UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly
Period Ended
September 30,
2018
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _________
Commission File Number:
000-27237
GeneThera, Inc.
(Exact
name of registrant as Specified in its Charter)
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Nevada
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65-0622463
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(State or Other Jurisdiction of
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(Internal Revenue Service
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Incorporation or Organization)
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Employer Identification Number)
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6860 N. Broadway Denver, CO
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80221
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s
telephone number, including area code:
(303) 955-0190
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, $0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No
☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes ☒
No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-Q
or any amendment to this Form
10-Q. Yes ☒ No
☐
1
Indicate
by check mark whether the registrant is a large accelerated filer,
and accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of
“large accelerated
filer,” “accelerated filer” and
“smaller reporting
company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large accelerated
filer ☐
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Accelerated
filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☒
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Emerging growth company ☐
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Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange
Act. Yes ☐ No ☒
State
the number of shares of the issuer’s common stock
outstanding, as of the latest practicable date: 40,064,983 shares
of common stock issued and outstanding as of November 30,
2018.
2
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TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
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4
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Financial Statements
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Condensed
Balance Sheets as of September 30, 2018 (Unaudited) and December
31, 2017 (audited)
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5
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Condensed
Statements of Operations (Unaudited) for the three and nine months
ended September 30, 2018 and 2017
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6
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Condensed Statements of Cash Flows (Unaudited) for the three and
nine months ended September 30, 2018 and 2017
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7
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Notes to (Unaudited) Condensed Consolidated Financial
Statements
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8
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Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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13
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Item 3. Quantitative and Qualitative Disclosures about Market
Risk
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16
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Item 4. Controls and
Procedures
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16
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PART II - OTHER INFORMATION
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18
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Item 1. Legal Proceedings
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18
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Item 1A. Risk Factors
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19
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Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
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19
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Item 3. Defaults upon Senior Securities
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19
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Item 4. Mine Safety Disclosures
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19
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Item 5. Other Information
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19
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Item 6. Exhibits
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19
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Signatures
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20
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3
PART I – FINANCIAL INFORMATION
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Sections
of this Form 10-Q, including Business and Management's Discussion
and Analysis or Plan of Operation, contain "forward-looking
statements". 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, and 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.
4
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GeneThera, Inc. - Condensed Balance
Sheets
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September 30, 2018
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December 31, 2017
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ASSETS
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(unaudited)
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(audited)
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Current
assets
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Cash
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$71,974
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$167,653
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Prepaid
expenses
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-
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-
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Total
current assets
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71,974
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167,653
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Property
and equipment
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Office
and laboratory equipment and leasehold improvements
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729,859
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729,859
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Automobile
& Trucks
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27,800
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26,400
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Less:
Accumulated depreciation
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(734,029)
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(729,859)
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Total
property and equipment, net
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23,630
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26,400
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Other
assets - Deposit
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12,000
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12,000
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TOTAL ASSETS
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$107,604
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$206,053
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LIABILITIES & STOCKHOLDERS' DEFICIT
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Current
liabilities
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Bank
Overdraft
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$0
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$-
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Accounts
payable
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702,681
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683,678
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Accrued
expenses
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4,613,772
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4,135,810
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Settlement
payable
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384,545
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384,545
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Notes
payable
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25,800
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25,800
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Convertible
notes payable, net of discount
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488,960
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488,960
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Loan
from shareholder
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813,693
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794,327
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Contingency
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880,162
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880,162
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Total
liabilities
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7,909,613
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7,393,281
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Commitments and Contingencies
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Stockholders'
deficit:
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Series
A preferred stock, par value $0.001 per share,
20,000,000
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shares
authorized, 10,350 shares and 4,600 shares to be
issued
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as
of September 30, 2018 and December 31, 2017,
respectively
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12
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9
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Series
B preferred stock, par value $0.001 per share,
30,000,000
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shares
authorized, 16,374,286 and 15,410,000 shares to be
issued
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as
of September 30, 2018 and December 31, 2017,
respectively
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16,374
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16,374
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Common
stock, par value $0.001 per share, 300,000,000
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shares
authorized, 40,064,983 and 40,064,983 shares issued
and
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40,065
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40,065
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outstanding
as of September 30, 2018 and December 31, 2017,
respectively
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Common
stock to be issued
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53,572
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53,572
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Additional
paid-in capital
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19,574,211
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19,274,214
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Accumulated
deficit
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(27,486,243)
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(26,571,461)
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Total
stockholders' deficit of Genethera, Inc.
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(7,802,009)
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(7,187,228)
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TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT
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$107,604
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$206,053
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See accompanying notes to unaudited condensed consolidated
financial statements.
