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| GTHR.PK > SEC Filings for GTHR.PK > Form 10-K/A on 26-Jun-2009 | All Recent SEC Filings |
26-Jun-2009
Annual Report
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Sections of this Form 10-K, 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 (the "Securities Act"), Section 21E of
the Securities and Exchange Act of 1934 (the "Exchange Act"), and the Private
Securities Litigation Reform Act of 1995. 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, and
* trends affecting our financial condition or results of operations, the impact
of competition, the start-up of certain operations and acquisition
opportunities.
Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements ("Cautionary Statements") include, among others,
* our ability to raise capital,
* our ability to execute our business strategy in a very competitive
environment,
* our degree of financial leverage,
* risks associated with our acquiring and integrating companies into our own,
* risks relating to rapidly developing technology,
* regulatory considerations;
* risks related to international economies,
* risks related to market acceptance and demand for our products and services,
* the impact of competitive services and pricing, and
* other risks referenced from time to time in our SEC filings.
All subsequent written and oral forward-looking statements attributable to us, or anyone acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We do not undertake any obligations to publicly release any revisions to any forward-looking statements to reflect events or circumstances after the date oft his 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-K. 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."
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 revenues and, as of December 31, 2007 we had incurred a cumulative net loss from inception of $16,278,007. 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 some doubt about our ability to continue as a going concern in their report on our consolidated financial statements for the fiscal year ended December 31, 2007. For the years ended December 31, 2007 and 2006, our operating losses were $776,374 and $1,482,570, respectively. Our current liabilities exceeded current assets by $1,501,613 and $1,392,097 for the years ended December 31, 2007 and 2006, respectively.
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 $5,000,000 in additional funding. We will attempt to raise these funds by both means of one or more private offerings of debt or equity securities and revenues generated by our Project in Mexico. At this time, we have commitments for additional capital funds. This amount may exceed an additional $1,000,000 depending on cost involved in the further development and commercialization of our products. In such event, 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.
Over the next 12 months, we expect significant purchases and/or sales of plant or equipment and significant changes in the number of our employees for any off-balance sheet arrangements that will have current and future effect on our financial condition.
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 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.
RECENT DEVELOPMENTS
The Company is in continued negotiations with the Italian government to open a laboratory facility in Northern Italy for the validation and testing of its live animal test for TSE. The parties are currently discussing space requirements and personnel needs. The Italian Project is also impatiently awaiting the completion of the funding for this venture.
The Company has begun to form an entity with a Mexican company to jointly own and operate a laboratory facility in Monterrey, Mexico for express purposes of testing cattle for TSE. The entity is currently being legally formed. The Mexico Project is also enthusiastically waiting for the completion of the funding for this enterprise.
The Company signed an Investor Relations agreement with The Mezey Howarth Group, Inc., in March 2007. The Company terminated its Investor Relations arrangement with The Mezey Howarth Group, Inc. due to false press releases generated by J. Wade Mezey on June 18, 2007. This entity owes the Company $120,000 for which GeneThera will pursue through litigation due to their failure in reimbursing the Company for line of credit pre-paid fees, which was never approved and/or materialized.
In March 2006, the Company opened a line of credit with Imperial Capital Holdings, LLC on the advice of the Company's consulting financial advisor, Mr. Gary Rasmussen, who is also the primary beneficiary of Imperial. The Company was not aware of the relationship but, more importantly, after the CEO of the Company learned that Red Sea Management was the managing company of Imperial Capital, the CEO opted not to use the line of credit, requesting from the SEC to grant a withdrawal. The withdrawal was approved on April 13, 2007.
RELATED PARTY TRANSACTIONS
Setna Holdings, LLC is a related party to the Company with a promissory note of $150,801. Setna is in the business of providing financial services and general business consulting services to privately-held and publicly-held corporations. Setna consults and assists GeneThera in implementing and also providing financial assistance while researching for appropriate plans for securing funds to meet the Company requirements for which Setna also introduces financial sources. Mr. Anthony J. Milici is the Managing Director of Setna Holdings. Upon the Company's direction and approval, Setna disseminates information regarding GeneThera to shareholders, brokers, dealers, other investment community professionals, and the general investing public.
