is cumbersome and
difficult to streamline.
Fluorogenic PCR (F-PCR) overcomes these drawbacks by making it
possible for PCR to efficiently test large numbers of samples even when major
laboratory facilities are not readily available. A novel methodology, F-PCR
allows quantitative and qualitative detection of specific nucleic acid sequences
in a very sensitive, highly accurate and rapid fashion.
PURIVAXTM TECHNOLOGY
GeneThera has developed a large-scale process for highly purified
and high viral titer Adenovirus and AAV recombinant vectors. This technology
enables GeneThera to develop Adenovirus and AAV based recombinant DNA vaccines
for veterinary diseases and food pathogens.
GeneThera's PURIVAXTM is a multi-resin anion exchange chromatography
system that dramatically improves biological purity and viral titer of
recombinant Adenovirus and AAV vectors. PURIVAXTM is intended to completely
eliminate toxic side effects associated with adenoviruses and AAV vectors,
thereby making it possible to develop highly immunogenic and safe recombinant
DNA vaccines. Importantly, recombinant DNA (rDNA) vaccine technology represents
a powerful tool for an innovative vaccine design process known as "genetic
immunization."
Recombinant Adenovirus (rAD) and AAV (rAAV) vectors are the ideal
candidates for a gene delivery system. These viruses can efficiently deliver
genetic material to both dividing and non-dividing cells, thereby overcoming
some of the obstacles encountered with first generation retroviral vectors.
Equally important, rAd and rAAV are engineered virus genomes that
contain no viral gene. One of the key features for rAd and rAAV is their ability
to transduce a large variety of cells. However, two technical challenges had to
be overcome to fully utilize rAd and rAAV in the development of rDNA vaccines:
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.
21
This is the significance of GeneThera's PURIVAX TM, rAD and rAAV
system for rDNA vaccine development. Succinctly stated, it is designed to be
able to achieve both high purity and high viral titer (up to 10e16 viral
particles/eulate) based on its proprietary multi-resin anion exchange
chromatography system. GeneThera believes that biological contaminants such as
endogenous retrovirus, bacterial, mycoplasma, non-specific nucleic acids,
lipids, proteins, carbohydrates and endotoxins are eliminated during the
purification process.
FIELD COLLECTION SYSTEM
GeneThera's Field Collection System (FCS) is a commercial product designed to
permit a standardized manner for drawing, stabilizing and handling blood samples
intended for GeneThera's diagnostic assay testing. Each package is referred to
as a "System" because it is just that. There are two different FCS packages: one
for hunters and one for breeders or ranchers. GeneThera's FCS is designed to be
an easy-to-use method of gathering blood samples from harvested or domesticated
animals. It ensures consistency of samples as well as increased assurance of
each sample's integrity. The Field Collection System was developed in the middle
of 2002. We are currently marketing this system as a "marketing trial". A very
limited number of sales has been achieved to date (less than 15 units).
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 (ies) 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. GeneThera must do all
testing using the FCS 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 $11,861.01 as of September 30, 2004. It is
estimated that it will require outside capital for the year 2005 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 $1,263,900 through Convertible Notes to
certain individuals in late 2003 and 2004. All of 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. We will require significant additional funding
in order to achieve our business plan. Specifically, we will need to increase
our marketing plans to the dairy cattle industry as a result of the acquisition
of VDx. We will need to hire additional scientists and technical personnel to
meet the anticipated demand of our tests by the dairy industry. Over the next 12
months, in order to have the capability of achieving our business plan, we
believe that we will require at least $1,200,000. We will attempt to raise these
funds by means of one or more private offerings of debt or equity securities or
both. We have raised an aggregate of approximately $1,263,900, through the
issuance of promissory notes convertible to our common stock to certain
individuals in 2003 and 2004. As of the date of this Report, all $1,263,900 has
been converted into shares of our common stock.
Our longer-term working capital and capital requirements will depend
upon numerous factors, including revenue and profit generation, pre-clinical
studies and clinical trials, the timing and cost of obtaining regulatory
approvals, the cost of filing, prosecuting, defending, and enforcing patent
claims
22
and other intellectual property rights, competing technological and market
developments, collaborative arrangements. Additional capital will be required in
order to attain such goals. Such additional funds may not become available on
acceptable terms and we cannot give any assurance that any additional funding
that we do obtain will be sufficient to meet our needs in the long term.
CONVERTIBLE NOTES
To relieve our cash flow crisis, we have issued convertible
promissory notes, in the aggregate principal amount of $1,263,900, to certain
individuals.