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5
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GeneThera, Inc.
- Condensed Statements of
Operations (unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2018
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2017
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2018
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2017
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Expenses
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General
and administrative expenses
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119,240
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1,735
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$243,232
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$9,656
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Payroll
expenses
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116,500
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108,249
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397,472
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459,747
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Research
and Development
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76,422
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-
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161,750
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Depreciation
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1,390
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-
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4,170
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-
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Total
operating expenses
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313,552
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109,984
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806,624
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469,403
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Loss
from operations
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(313,552)
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(109,984)
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(806,624)
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(469,403)
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Other
expenses
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Interest
expense
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(36,053)
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(35,891)
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(108,159)
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(109,500)
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Loss
on write of Investment
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-
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-
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-
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Loss
on write off of vendor receivables
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-
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(39,310)
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Total
other expense
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(36,053)
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(35,891)
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(108,159)
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(148,810)
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Other
Income
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Total
other Income
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-
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-
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Net
loss before income taxes
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(914,783)
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(618,213)
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Provision
for income taxes
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-
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-
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Net
loss
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(349,605)
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(145,875)
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$(914,783)
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$(618,213)
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Loss
per common share - Basic and diluted
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(0.01)
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(0.00)
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$(0.02)
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$(0.02)
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Weighted
average common shares outstanding -
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Basic
and diluted
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40,064,983
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40,064,983
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40,064,983
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40,064,983
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See accompanying notes to unaudited condensed consolidated
financial statements.
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6
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GeneThera, Inc. - Condensed Statements of Cash Flows
(unaudited)
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For the Nine Months Ended
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September 30,
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2018
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2017
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Cash flows from operating activities
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Net
loss
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$(914,783)
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$(618,213)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Stock-based
compensation
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-
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135,000
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Amortization
of discount on debt
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-
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-
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Depreciation
and amortization
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4,170
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-
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Shares
issued for services
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-
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-
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Loss
on write off of vendor receivables
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-
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39,310
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Loss
on abandonment
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-
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-
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Loss
on Investment
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-
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-
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Changes
in operating assets and liabilities:
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Deposit
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-
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-
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Fixed
Assets
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-
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-
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Accounts
receivable - related parties
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-
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-
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Accounts
payable and accrued expenses - related parties
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-
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18,173
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Accounts
payable and accrued expenses
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514,538
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411,613
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Net cash used in operating
activities
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(396,075)
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(14,117)
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Cash flows from investing activities
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Purchase
of Fixed Asset
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(1,400)
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-
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Net cash used in investing
activities
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(1,400)
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-
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Cash flows from financing activities
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Proceeds
from issuance of stock
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300,000
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-
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Proceeds
from notes payable
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-
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15,000
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Net
advance from related parties
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1,796
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9,365
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Proceeds
from convertible notes
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-
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Net cash provided by financing activities
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301,796
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24,365
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Net decrease in cash
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(95,679)
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10,248
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Cash at the beginning of the year
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167,653
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-
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Cash at the end of the year
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71,974
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10,248
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See accompanying notes to unaudited condensed consolidated
financial statements.
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7
GENETHERA, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2018 and 2017
Note 1 – Organization and nature of operations and summary of
significant accounting policies
Organization and nature of operations
The
consolidated financial statements include GeneThera, Inc. and its
wholly owned subsidiary GeneThera, Inc. (Colorado) (collectively,
the “Company”). The Company has a long standing
research collaboration with GTI Research, Inc. GTI Research is
assisting the Company in managing the robotic technology project.
The Company’s CEO is also collaborating with this project in
order for the Company’s research and development to finally
become commercial in order to generate revenues.
The
Company is a biotechnology company that develops molecular assays
for the detection of food contaminating pathogens, veterinary
diseases and genetically modified organisms.
The
accompanying condensed consolidated financial statements have been
prepared in conformity with U.S. GAAP pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) for
interim financial information. Accordingly they do not include all
of the information and notes required by U.S. GAAP for complete
financial statements. The accompanying condensed consolidated
financial statements include all adjustments, which consist of
normal recurring adjustments and transactions or events discrettly
impacting the interim periods, considered necessary by management
to fairly state our results of operations, financial position and
cash flows. The operating results for interim periods are not
necessarily indicative of results that may be expected for any
other interim period or for the full year. These condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes
thereto included in our 2017 Form 10-K.
Use of estimates
The
preparation of financial statements in accordance with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain prior
period amounts in the consolidated financial statements and
accompanying notes have been reclassified to conform to the current
period’s presentation.
Cash and cash equivalents
Cash
equivalents are highly liquid investments with an original maturity
of three months or less.