GTI Corporate Transfer Agents, LLC is the Company's transfer agent. After the death of the original Managing Director, Ms. Juanita Pagan in March 2006, Ms. Tannya L. Irizarry became the Managing Director of GTI Corporate Transfer Agents, LLC with a one-third ownership and/or interest.
RESULTS OF OPERATIONS
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
For the year ended December 31, 2007, the Company reported a net loss of $776,374, or less than $0.02 per share, and $97,900 of revenue as compared with a net loss of $1,482,570, or $0.07 per share, and $150,000 of revenue for the twelve months ended December 31, 2006.
General and Administrative Expenses: General and administrative expenses decreased to $313,381 for the twelve months ended December 31, 2007 compared to $739,529 for the same period in 2006. This decline was due to a decrease in personnel.
Consulting Expenses: Consulting expenses decreased to $236,757 for the twelve
months ended December 31, 2007 compared to $444,420 for the same period in 2006.
The decrease is attributable to the discontinuation of use of marketing
consultants traditionally paid in stock of the Company.
Depreciation and Amortization Expense: Depreciation and amortization expenses decreased to $72,451 for the twelve months ended December 31, 2007 compared to $77,014 for the same period in 2006 primarily due to no new equipment being purchased.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
For the year ended December 31, 2006, the Company reported a net loss of $1,482,571, or $0.07 per share, and $150,000 of revenue as compared with a net loss of $3,794,079, or $0.017 per share, and $190,982 of revenue for the twelve months ended December 31, 2005.
General and Administrative Expenses: General and administrative expenses decreased to $739,529 for the twelve months ended December 31, 2006 compared to $896,696 for the same period in 2005. The decrease was attributable to the decrease in employees in 2006 due to budget constraints.
Consulting Expenses: Consulting expenses decreased to $444,420 for the twelve months ended December 31, 2006 compared to $1,952,040 for the same period in 2005. This decrease is primarily attributed to the elimination of marketing consultants traditionally paid in stock of the Company.
Depreciation and Amortization Expense: Depreciation and amortization expenses increased to $77,014 for the twelve months ended December 31, 2006 compared to $11,751 for the same period in 2005 primarily due to equipment purchased to expand the lab.
LIQUIDITY AND CAPITAL RESOURCES
We had a cash balance of $201 as of December 31, 2007 and a cash balance of $234 as of December 31, 2006. Our current cash balance is not sufficient to fund our business objectives and we will need significant additional capital over the next 12-18 months in order to fund our planned operations. We may be unable to secure any additional financing on terms that are acceptable to us, if at all.
Since we completed the reverse merger with Hand Brand Distribution, Inc., we have financed our operations, in large part, by private placements of our common and preferred stock and promissory notes convertible into our common stock. We have raised an aggregate of $2,613,900 through such sales, including the sale of approximately $1.1 million of our preferred stock in January 2005.
We will require significant additional funding in order to achieve our business plan. Specifically, we intend to spend significant funds on validating and testing our products, seeking necessary regulatory approvals and focusing on international expansion. Over the next 12 month, in order to have the capability of achieving our business plan, we believe that we will require at least $5,000,000. We will attempt to raise these funds by means of one or more private offerings of debt or equity securities or both. We may not be able to secure the financing that we believe is necessary to implement our strategic objectives and, even if additional financing is secured, we may not achieve our strategic objectives. As of the date of this Report, we do not have any firm commitments from any investors for any additional funding.
Our longer-term working capital and capital requirements will depend upon numerous factors, including revenue and profit generation, pre-clinical studies and clinical trials, the timing and cost of obtaining regulatory approvals, the cost of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights, competing technological and market developments, collaborative arrangements. Additional capital will be required in order to attain such goals. Such additional funds may not become available on acceptable terms and we cannot give any assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants discuss their most "critical accounting policies" in Management's Discussion and Analysis of Financial Condition or Plan of Operation. The SEC indicated that a "critical account policy" is one which is both important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are described in Note 1 to our consolidated financial statements included in this Report.
RECENTLY ISSUED ACCOUNTING STANDARDS
On December 16, 2004, the Financial Accounting Standard Board issued SFAS No.
123 (revised 2004), "Share-Based Payment," which is a revision of SFAS No.
