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’s CEO is directing the robotic technology 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 Company terminated its research collaboration with GTI Research, Inc. due to
the breach of the Milestone Investment Agreement caused by FOGT, LLC and Fredric Oeschger. The Company plans to continue the development
of the robotic technology project.
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, 2018 and notes thereto contained in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018, 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.
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits.
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.
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.
Revenue
recognition
There
were no revenues as of September 30, 2019 and 2018.
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
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.
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 remeasurement 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.
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.
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, 2019 and 2018, respectively.
Recently
issued accounting pronouncements
In
October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity
transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the
update is permitted. The Company is currently evaluating the impact of the new standard.
In
June 2018, the FASB issued Accounting Standards Update 2018-07, “Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”)”. ASU 2018-07 expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 also
clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue
from Contracts with Customers (Topic 606). ASU 2018-07 is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the provisions
of ASU 2018-07 in the quarter beginning January 1, 2019. The adoption of ASU 2018-07 did not have
a material impact on the Company’s financial statement presentation or disclosures.
In
August 2018, the FASB issued Accounting Standards Update (ASU) 2018-13, “Fair Value Measurement (Topic 820): Disclosure
Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, which changes the fair value measurement
disclosure requirements of ASC 820. This update is effective for fiscal years beginning after December 15, 2019, and for
interim periods within those fiscal years. The Company does not expect the adoption of ASU 2018-13 to have a material
impact 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 $30,894,702 and negative
working capital of $8,227,522 as of September 30, 2019. 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, 2019, the Company had fully depreciated office and laboratory equipment, and a vehicle with a net book value
of $17,160.
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, 2019 and December 31, 2018, 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 $90,523 as September 30, 2019 and December 31, 2018, 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 agency. During the six months ended
September 30, 2019 and 2018, the Company made payments to GTI Corporate Transfer Agents, LLC in the amounts of $1,600 and $5,144,
respectively.
The
Company will no longer rely on GTI Research, Inc. (“GTIR”), the Company’s previous scientific robotic technology
collaborator, for conducting research and development activities on the robotic technology development project. For the nine-month
periods ended September 30, 2019 and 2018, respectively, the Company incurred costs of $0 and $161,750 for development services
from GTIR. In addition, the Company no longer subleases from GTIR all of its office and lab space under a 75-month lease. The
Company incurred base rental and triple net expenses of $0 and $35,985 associated with the lease during the nine months ended
September 30, 2019 and 2018, respectively. The lease terminated in April 2019.
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. Costs incurred related to such services were $0 and $0 during the
nine month periods ended September 30, 2019 and 2018, respectively.
Note
5 – Accrued expenses
The
Company’s accrued expenses consisted of the following:
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September 30, 2019
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December 31, 2018
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Accrued officer salaries (see below)
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$
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4,621,400
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$
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4,473,415
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Accrued interest
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191,038
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164,313
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Other
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905,800
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459,053
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$
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5,718,238
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$
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5,096,781
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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, 2019, and December
31, 2018, the total outstanding principal and interest is $266,000 and $420,500, 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.
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.
In
January 2019 the Company received conversion notices on convertible notes totaling $154,500, plus accrued interest, which will
be converted into shares of the Company’s common stock at conversion prices of $0.015 to $0.030. No shares were issued for
the convertible notes.
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, 2019, and December 31, 2018, the Company had agreed to issue 10,350 shares of Series A Preferred Stock, but no
shares were issued and outstanding.
As
of September 30, 2019, and December 31, 2018, the Company had agreed to issue 26,038,572 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 former member of the Board of Directors on April 18, 2018 to purchase
an additional 3,000 Preferred A shares, which remain to be issued. 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 based on the terms. Moreover, on December 6, 2018, Fredric Oeschger, owner of FOGT, LLC, resigned as a board member
of GeneThera, and also as our investor, when Fredric Oeschger blatantly failed to pay the third milestone from the agreement with
GeneThera. The failure to receive the third milestone payment financially damaged the Company’s plan to generate revenues
with our robotic technology project.
Common
stock
The
Company has authorized 300,000,000 shares of its common stock, $.001 par value. The Company had issued and outstanding 35,902,602
shares as of September 30, 2019 and December 31, 2018, respectively.
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. 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
We
no longer sub-lease 750 square feet of office space for GTI Corporate Transfer Agents, LLC, on a month-to-month basis. The lease
terminated on April 29, 2019, and the deposit of $12,000 was expensed at the date of the lease termination.
No
ROU asset or liability was established or recorded by the Company on its Balance Sheet as of September 30, 2019 and December 31,
2018, respectively.
Legal
Contingencies
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.
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 18% is being accrued on the outstanding judgment balance to date. In July 2019, Litchfield Church Ranch, LLC was dissolved.
Management claims no money is owed.
On
January 31, 2019, the Company went to arbitration against FOGT, LLC for breaching their contract agreement.
On
March 9, 2019, the Company’s legal team, received an emergency relief injunction against FOGT, LLC for $25,000. Fredric
Oeschger refused to pay.
On
April 10, 2019, another emergency relief injunction was granted to our Company. Fredric Oeschger refused to pay.
On
or before the end of August 2019, the United States Second Circuit Appeals Court, ordered FOGT, LLC and GeneThera, Inc. to have
a mandatory mediation.
On
September 3, 2019, FOGT, LLC and GeneThera Inc. agreed to settle the case against FOGT for breach of contract.
On
September 6, 2019, FOGT, LLC and GeneThera, Inc. reached a settlement of $425,000. The legal team received $171,000 from this
settlement resulting in net proceeds to the Company of approximately $254,000.
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.