Principles of consolidation
The
consolidated financial statements include the accounts of the
Company, and its subsidiary. All intercompany accounts are
eliminated upon consolidation.
Property and equipment, net
Property
and equipment consists primarily of office and laboratory
equipment, leasehold improvements, vehicle, and is stated at cost.
Depreciation is computed on a straight-line basis over the
estimated useful lives ranging from five to seven
years.
8
Impairment of long-lived assets
The
Company reviews the recoverability of its long-lived assets to
determine whether events or changes in circumstances occurred that
indicate the carrying value of the asset may not be recoverable.
The assessment of possible impairment is based on the ability to
recover the carrying value of the asset from the expected future
cash flows of the related operations. If these cash flows are less
than the carrying value of such asset, an impairment loss is
recognized for the difference between the estimated fair value and
carrying value. The measurement of impairment requires management
to make estimates of these cash flows related to long-lived assets,
as well as other fair value determinations.
Revenue recognition
There
were no revenues during as of September 30, 2018 and
2017.
Stock-Based Compensation
Stock-based
compensation is accounted for under FASB ASC Topic No. 718 –
Compensation – Stock
Compensation. The guidance requires recognition in the
financial statements of the cost of employee services received in
exchange for an award of equity instruments over the period the
employee is required to perform the services in exchange for the
award (presumptively the vesting period). The guidance also
requires measurement of the cost of employee services received in
exchange for an award based on the grant-date fair value of the
award. The Company accounts for non-employee share-based awards in
accordance with guidance related to equity instruments that are
issued to other than employees for acquisition, or in conjunction
with selling, goods or services.
Research and development costs
R&D
cost are currently expensed as incurred and primarily include cost
associated with R&D arrangements with external parties in
connection with the Company’s robotic technology
project.
Income taxes
Income
taxes are accounted for in accordance with the provisions of FASB
ASC Topic No. 740 - Income
Taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amounts expected to be realized.
Basic and diluted net loss per common share
Basic
and diluted net loss per share calculations are presented in
accordance with FASB ASC Topic No. 260 – Earnings per Share, and are calculated
on the basis of the weighted average number of common shares
outstanding during the period. Diluted per share calculations
includes the dilutive effect of common stock equivalents in years
with net income. As the Company is in
a loss position, any calculation of the dilutive effects of the
Company's convertible securities would reduce the loss per share
amount, and, as such, the Company will not perform the calculation.
The weighted average potentially dilutive shares underlying the
Company’s convertible securities excluded from the
calculation of earnings per share as they would be anti-dilutive
were 182,635,000 and 179,976,248 as of September 30, 2018 and
December 31, 2017.
Fair value of financial instruments
The
carrying value of cash, accounts payable, accrued expenses and
notes payable approximates fair value due to the short term nature
of these accounts.
9
Recently issued accounting pronouncements
Accounting for Leases. In
February 2016, the FASB amended the FASB Accounting Standards
Codification and created a new Topic 842, Leases (the
"New Lease Standard"). The guidance requires lessees to recognize a
right-of-use asset and a lease liability for all leases (with the
exception of short-term leases) at the commencement date and
recognize expenses on their income statements similar to the
current Topic 840, Leases. The New Lease Standard is effective for fiscal
years and interim periods beginning after December 15, 2018. We
will adopt this standard effective January 1, 2019. We have not
finalized our assessment but believe this standard will have a
significant impact on our consolidated balance sheet. The standard
is not expected to have a material impact on the Company's results
of operations or cash flows. The
primary effect of adopting the New Lease Standard will be to record
an asset and obligation for our operating lease which commenced in
2018.
Note 2 - Going Concern
As
reflected in the accompanying consolidated financial statements,
the Company has an accumulated deficit of $27,486,243 and negative
working capital of $7,837,639 as of September 30, 2018. This raises
substantial doubt about the Company’s ability to continue as
a going concern. The Company’s ability to continue as a going
concern is dependent on its ability to raise additional capital and
implement its business plan. The consolidated financial statements
do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Management
believes that actions presently being taken to obtain additional
funding and implement its strategic plans provide the opportunity
for the Company to continue as a going concern.
Note 3 - Property and
Equipment
As of January 23, 2018, the Company had purchased a vehicle in the
amount of $27,800.
Note 4 - Related party transactions
The
Company has an outstanding loan payable and accrued interest to
Antonio Milici, its CEO and stockholder amounting to $705,096 and
$693,155 as September 30, 2018 and December 31, 2017, respectively.
This outstanding loan to the Company is unsecured and bears
interest at 2.41%. The Company has an outstanding loan and accrued
interest payable to Tannya Irizarry, its COO and stockholder,
amounting to $108,596 and $101,172 as September 30, 2018 and
December 31, 2017, respectively. This outstanding loan to the
Company is unsecured and bears interest at 8%.
