Notes to the Condensed Consolidated Financial Statements
(unaudited)
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, 2020 and notes thereto contained in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2020, 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 March 31, 2021 and 2020, 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
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 has no leased laboratory space and a month-to-month office space lease. 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 March 31, 2021 and 2020, respectively.
Recently
issued accounting pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt—“Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity”. This ASU amends the guidance on convertible instruments and the derivatives scope
exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics.
The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods
and early adoption is permitted. The Company has determined that there is currently no impact of the guidance on its 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 $31,466,202 and negative
working capital of $7,840,485 as of March 31, 2021. 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 condensed 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 March 31, 2021, the Company had a vehicle with a net book value of $9,240.
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 March 31, 2021 and December 31, 2020, 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 and stockholder, amounting
to $71,027 and $58,704 as March 31, 2021 and December 31, 2020, 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 three months
ended March 31, 2021 and 2020, the Company made payments to GTI Corporate Transfer Agents, LLC in the amounts of $80 and $1,600,
respectively.
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 related to the CFO. The Company made payments to Elia Holding, LLC
in the amounts of $82 and $200, respectively.
Note
5 – Accrued expenses
The
Company’s accrued expenses consisted of the following:
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March
31, 2021
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December
31, 2020
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Accrued
officer salaries (see below)
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$
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5,656,915
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$
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5,338,900
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Accrued
interest
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267,942
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252,546
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Other
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1,011,161
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1,207,474
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$
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6,936,018
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$
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6,798,920
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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 March 31, 2021, and December 31,
2020, the total outstanding principal and interest is $54,500.
As
of December 31, 2020, an analysis of the principal amount of convertible notes payable that have elected conversion to 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 March 31, 2021, and December 31, 2020, the Company had 0 shares of Series A Preferred Stock issued and outstanding, respectively.
As
of March 31, 2021, and December 31, 2020, 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
shares as of March 31, 2021 and December 31, 2020, respectively.
On
March 18, 2021, the Company issued 1,500,000 restricted common shares to Venus Capital Fund, LLC for consulting services related
to security and capital raise efforts. The Company recorded a consulting expense of $55,500.
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 total accrued quarterly compensation for the periods ended March 31, 2021 and 2020 was $116,500, respectively.
Office
Space Lease
The
Company has a temporary office space on a month-to-month basis. 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
not be the Company administrative and R&D facility due to the owner’s failure in paying their mortgage obligations.
The development is no longer scheduled to be completed in fall of 2021.
On
March 9, 2021, the Company entered into a consulting agreement with Cumming Management Group, Inc. for project management services
for our new administrative office and state-of-the-art laboratory building.
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 March 31, 2021, no additional conversions of convertible notes have occurred, and no new convertible notes have been issued.