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 had a long-standing
research collaboration with GTI Research.
The
Company is a biotechnology company that develops molecular assays
and therapeutics for the detection and treatment for COVID-19 and
other zoonotic diseases.
Basis of Presentation – Unaudited Financial
Information
The
accompanying unaudited condensed consolidated financial statements
and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information, and in
accordance with the rules and regulations of the United States
Securities and Exchange Commission (the “SEC”) with
respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required
by U.S. GAAP for complete financial statements. The unaudited
condensed consolidated financial statements furnished reflect all
adjustments (consisting of normal recurring accruals) which are, in
the opinion of management, necessary to a fair statement of the
results for the interim periods presented. Interim results are not
necessarily indicative of the results for the full year. These
unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements of
the Company for the year ended December 31, 2019 and notes thereto
contained in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2019, as filed with the SEC.
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.
Principles of consolidation
The
consolidated financial statements include the accounts of the
Company and its subsidiary. All intercompany accounts are
eliminated upon consolidation.
Cash and cash equivalents
Cash
equivalents are highly liquid investments with an original maturity
of three months or less.
Fair Value of Financial Instruments
For
purpose of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a
forced sale or liquidation. The carrying amount of the
Company’s short-term financial instruments approximates fair
value due to the relatively short period to maturity for these
instruments.
Property and equipment, net
Property
and equipment consist 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. Leasehold
improvements are amortized over the shorter of their economic lives
or lease terms.
Fair Value Measurements
The
Company follows ASC 820-10 of the FASB Accounting Standards
Codification to measure the fair value of its financial instruments
and disclosures about fair value of its financial instruments. ASC
820-10 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of
America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair
value measurements and related disclosures, ASC 820-10 establishes
a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad levels.
The three (3) levels of fair value hierarchy defined by ASC 820-10
are described below:
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Level
1
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Quoted
market prices available in active markets for identical assets or
liabilities as of the reporting date.
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Level
2
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Pricing
inputs other than quoted prices in active markets included in Level
1, which are either directly or indirectly observable as of the
reporting date.
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Level
3
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Pricing
inputs that are generally unobservable inputs and not corroborated
by market data.
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Financial
assets are considered Level 3 when their fair values are determined
using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input
is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used
to measure the financial assets and liabilities fall within more
than one level described above, the categorization is based on the
lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and
liabilities, such as cash, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable and accrued
expenses approximate their fair values because of the short
maturity of these instruments.
Transactions
involving related parties typically cannot be presumed to be
carried out on an arm’s-length basis, as the requisite
conditions of competitive, free-market dealings may not
exist.
Reclassifications
Certain
prior period amounts have been reclassified to conform to current
period presentation.
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 as of September 30, 2020 and 2019,
respectively.
The
Company follows the FASB Accounting Standards Codification ASC 606
– Revenues from Contracts with Customers for revenue
recognition. The Company considers revenue realized or realizable
and earned when all the following criteria are met:
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1)
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identification
of the contract with a customer.
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2)
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identification
of the performance obligations in the contract.
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3)
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determination
of the transaction price.
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4)
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allocation
of the transaction price to the performance obligations in the
contract. and
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5)
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recognition
of revenue when or as a performance obligation is satisfied.
Revenue is recognized when each performance obligation is satisfied
by the entity. An estimate of the variable consideration or
performance obligations that an entity ultimately expects to be
entitled to is included in the transaction price, and revenue is
recognized upon satisfaction of the related performance
obligation(s). An implicit or explicit significant financing
component is taken into consideration. IP licenses must be
analyzed. Each contract with customers is analyzed for multiple
elements if any element must stand alone.
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Leases
The
lease agreement was terminated in April 2019. No right of use asset
and liability were recorded for this lease.
On
January 1, 2019, the Company adopted ASC 842 using the modified
retrospective approach and will recognize a right of use
(“ROU”) asset and liability in the consolidated balance
sheet when and if the Company enters into a qualifying lease
agreement.
At
contract inception, the Company determines whether an arrangement
is or contains a lease and whether the lease should be classified
as an operating or a financing lease. A contract is or contains a
lease if the contract conveys the right to control the use of the
identified asset for a period of time in exchange for
consideration. Control is determined based on the right to obtain
all of the economic benefits from use of the identified asset and
the right to direct the use of the identified asset. ROU assets for
operating leases represent the right to use an underlying asset for
the lease term, and operating lease liabilities represent the
obligation to make lease payments.