Tannya
Irizarry owns one-third of GTI Corporate Transfer Agents, LLC, the
Company’s transfer agent. During the nine months ended
September 30, 2018 and 2017, the Company made payments to GTI
Corporate Transfer Agents, LLC in the amounts of $5,144 and $227,
respectively.
The
Company relies on GTI Research, Inc. (“GTIR”), the
Company’s scientific robotic technology collaborator, for
conducting critical research and development activities on the
Company’s robotic technology development project. For the
three and nine-month periods ended September 30, 2018, the Company
incurred costs of $76,422 and $161,750, respectively for
development services from GTIR. In addition, the Company subleases
from GTIR all of its office and lab space under a 75 month lease.
GTIR holds a $12,000 security deposit paid by the Company in
December of 2017 and the Company incurred base rental and triple
net expenses of $29,183 and $87,550 associated with the lease
during the three and nine-months ended September 30, 2018,
respectively. See a description of the lease terms in Note 8 to the
condensed consolidated financial statements.
The
Company utilizes Elia Holding, LLC for construction and other
maintenance services to maintain the Company’s office and lab
space. Elia Holding, LLC is controller by Tannya Irizarry’s
brother. Costs incurred related to such services were $0 and $4800
during the three and nine month periods ended September 30, 2018,
respectively.
10
Note 5 - Accrued expenses
The Company’s accrued expenses consisted of the
following:
|
|
September 30,
2018
|
December 31,
2017
|
|
Accrued officer
salaries (see below)
|
$4,364,887
|
$4,007,415
|
|
Accrued
interest
|
202,835
|
112,546
|
|
Other
|
46,050
|
15,849
|
|
|
$4,613,772
|
$4,135,810
|
Note 6 - Convertible notes payable
The
Company’s borrowed issued convertible notes are due on
demand, bearing interest at an annual rate of 8%. The notes are
convertible into shares of Company common stock at a conversion
price of $0.01 to $0.05 per share. As of September 30, 2018 and
December 31, 2017, the total outstanding principal and interest is
$626,020 and $596,683, respectively.
On April 18, 2018, the Company has received conversion
notices on convertible notes totaling $16,000, plus accrued
interest which will be converted into shares of the Company's
common stock at conversion prices $0.015.
On April 24, 2018, the Company has received conversion
notices on convertible notes totaling $1,500, plus accrued interest
which will be converted into shares of the Company's common stock
at conversion prices $0.02.
Note 7 - Shareholders’ equity
Preferred Stock
The
Company has authorized 30,000,000 shares of Series A Preferred
Stock, $.001 par value, and 20,000,000 shares of Series B Preferred
Stock, $.001 par value.
As of
December 31, 2017, the Company had agreed to issue 7,350 shares of
Series A Preferred Stock, but no shares were issued and
outstanding.
As of
December 31, 2017, the Company had agreed to issue 16,374,286
shares of Series B Preferred Stock, but no shares were issued and
outstanding.
An
agreement was signed with FOGT, LLC, an entity controlled by a
Board of Directors member, on April 18, 2018 to purchase and
additional 3,000 Preferred A shares which remain to be issued as of
the end of the quarter. The shares were valued based on the agreed
upon purchase price of $100 per share. There was no value assigned
to the imbedded conversion feature as it was out of the money and
did not qualify for bifurcation base on the terms.
Common stock
The Company has authorized 300,000,000 shares of its common stock,
$.001 par value. The Company had issued and outstanding 40,064,983
and 40,064,983 shares as of September 30, 2018 and December 31,
2017, respectively.
11
Note 8 - Commitments
Employment Agreements
In 2017, the Company entered into five-year employment agreements
with its chief executive and scientific officer and its chief
administrative and financial officer. The agreements provide for
compensation of $21,500 and $17,333 per month, respectively, and
expire on January 31, 2022.
The agreements also provide for an aggregate bonus of $135,000 to
be paid in Series Preferred stock in March of each year of the
agreement. Both officers waived their rights for the preferred B
stock to be issued to them in 2018. In November of 2018, the
agreements were amended to discontinue the preferred B stock award
and include the amounts in base pay effective January 1,
2019.