On December 12, 2002, we issued a convertible promissory note
bearing interest at the rate of 8% per annum in the principal amount of $50,000
to Fidra Holdings, Ltd. due 180 days after issuance. The holder of the note is
entitled to convert the principal amount of the note at the rate of $.50 per
share. As of June 30, 2004, the principal amount of that note has not been
converted. This note was assigned to The Regency Group on October 13, 2004.
On December 24, 2002, we issued a convertible promissory note
bearing interest at the rate of 8% per annum in the principal amount of $10,000
to Jerry A. Ulvestad due 180 days after issuance. The holder of the note is
entitled to convert the principal amount of the note at the rate of $.50 per
share. As of June 30, 2004, that note has been converted into 20,000 shares.
On December 27, 2002, we issued a convertible promissory note
bearing interest at the rate of 8% per annum in the principal amount of $1,000
to Michael Abbondanza due 180 days after issuance. The holder of the note is
entitled to convert the principal amount of the note at the rate of $.50 per
share. As of June 30,2004, that note has been converted into 2,000 shares.
On January 12, 2003,we issued a convertible promissory note bearing
interest at the rate of 8% per annum in the principal amount of $120,000 to John
Taggart. The holder of the note is entitled to convert the principal amount of
the note at the rate of $0.50 per share. An aggregate amount of $36,900 was
raised under this note. As of June 30, 2004, the note has been converted into
80,000 shares per a settlement agreement entered into with Mr. Taggart on
October 1, 2003.
On May 16, 2003,we issued a convertible promissory note bearing
interest at the rate of 8% per annum in the principal amount of $60,000 to
Richard Reinisch due 180 days after issuance.. The holder of the note is
entitled to convert the principal amount of the note at the rate of $0.25 per
share. As of March 31, 2004, the note was converted into 240,000 shares of
common stock.
Between May 17, 2003 and September 19, 2003, we issued convertible
promissory notes bearing interest at the rate of 8% per annum in the aggregate
principal amount of $215,000 to L&B Charitable Trust, Edward and Mary Coyne,
Edward B. Coyne, Christopher Ferry, Dimitrios I. Gountis, George Mastrokostas,
Nikolaos Tripodis, Melvin Wentz, William Rozakis, Tom and Sunny Garrett, and
Michael Mueller. The holders of the Notes are entitled to convert the principal
amount of the notes at the rate of $0.50 per share. As of March 31, 2004, the
notes have been converted into 436,926 shares of common stock which included
$3,463 interest also convertible at $0.50 per share.
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 to those shareholders denoted with an asterisk in
the Selling Shareholders table, Kim Koratsky, and Ralli Mottar with a maturity
date of one year from the date of their issuance. The holders of the notes are
entitled to convert the principal amount of the note at the rate of $1.00 per
share. All $745,000 has been converted.. The notes of Mr. Koratsky and Mr.
Mottar were assigned to Mark Kengott on October 6, 2004 and converted into
17,000 shares.
In May 2004, we issued an aggregate of $98,000 in principal amount
of promissory notes in a private offering to Mark Kengott, I.Thomas and Barbara
G. Uskup, and Donald and Joyce Guillaume . The notes bear interest at the rate
of 6% per annum and mature 6 months after their date of issuance. The
23
holders of these notes are entitled to convert the principal amount of the notes
to shares of our common stock at the rate of $1.00 per share. As of June 18,
2004, the principal amount of all of these notes was converted into 98,000
shares of our common stock.
On June 23 2004, we issued a promissory note in the principal amount
of $25,000 in a private offering to Monte B. Tobin. The note bears interest at
the rate of 6% per annum and matures 6 months after its date of issuance. The
holder of this note is entitled to convert the principal amount of the note to
shares of our common stock at the rate of $0.75 per share. As of June 25, 2004,
all $25,000 in principal amount this note was converted into 33,333 shares of
our common stock.
In August 2004, we issued a promissory note in the principal amount of
$23,000 in a private offering to Mark Herzog, John Marx, Cyndi Ralph, Marvin
Newton, and Ralph Lueders . The note bears interest at the rate of 6% per annum
and matures 6 months after its date of issuance. The holder of this note is
entitled to convert the principal amount of the note to shares of our common
stock at the rate of $1.00 per share. As of August 15, 2004, all $23,000 in
principal amount this note was converted into 23,000 shares of our common stock.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Sections of this Form 10-QSB, including the Management's Discussion and Analysis
or Plan of Operation, contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
Section 21E of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and the Private Securities Litigation Reform Act of 1995, as
amended. These forward-looking statements are subject to risks and uncertainties
and other factors that may cause our actual results, performance or achievements
to be materially different from the results, performance or achievements
expressed or implied by the forward-looking statements. You should not unduly
rely on these statements. Forward-looking statements involve assumptions and
describe our plans, strategies, and expectations. You can generally identify a
forward-looking statement by words such as "may," "will," "should," "would,"
could," "plan," "goal," "potential," "expect," "anticipate," "estimate,"
"believe," "intend," "project," and similar words and variations thereof. This
report contains forward-looking statements that address, among other things,
* our financing plans,
* regulatory environments in which we operate or plan to operate, and
* trends affecting our financial condition or results of operations, the impact
of competition, the start-up of certain operations and acquisition
opportunities.