Lease
liabilities are recognized based on the present value of the future
minimum lease payments over the lease term at the commencement date
for leases exceeding 12 months. Minimum lease payments include only
the fixed lease component of the agreement, as well as any variable
rate payments that depend on an index, initially measured using the
index at the lease commencement date. Non-lease components are
accounted for separately from the fixed lease component for all
leases. Most of the Company’s leases do not provide an
implicit rate that can readily be determined. Therefore, the
applied discount rate is based on the Company’s incremental
borrowing rate, which is determined using its credit rating and
other information available as of the commencement date and is the
rate of interest it would have to pay on a collateralized basis to
borrow an amount equal to the lease payments under similar terms.
Lease terms may include options to renew, which the Company factors
into the determination of the lease term when it is reasonably
certain that the Company will exercise that option. The ROU asset
is measured at the initial amount of the lease liability adjusted
for lease payments made at or before the lease commencement date,
plus any initial direct costs incurred less any lease incentives
received.
Operating
lease expense is recognized on a straight-line basis over the lease
term and is included in “Cost of sales” and
“Selling, general and administrative” line items in the
Company’s consolidated statements of comprehensive income.
Leases with an initial term of 12 months or less are not recorded
on the balance sheet, and the expense for these short-term leases
is recognized on a straight-line basis over the lease
term.
The
Company monitors for events or changes in circumstances that
require a reassessment of its leases. When a reassessment results
in the premeasurement of a lease liability, a corresponding
adjustment is made to the carrying amount of the ROU asset unless
doing so would reduce the ROU asset to an amount less than zero, in
which case the remaining adjustment would be recorded in the
consolidated statements of comprehensive income.
The
Company leased laboratory space from GTIR. The lease agreement was
terminated in April 2019. No right of use asset and liability were
recorded for this lease.
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.
Shipping and Handling Costs
The
Company accounts for shipping and handling fees in accordance with
paragraph 605-45-45-19 of the FASB Accounting Standards
Codification. While amounts charged to customers for shipping
products are included in revenues, the related costs are classified
in cost of revenue as incurred.
Shipping
and handling costs were $0 and $0 for the nine months ended
September 30, 2020 and 2019, respectively.
Recently issued accounting pronouncements
In
March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.” ASU 2020-04 provides optional expedients
and exceptions to account for contracts, hedging relationships and
other transactions that reference LIBOR or another reference rate
if certain criteria are met. The amendments of ASU No. 2020-04 are
effective immediately, as of March 12, 2020, and may be applied
prospectively to contract modifications made and hedging
relationships entered into on or before December 31, 2022. The
Company is evaluating the impact that the amendments of this
standard would have on the Company’s consolidated financial
statements
In
December 2019, the FASB issued ASU 2019-12, Income Taxes(Topic 740): “Simplifying
the Accounting for Income Taxes”, which is intended to
simplify the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740 and by clarifying
and amending existing guidance to improve consistent application.
This ASU is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. Early
adoption is permitted. Certain amendments within this ASU are
required to be applied on a retrospective basis, certain other
amendments are required to be applied on a modified retrospective
basis and all other amendments on a prospective basis. The Company
is currently evaluating the impact the adoption of this standard
will have on the consolidated financial statements.
Management
has evaluated all recent accounting pronouncements as issued by the
FASB in the form of Accounting Standards Updates
(“ASU”) through the date these financial statements
were available to be issued and found no recent accounting
pronouncements issued, but not yet effective accounting
pronouncements, when adopted, will have a material impact on the
financial statements of the Company.
Note 2- Going Concern
As
reflected in the accompanying consolidated financial statements,
the Company has an accumulated deficit of $31,098,925 and negative
working capital of $7,531,351 as of September 30, 2020. 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.
Presently
the Company is considering ways to apply its molecular robotic
technology to address the COVID-19 pandemic. 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
September 30, 2020, the Company had a vehicle with a net book value
of $11,880.
Note 4 – Related party transactions
The
Company has an outstanding loan payable and accrued interest to
Antonio Milici, its CEO and stockholder amounting to $673,092 as
September 30, 2020 and December 31, 2019, 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 interim CFO interim and
stockholder, amounting to $38,453 and $90,523 as September 30, 2020
and December 31, 2019, respectively. This outstanding loan to the
Company is unsecured and bears interest at 8%.
Tannya
Irizarry owns 50% interest in GTI Corporate Transfer Agents, LLC,
the Company’s transfer agent. During the nine months ended
September 30, 2020 and 2019, the Company made payments to GTI
Corporate Transfer Agents, LLC in the amounts of $30,261 and
$1,600, respectively.