Office Space Lease
On January 1, 2018, the Company
entered into a triple net sublease for a 7,990 square foot office
and lab space on 6860 Broadway in Denver, Colorado 80221, with GTI
Research, Inc. a related party, for 75 months. Future minimum lease
payments under this lease are as follows:
|
Period
|
Monthly Base Rent
|
|
01/01/18 –
03/31/18
|
$0
|
|
04/01/18 –
03/31/19
|
$5,993
|
|
04/01/19 –
03/31/20
|
$6,658
|
|
04/01/20 –
03/31/21
|
$7,324
|
|
04/01/21 –
03/31/22
|
$7,990
|
|
04/01/22 –
03/31/23
|
$8,656
|
|
04/01/23 –
03/31/24
|
$9,322
|
In
addition to the foregoing, we are required to pay our proportionate
share of all real estate taxes, building insurance and maintenance
costs which is current an estimated monthly charge of
$2377.
We and GTI Research, Inc. sub-lease 750 square feet of
office space for GTI Corporate Transfer Agents, LLC, on a
month-to-month basis, partly in exchange for transfer agent
services rendered to us.
Note 9 - Subsequent events
On
October 25, 2018, Daniel M. Price converted $10,000 convertible
note investment in the Company at $0.02 per share.
On
October 25, 2018, Daniel M. Price converted $10,000 convertible
note investment in the Company at $0.02 per share.
On
October 25, 2018, Elia Holdings’ Managing Director, Rene I.
Rivera, converted $14,980 convertible note investment in the
Company at $0.03 per share.
On
November 13, 2018, Anthos Holdings’ Managing Director,
Patrick J. Rundle, converted $15,980 convertible note investment in
the Company at $0.03 per share.
12
ITEM
2:
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Sections
of this Form 10-Q, including the Management’s Discussion and
Analysis or Plan of Operation, contain “forward-looking
statements”. 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,”
“plans,” “goal,” “potential,”
“expect,” “anticipate,”
“estimate,” “believe,”
“intent,” “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
*
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
* 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.
You
should read the following discussion of our results and plan of
operation in conjunction with the consolidated financial statements
and the notes thereto appearing elsewhere in this Form 10-Q.
Statements in this Management’s Discussion and Analysis
or Plan of Operation that are not statements of historical or
current objective fact are “forward-looking
statements.”
13
OVERVIEW
We have
developed proprietary diagnostic assays for use in the agricultural
and veterinary markets. Specific assays for Chronic Wasting
Disease (CWD) (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. We are also 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.
We have
not generated significant operating revenue as of September 30,
2018. Our ability to generate substantial operating revenue will
depend on our ability to develop and obtain approval for molecular
assays and developing therapeutic vaccines for the detection and
prevention of food contaminating pathogens, veterinary diseases,
and diseases affecting human health.
Our
independent auditors have expressed substantial doubt about our
ability to continue as a going concern in their report on our
consolidated financial statements as of September 30, 2018 and
December 31, 2017. For the nine months ended September 30,
2018 and twelve months ended December 31, 2017, our operating
losses were $914,783 and $757,720, respectively. Our current
liabilities exceeded current assets by $7,837,639 and $7,225,628 as
of September 30, 2018 and December 31, 2017,
respectively.
For the
nine months ended September 30, 2018, our operating losses were
$914,783.
Although,
we completed an equity financing with gross proceeds of
approximately $1.1 million in 2005, we will require significant
additional funding in order to achieve our business plan.
Over the next 12 months, in order to have the capability of
achieving our business plan, we believe that we will require at
least $20,000,000 in additional funding. We will attempt to raise
these funds by both means of one or more private offerings of debt
or equity securities. In such events, we may need immediate
additional funding. Our capital requirements will depend on
many factors including, but not limited to, the timing of further
development of assays to detect the presence of infectious disease
from the blood of live animals, our hiring of additional personnel,
the applications for, and receipt of, regulatory approvals for any
veterinary vaccines that we may develop, and other factors.
Our ability to raise capital will increase our ability to
implement our business plan.
We also
expect to spend a significant amount of our capital on research and
development activities for commercialization relating to
development and vaccine design/development. When 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 (CWD) and Mad Cow Disease on a very limited basis. We
anticipate that significant funds will be spent on research and
development throughout 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 robotic biotechnology field.
We may be successful in developing or validating any new
assays and, when we are successful in developing and validating any
such assays, we may be able to successfully commercialize them or
earn profits from sales of those assays. Furthermore, we may
be able to design, develop, or successfully commercialize vaccines
as a result of our research and development efforts.
RELATED PARTY TRANSACTIONS
The
Company has an outstanding loan payable and accrued interest to
Antonio Milici, its CEO and stockholder amounting to $705,096 and
$693,155 as September 30, 2018 and December 31, 2017, respectively.
This outstanding loan to the Company is unsecured and bears
interest at 2.41%. The Company has an outstanding loan and accrued
interest payable to Tannya Irizarry, its COO and stockholder,
amounting to $108,596 and $101,172 as September 30, 2018 and
December 31, 2017, respectively. This outstanding loan to the
Company is unsecured and bears interest at 8%.