Factors, risks, and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements ("Cautionary
Statements") include, among others,
* our ability to raise capital,
* our ability to execute our business strategy in a very competitive
environment, * our degree of financial leverage, * risks associated with our
acquiring and integrating companies into our own, * risks relating to rapidly
developing technology, * regulatory considerations; * risks related to
international economies, * risks related to market acceptance and demand for our
products and services, * the impact of competitive services and pricing, and *
other risks referenced from time to time in our SEC filings.
All subsequent written and oral forward-looking statements attributable to us,
or anyone acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. We do not undertake any
24
obligations to publicly release any revisions to any forward-looking statements
to reflect events or circumstances after the date of this report or to reflect
unanticipated events that may occur.
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer are effective in timely alerting management to material
information relating to us that is required to be included in our periodic SEC
filings.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
LEGAL MATTERS
On or about August 5, 2004, the prior Chief Operating Officer of the
Company, Gary Langstaff, the former President of the Company, Nick Wollner, and
Springloose.com,LLC, of which Mr. Langstaff was a member, commenced a civil
action against GeneThera, Inc. in the District Court of Jefferson County,
Colorado for inspection of corporate records, an accounting and declaratory
judgment, and wage claims of approximately $78,000.00. GeneThera, Inc. has not
yet responded to the complaint, but anticipates defending all claims and
responding with counterclaims.
On or about August 5, 2004, Sisu Media commenced a civil action
against GeneThera, Inc. in the District Court of Jefferson County, Colorado for
breach of contract for recovery of damages in the approximate amount of
$60,000.00. GeneThera, Inc. has not yet responded to the complaint, but
anticipates defending all claims and responding with counterclaims.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
No defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders as of September 30,
2004.
Item 5. Other Information
None.
25
Item 6. Exhibits and Reports on Form 10-QSB.
(A) Financial Statements
Reference is made to the financial statements listed on the Index to
Financial Statements in this Form 10-QSB.
(B) Exhibits
99.1 Certification of the President and Chief Executive Officer
99.2 Certification of the Chief Financial Officer
Signatures
Pursuant to the requirements of the Securities Act of 1933 the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Wheat Ridge, Colorado on this 15th
day of November, 2004.
GENETHERA, INC.
By: /s/ Antonio Milici
--------------------------------
Name: Antonio Milici
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933 this Registration
Statement has been signed by the following persons in the capacities indicated
on November 15, 2004:
SIGNATURE TITLE(S)
/s/ Antonio Milici President, Chief Executive Officer and Director
---------------------------
Antonio Milici (principal executive officer)
/s/ Steven M. Grubner Chief Financial Officer and Director
---------------------------
Steven M. Grubner (principal financial and accounting officer)
* Director
---------------------------
Thomas Slaga
* Director
---------------------------
Richard Bryans
* By: /s/ Steven M. Grubner
-----------------------------------
Steven M. Grubner
Attorney-in-Fact
26
CERTIFICATIONS
I, Antonio Milici, Chief Executive Officer of GeneThera, Inc. (the
"Registrant"), certify that;
(1) I have reviewed this quarterly report on Form 10-QSB of GeneThera, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report.
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 15, 2004
By: /s/ Antonio Milici
---------------------------
Antonio Milici, M.D., Ph.D.
Chief Executive Officer
27
CERTIFICATIONS
I, Steven M. Grubner, Chief Financial Officer of GeneThera, Inc. (the
"Registrant"), certify that;
(1) I have reviewed this quarterly report on Form 10-QSB of GeneThera, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report.
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 15, 2004
By: /s/ Steven M. Grubner
---------------------------
Steven M. Grubner
Chief Financial Officer
28
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
GeneThera, Inc.
Wheat Ridge, Colorado
We consent to the incorporation by reference of our Independent Auditors' Report
dated November 15, 2004 on the financial statements of GeneThera, Inc. for the
quarter ended September 30, 2004.
/s/ Kantor, Sewell & Oppenheimer.
CERTIFIED PUBLIC ACCOUNTANTS
Hollywood, Florida
November 15, 2004.
29