123. SFAS No. 123 GeneThera supersedes APB No. 25, and amends SFAS No. 95,
"Statement of Cash Flows." Generally, the approach in SFAS No. 123 GeneThera is
similar to the approach described in SFAS No. 123. However, SFAS No. 123
GeneThera requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123
GeneThera must be adopted no later than July 1, 2005. The Company has adopted
SFAS No. 123 GeneThera using a "modified retrospective" method which includes
the requirements of the modified prospective method described above, but also
permits entities to restate based on the amounts previously recognized under
SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods
presented or (b) prior interim periods of the year of adoption. In March 2005,
the FASB issued FASB interpretation No. 47, "Accounting for Conditional Asset
Retirement Obligations" ("FIN 47"). FIN 47 provides guidance relating to the
identification of and financial reporting for legal obligations to perform an
asset retirement activity. The Interpretation requires recognition of a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonable estimated. FIN 47 also
defines when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The provision is effective no
later than the end of fiscal years ending after December 15, 2005. The Company
will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not
believe the adoption will have a material impact on its consolidated financial
position or results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective applications, or the latest practicable date, as the required method for reporting a change in accounting changes and a correction of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its results of operations and financial condition but does not expect it to have material impact.
In June 2005, the Emerging Issues Task Force, or EITF, reached a consensus on Issue 05-6, Determining the Amortization Period for Leasehold Improvements, which requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonable assured at the date of the business combination or purchase. EITF 05-6 is effective for periods beginning after July 1, 2005. We do not expect the provisions of this consensus to have a material impact on the financial position, results or cash flows.
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125. SFAS 155 will be effective for the Company for all financial instruments issued or acquired after the beginning of its fiscal year ending December 31, 2006. The Company has not yet evaluated and determined the likely effect of SFAS 155 on future financial statements.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, income statement classification of interest and penalties, accounting interim periods, disclosure, and transition. This interpretation is effective for the Company for its fiscal year ending December 31, 2007. The Company has not yet evaluated the effect that the application of FIN 48 may have, if any, on its future results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for the Company for its fiscal year beginning on July 1, 2008. The Company is currently assessing the impact the adoption of SFAS No. 157 will have on its financial statements.
In September 2006, the Sec issued Staff Accounting Bulletin (SAB) No. 108 in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the Company's financial statements and the related financial statement disclosures. SAB No. 108 is effective for the Company for its current fiscal year. The adoption of SAB No. 108 did not have an impact on the Company's financial statements.
On February 15, 2007, the FASB issues SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." This standard permits an entity to measure many financial instruments and certain other items at estimated fair value. Most of the provisions of SFAS No. 115 ("Accounting for Certain Investment in Debt and Equity Securities) apply to all entities that own trading and available-for-sale securities. The fair value option created by SFAS No. 159 permits an entity to measure eligible items at fair value as of specified election dates. Among others eligible items exclude (1) financial instruments classified (partially or in total) as permanent or temporary stockholders' equity (such as a convertible debt security with a non-contingent beneficial conversion feature) and (2) investments in subsidiaries and interests in variable interests that must be consolidated. A for-profit business entity will be required to report unrealized gains and losses on items for which the fair value option has been elected in its statements of operations at each subsequent reposting date. The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new elections date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company has not yet evaluated the effect that the application of SFAS No. 159 may have, if any, on its future results of operations and financial condition.
EMPLOYEES
As of December 31, 2007, we had a total of two (2) full-time employees who devote 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 7, 2012. In consideration for his services, Dr. Milici will receive a base salary of $144,000 per annual plus bonuses as may be determined by the Board of Directors in its sole discretion. As part of his employment agreement, Dr. Milici is subject to non-disclosure and non-competition obligations and has transferred to the Company 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 7, 2012. Ms. Irizarry's base salary is $90,000 per annum. The above salaries have been accrued to be paid in common stock shares from the Company. There are no employee issues at this time.
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.
PROPERTIES
We lease a 5,730 square foot biotechnology laboratory located at 3930 Youngfield Street, Wheat Ridge, Colorado 80033. The lease expired in January 2007, and the rent is $5,235.00 per month. Currently, the Company is on a month-to-month basis. Effective January 2008, the rent is $4,000 per month. We sub-lease 700 square feet to GTI Corporate Transfer Agents, LLC. The monthly rent is $500. We believe that our existing facilities are adequate to meet our current requirements. We do not own any real property. 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. Currently, we do not have the funds to purchase or construct any such laboratories and do not have a commitment from any party to provide the funds for a laboratory.
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