14
GTI
Corporate Transfer Agents, LLC is the Company’s transfer
agent. On August 20, 2015, Ms. Michelle Torres Colón was
promoted to be the new managing director with a 34% ownership
and/or interest. Ms. Tannya Irizarry is a board member and has a
33% ownership and/or interest. As of April 18, 2016, Ms. Janice
Ortega is the assistant managing director with a 33% ownership
and/or interest. Ms. Krystle Rundle returned as a board
member.
RECENTLY ISSUED ACCOUNTING STANDARDS
In
February 2016, the FASB amended the FASB Accounting standards
Codification and created a new Topic 842, Leases (the
"New Lease Standard"). The guidance requires lessees to recognize a
right-of-use asset and a lease liability for all leases (with the
exception of short-term leases) at the commencement date and
recognize expenses on their income statements similar to the
current Topic 840, Leases. The New Lease Standard is effective for fiscal
years and interim periods beginning after December 15, 2018. We
will adopt this standard effective January 1, 2019. We have not
finalized our assessment but believe this standard will have a
significant impact on our consolidated balance sheet. The standard
is not expected to have a material impact on the Company's results
of operations or cash flows. The
primary effect of adopting the New Lease Standard will be to record
an asset and obligation for our operating lease which commenced in
2018.
EMPLOYEES
As of
September 30, 2018, we had a total of two full-time employees who
devoted substantial effort on our behalf. None of our employees are
represented by a collective bargaining unit. We entered into
an employment agreement with Antonio Milici, M.D., Ph.D., to serve
as our Chief Executive Officer and Chief Scientific Officer through
January 31, 2022. In consideration for his services, Dr.
Milici will receive a base salary of $258, 000 per annum plus
bonuses as may be determined by the Board of Directors at 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 all of his interests in any idea,
concept, technique, invention or written work. We also
entered into an employment agreement with Tannya L. Irizarry to
serve as our Chief Administrative Officer through January 31, 2022.
Since May 2006, Ms. Irizarry is also our Chief Financial
Officer (Interim). Ms. Irizarry’s base salary is $208,000 per
annum. There are no employee issues at this
time.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018, COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 2017
The
company did not generate any revenue for the three months ended
September 30, 2018 and 2017.
The
company had total operating expenses of $313,552 for the three
months ended September 30, 2018, compared to total operating
expenses of $109,984 for the three months ended September 30, 2017,
an increase of $203,568 from the prior period. The increase is
general and administrative expenses increasing by $117,505, payroll
expense increased by $8,251 and research & development by
$76,422 over the prior period.
We had
a net loss of $349,605 for the three months ended September 30,
2018, compared to a net loss of $145,875 for the three months ended
September 30, 2017, an increase of $203,730 from the prior
period.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018, COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 2017
The
company did not generate any revenue for the nine months ended
September 30, 2018 and 2017.
We had
total operating expenses of $806,624 for the nine months ended
September 30, 2018, compared to total operating expenses of
$469,403 for the nine months ended September 30, 2017, a increase
of $337,221 from the prior period. The increase is administrative
expenses which increased by $233,576, research & development by
$161,750 over the prior period.
We had
a net loss of $914,783 for the nine months ended September 30,
2018, compared to a net loss of $618,213 for the nine months ended
September 30, 2017, a increase of $296,570 from the prior
period.
15
LIQUIDITY AND CAPITAL RESOURCES
We had
total assets as of September 30, 2018 of $107,604, which included
cash of $71,974, other assets – Deposit of $12,000 and total
property and equipment net $23,630.
We had
total liabilities of $7,909,613 as of September 30, 2018, which
included $702,681 of accounts payable, $4,613,772 of accrued
liabilities, and $2,593,160 of notes and loans payable and other
liabilities.
We had
negative working capital of $7,837,639 and an accumulated deficit
of $27,486,243 as of September 30, 2018.
It is
estimated that we will require outside capital for the remainder of
2018 for the commercialization of GeneThera molecular assays as
well as the development of our therapeutic vaccines. The Company
intends to raise these funds by means of one or more private
offerings of debt or equity securities or both. The Company is
still in discussions with one or two groups to obtain financing
through equity. No definitive agreements have been signed. There
are no guarantees whether the Company will be able to secure such
financing, and if the financing is secured, there are no guarantees
whether the Company can achieve the goals laid out in its business
plan fully. We will require significant additional funding in order
to achieve our business plan.
Our
longer-term working capital and capital requirements will depend
upon numerous factors, including revenue and profit generation,
pre-clinical studies and clinical trials, the timing and cost of
obtaining regulatory approvals, the cost of filing, prosecuting,
defending, and enforcing patent claims and other intellectual
property rights, competing technological and market developments,
and 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.