The
Company had a lease with GTI Research, Inc. (“GTIR”),
the Company’s previous scientific robotic technology
collaborator, for conducting research and development activities on
the robotic technology development project. The lease terminated in
April 2019. No right of use asset of liability was recorded on the
balance sheet.
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 controlled by Rene Irizarry, former
spouse to the CFO. Costs incurred related to moving costs during
the nine month periods ended September 30, 2020 and 2019 were
$43,966 and $0, respectively.
Note 5 – Accrued expenses
The
Company’s accrued expenses consisted of the
following:
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Accrued officer
salaries (see below)
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$5,222,400
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$4,872,900
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Accrued
interest
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254,602
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192,895
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Other
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1,195,077
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1,026,569
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$6,672,079
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$6,092,364
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Note 6 – Convertible notes payable
The
Company’s 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, 2020, and December 31, 2019,
the total outstanding principal and interest is
$54,500.
As of
December 31, 2019, an analysis of the principal amount of
convertible notes payable that have elected conversion into common
stock amounted to $366,000. The Company’s transfer agent has
been constrained in its efforts to issue the common stock for these
convertible notes due to the noncompliance of the Company’s
filing requirements. The Company has ceased accruing interest on
these convertible notes but continues to accrue interest on the
remaining convertible notes of $54,500. The convertible notes that
have elected conversion without the stock being issued have been
included in ‘Accrued liabilities’ on the Balance
Sheet.
Note 7 - Shareholders’ equity
Preferred Stock
The
Company has authorized 20,000,000 shares of Series A Preferred
Stock, $.001 par value, and 30,000,000 shares of Series B Preferred
Stock, $.001 par value.
As of
September 30, 2020, and December 31, 2019, the Company had 0 shares
of Series A Preferred Stock issued and outstanding,
respectively.
As of
September 30, 2020, and December 31, 2019, the Company had
26,038,572 shares of Series B Preferred Stock issued and
outstanding, respectively.
Common stock
The
Company has authorized 300,000,000 shares of its common stock,
$.001 par value. The Company had issued and outstanding 24,071,255
and 35,902,602 shares as of September 30, 2020 and December 31,
2019, respectively.
On July
14, 2020 the Company issued 500,000 shares of common stock to a
shareholder’s heir that had previously been
canceled.
On
August 11, 2020 the Company issued 100,000 shares of common stock
to a director of the Company for services valued at $5,000 and
expensed accordingly.
On
September 30, 2020 the Company issued 995,381 shares of common
stock for consulting and marketing to a third party. The stock
issuance was valued at $9,954 and expensed
accordingly.
On
September 30, 2020 the Company canceled 13,426,728 shares of common
stock issued for various reasons including but not limited to
nonperformance of contracts, dissolution of the stockholders entity
and other causes.
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
expires on January 31, 2022.
The
agreements also provide for an aggregate bonus of $135,000 to be
paid in Series B Preferred stock in March of each year of the
agreement. There are not enough authorized shares to continue
issuing the $135,000 worth of Series B Preferred stock, thus,
beginning in 2019, the $135,000 was included as in the total
payroll accrual.
Office Space Lease
The
Company has a temporary office space. The lease term does not
warrant the establishment of a right of use asset or liability. No
asset or liability has been recorded on the balance
sheet.
On
April 3, 2020, GeneThera entered into a preliminary agreement with
Green RV Storage LLC for the purchase of a 16,000 square foot
building located in the planned Northwest 36 Biotechnology Center
in Broomfield, Colorado. The new state of the art facility will be
the Company administrative and R&D facility. The development is
scheduled to be completed in fall of 2021.
Note 9 – Subsequent events
The
impact of COVID-19 on the Company is unknown at this time. The
financial consequences of this situation cause uncertainty as to
the future and its effects on the economy and the
Company.
Presently
the Company is considering ways to apply its molecular robotic
technology to address the COVID-19 pandemic.
As of
September 30, 2020, no additional conversions of convertible notes
have occurred, and no new convertible notes have been
issued.
On
August 11, 2020 the Company entered into a license agreement with
Eqvista, Inc. to digitize the Company’s common stock
certificates and records for their beneficiary owners.
On
August 31, 2020 the Company entered into a consulting agreement
with North Equities, Inc. as a public relations entity to focus on
social media and client outreach strategist.
On
October 21, 2020 the Company entered into a consulting agreement
with Free Mind Group, LLC to access non-dilutive funding sources
and to prepare and file award applications for research and
development on funding opportunities, including but not limited to
the Federal sources such as NIH, BARDA, DOD and private
foundations.