In the
future, we may be required to seek additional capital by selling
debt or equity securities, selling assets, or otherwise be required
to bring cash flows in balance when we approach a condition of cash
insufficiency. The sale of additional equity or debt securities, if
accomplished, may result in dilution to our then
shareholders.
The
Company has no off balance sheet commitments or
arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Pursuant
to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company
is not required to provide the information required by this Item as
it is a “smaller reporting company,” as defined by Rule
229.10(f)(1).
Item 4. Controls and
Procedures.
Evaluation of Disclosure Controls and Procedures
In
connection with the preparation of this annual report, an
evaluation was carried out by the Company’s management, with
the participation of the chief executive officer and the acting
chief financial officer, of the effectiveness of the
Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (“Exchange Act”)) as of June 30, 2018. Disclosure
controls and procedures are designed to ensure that information
required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Commission’s rules
and forms, and that such information is accumulated and
communicated to management, including the chief executive officer
and the chief financial officer, to allow timely decisions
regarding required disclosures.
16
Based
on that evaluation, the Company’s management concluded, as of
the end of the period covered by this report, that the
Company’s disclosure controls and procedures were ineffective
in recording, processing, summarizing, and reporting information
required to be disclosed, within the time periods specified in the
Commission’s rules and forms, and such information was not
accumulated and communicated to management, including the chief
executive officer and the chief financial officer, to allow timely
decisions regarding required disclosures.
Management’s Report on Internal Control over Financial
Reporting
The
Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is a
process, under the supervision of the chief executive officer and
the chief financial officer, designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for
external purposes in accordance with United States generally
accepted accounting principles (GAAP). Internal control over
financial reporting includes those policies and procedures
that:
Pertain
to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
Company’s assets.
Provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of the financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures are being made only in accordance with authorizations
of management and the board of directors.
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the
financial statements.
Due to
its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or
procedures may deteriorate.
The
Company’s management conducted an assessment of the
effectiveness of our internal control over financial reporting as
of December 31, 2017, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission, this
assessment is to determine if there exist material weaknesses in
internal control over financial reporting. A material weakness is a
control deficiency, or a combination of deficiencies in internal
control over financial reporting that creates a reasonable
possibility that a material misstatement in annual or interim
financial statements will not be prevented or detected on a timely
basis. Our assessment of the effectiveness of our internal control
over financial reporting identified certain material weaknesses,
therefore management considers its internal control over financial
reporting to not be effective.
The
matters involving internal control over financial reporting that
our management considered to be material weaknesses
were:
Insufficient accounting resources. Management had
insufficient accounting resources, which insufficiency resulted in
delays associated with our reporting of our operating results.
Accordingly, we determined as of September 30, 2018, that the
insufficient accounting resources are part of the material
weaknesses as stated above.
US GAAP knowledge. Management has engaged an external
consultant to counter the internal lack of US GAAP knowledge.
Nonetheless, internally there is a lack of internal US GAAP
knowledge, therefore, the work of the external consultant does not
entirely compensate for this internal deficiency. Accordingly, we
determined as of September 30, 2018, that the internal lack of US
GAAP knowledge is part of the material weaknesses as stated
above.
17
As a
result of the material weaknesses in internal control over
financial reporting described above, the Company’s management
has concluded that, as of September 30, 2018, that the
Company’s internal control over financial reporting was not
effective based on the criteria in Internal Control – Integrated
Framework issued by the COSO. The Company intends to
remedy its material weaknesses by:
|
—
|
engaging
a new accounting consultant that has a working knowledge of GAAP
accounting
|
This
interim quarterly report does not include an attestation report of
our independent registered public accounting firm regarding
internal control over financial reporting. We were not required to
have, nor have we, engaged our independent registered public
accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that
permit us to provide only management’s report in this annual
report.
Changes in Internal Controls over Financial Reporting
During
the period ended September 30, 2018, management has implemented a
variety of internal controls procedure and financial reporting
oversight. This has enabled the company to perform an
assessment of the effectiveness of our internal control over
financial reporting. This assessment did identify material
weaknesses; which management intends to remedy.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL
PROCEEDINGS
Unless otherwise noted, these judgements are accrued in accounts
payable.
On June
6, 2008, M.A.G. Capital, LLC; Mercator Momentum Fund III, LP;
Mercator Momentum Fund, LP; and Monarch Pointe Fund, Ltd. filed a
Judgment at the Orange County Recorder in the amount of $37,721.
The Company has not satisfied the judgment.
On June
6, 2008, Mark A. Shoemaker filed a Civil Judgment at the LA
County/Recorder of Deeds Court in the amount of $37,721. This
lawyer has been disbarred and incarcerated. The Company will not
satisfy the judgment.
In June
2009, James Tufts filed a complaint at the Small Claims Court in
Jefferson County CO in the amount of $4,000 plus expenses from a
London trip. The Company has not satisfied the
judgment.
On June
26, 2009, Enterprise Leasing Company of Denver filed a Civil
Judgment at the Jefferson County District Court in the State of
Colorado in the amount of $78,178. The Company has not satisfied
the judgment.
On
August 17, 2010, Banc of America Leasing filed a Civil Judgment at
the Oakland County District in Troy, Michigan in the amount of
$24,002. The Company has not satisfied the judgment.
On
September 23, 2010, Liberty Acquisitions filed a Civil Judgment at
the Jefferson County Court in the State of Colorado in the amount
of $3,300. The Company has not satisfied the judgment.
On
February 10, 2009, Centennial Credit Corporation filed a Civil
Judgment at the Jefferson County Court in the amount of $967. The
Company has no idea which entity is this; therefore, the Company
has not satisfied the judgment.
On
August 29, 2011, GeneThera had a court hearing concerning a
litigation filed by The Park III related to unpaid rent according
to our lease agreement. The District Court of Boulder entered a
judgment against the Company in the amount of $77,000. The Company
has not satisfied the judgment.
On
November 26, 2012, the Internal Revenue Service filed a Federal Tax
Lien in the amount of $1,275. The Company has not satisfied the
lien.
18
On
November 14, 2014, Litchfield Church Ranch, LLC filed a Summons in
Forcible Entry and Detainer against the Company after the owner was
unable to sell the building to us because he was upended for over
$800,000 in his mortgage. As per the Summons, the plaintiff claimed
$364,968.69 in past due rent. As per our accounting records, the
Company had $242,000 with the offer to purchase such property at
$1,850,000 plus scheduled payments for the past due rent. The
owner’s bank did not allow him to sell the property to the
Company and/or anyone. We went to mediation. The owner’s
legal team and our legal team settled for $115,000 with the
contingency to pay the goodwill amount of $15,000 by September 12,
2015. We did. The Company has an additional six months to complete
the remaining $100,000 settlement. If not paid off prior to August
12, 2016, there will be no discount and the Company shall owe the
judgment balance in the amount of $325,885. The mediator, a retired
judge, found in our favor. Therefore, the settlement was agreed
upon by both parties. The Company did not pay the settlement
agreement as of December 31, 2017 and default interest of a 18% is
being accrued on the outstanding judgment balance. We will approach
Litchfield with another settlement agreement, as soon as we are
able to complete it.
Item
1A. Risk Factors
There
have been no material changes from the risk factors previously
disclosed in the Company’s Annual Report on Form 10-K, filed
with the Commission on November 30, 2018 and investors are
encouraged to review such risk factors prior to making an
investment in the Company.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
As of
November 30, 2018, the Company issued no securities.
Item
3. Defaults upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not
applicable.
Item
5: Other Information
None.
Item
6: Exhibits
|
Exhibit
|
Description of
Exhibit
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101)
|
XBRL
|
|
101.INS**
|
XBRL INSTANCE
DOCUMENT
|
|
101.SCH**
|
XBRL TAXONOMY
EXTENSION SCHEMA
|
|
101.CAL**
|
XBRL TAXONOMY
EXTENSION CALCULATION LINKBASE
|
|
101.DEF**
|
XBRL TAXONOMY
EXTENSION DEFINITION LINKBASE
|
|
101.LAB**
|
XBRL TAXONOMY
EXTENSION LABEL LINKBASE
|
|
101.PRE**
|
XBRL TAXONOMY
EXTENSION PRESENTATION LINKBASE
|
* Filed
herewith.
** IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY
RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA
FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS
DAYS.
19
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 on November 30,
2018.
GeneThera,
Inc.
By: /s/ Antonio Milici
Antonio
Milici, M.D., Ph.D.
President
(Principal
Executive Officer)
By: /s/ Tannya L. Irizarry
Tannya
L. Irizarry
Chief
Financial Officer (Interim)
(Principal
Financial/Accounting Officer)
In
accordance with the Securities Exchange Act of 1934, 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
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Title
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Date
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/s/
Antonio Milici
|
|
President,
Director
|
|
11/30/18
|
|
Antonio
Milici, M.D., PhD.
|
|
|
|
|
|
|
|
|
|
|
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/s/
Tannya L. Irizarry
|
|
Chief
Financial Officer (Interim)
|
|
11/30/18
|
20