GENETHERA INC - Quarter Report: 2012 September (Form 10-Q)

GeneThera, Inc.

Consolidated Balance Sheets

(Unaudited)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x]    Quarterly Report pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2012

Commission File No. 000-27237

GENETHERA, INC.

(Exact name of small Business Issuer as specified in its Charter)

Nevada                                        65-0622463

(State or Other Jurisdiction of              (I.R.S. Employer

Incorporation or Organization)            Identification Number)

7577 W. 103^rd Ave. Suite 212, Westminster, CO             80021

(Address of principal executive offices)               (Zip Code)

Issuer's telephone number, including area code:   (303) 439-2085

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [x] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [x] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [x]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  

Yes [ ] No [x]

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 24,960,596 Shares of $.001 par value Common Stock outstanding as of September 30, 2012 and Series A 4,600 Shares, and Series B 15,410,000 shares of $.001 par value Preferred Stock outstanding as of November 19, 2012.

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GeneThera, Inc.

Consolidated Balance Sheets

(Unaudited)

		September 30,			December 31,
		2012			2011
ASSETS
Current assets
Cash		$           3,552			$           1,436
Receivable-related party		3,894			3,765
Total current assets		7,446			5,201
Property and equipment
Office and laboratory equipment and leasehold improvements		1,168,441			766,851
Less: Accumulated depreciation		(743,669)			(729,237)
Total property and equipment, net		424,772			37,614
Other assets		7,000			7,000
TOTAL ASSETS		$       439,218			$        49,815
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable		$       968,267			$      656,703
Accounts payable-related party		-			361
Accrued expenses		2,032,873			1,447,282
Notes payable		10,800			10,800
Convertible notes payable		874,419			307,220
Loan from shareholder		645,419			645,419
Total liabilities		4,531,778			3,067,785
Stockholders' deficit:
Series A preferred stock, par value $0.001 per share, 20,000,000
shares authorized, 4,600 shares and 4,600 shares issued and outstanding
as of   September 30, 2012 and December 31, 2011, respectively		5			5
Series B preferred stock, par value $0.001 per share, 30,000,000
shares authorized, 15,410,000 and 6,320,000 shares issued and outstanding
as of   September 30, 2012 and December 31, 2011, respectively		15,410			15,410
Common stock, par value $0.001 per share, 300,000,000
shares authorized, 24,960,596 and 21,865,913 shares issued and
outstanding as of December 31, 2011, and 2010, respectively		24,960			23,710
Additional paid-in capital		17,504,332			17,480,582
Deficit accumulated during the development stage		(21,641,571)			(20,555,008)
Total stockholders' deficit of Genethera, Inc.		(4,096,864)			(3,035,301)
Non-controlling interest		4,304			17,331
Total stockholders’ deficit		(4,092,560)			(3,017,970)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT		$       439,218			$        49,815

See accompanying notes to these unaudited consolidated financial statements.

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GENETHERA, INC.

Consolidated Statements of Expenses

 (Unaudited)

See accompanying notes to these unaudited consolidated financial statements.

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GeneThera, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

		Nine Months Ended		Nine Months Ended
		September 30,		September 30,
		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		(1,099,590)		(909,469)
Adjustments to reconcile net loss to net cash used
in operating activities:
Stock-based compensation		-		471,750
Depreciation expense		14,432		1,986
Changes in assets and liabilities:
Prepaid expenses		-		(911)
Account receivable- related party		3,499		-
Account payable related party		(361)		(31,513)
Accounts payable and accrued expenses		540,936		445,244
Net cash used in operating activities		(541,084)		(22,913)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for purchase of fixed assets		(44,093)		(5,791)
Net cash used in investing  activities		(44,093)		(5,791)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		25,000		28,810
Proceeds from convertible notes		567,199		-
Net cash provided by  financing activities		592,199		28,810
Net effect of change in exchange rates		(4,906)		-
Net increase in cash		2,116		106
CASH AT BEGINNING PERIOD		1,436		7
CASH AT END OF PERIOD		3,552		113
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		-		-
Cash paid for income taxes		-		-
Noncash investing and financing
Equipment purchased on account		356,219		-
Shares cancelled		-		1,397
Conversion of convertible notes payable to common stock		-		176,696
Related party transactions		-		1,265,088

See accompanying notes to these unaudited consolidated financial statements.

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GeneThera, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

The consolidated financial statements include GeneThera, Inc., its wholly owned subsidiary GeneThera, Inc. (Colorado) and its 90% owned Mexico subsidiary, Applied Genetics S.A. de C.V. (“Applied Genetics”), (collectively “GeneThera” or the “Company”). On January 3, 2012, the Company obtained, at no additional cost to the Company, 40% of the shares of Applied Genetics in addition to 50% of the shares already owned by the Company.

GeneThera is a biotechnology company that develops molecular assays for the detection of food contaminating pathogens, veterinary diseases and genetically modified organisms.

The accompanying unaudited interim consolidated financial statements of Genethera have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ending December 31, 2011, as reported in Form 10-K, have been omitted.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications

Certain amounts in prior periods have been reclassified to conform to current period presentation.

Non-controlling Interest

Non-controlling interests are recorded for the entities that are consolidated but are not wholly owned by the Company.  Non-controlling interest recorded in these Consolidated Financial Statements is comprised of 10% of the shares of Applied Genetics, the Company's subsidiary in Mexico, of which at September 30, 2012, the Company owns 90%.

NOTE 3 – GOING CONCERN

As shown in the accompanying consolidated financial statements, GeneThera had an accumulated deficit and a working capital deficit as of September 30, 2012. These conditions raise substantial doubt as to GeneThera’s ability to continue as a going concern. Management’s plan with regard to these matters includes raising working capital and significant assets and resources to assure GeneThera’s viability, through private or public equity offerings, and/or debt financing, and/or through the acquisition of new business or private ventures. The financial statements do not include any adjustments that might be necessary if GeneThera is unable to continue as a going concern.

NOTE 4 – RELATED PARTY TRANSACTIONS

The Company has an outstanding loan payable to Antonio Milici, its President and shareholder, amounting to $645,419 as of September 30, 2012 and December 31, 2011. This outstanding loan to the Company is unsecured and non-interest bearing.

The Company has accounts receivable from these related parties of $3,894 and $3,765 as of September 30, 2012 and December 31, 2011, respectively.

 

NOTE 5 – NOTES PAYABLE

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GeneThera, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

On September 8, 2011, an investor agreed to invest a total of $1,000,000 on or before September 30, 2012, and was to receive 24,000,000 common shares upon the completion of such investment at a share price of $0.0416. To date, the investor has invested $874,419,  this has been invested in the form of convertible notes to date and the additional ‘bonus’ shares have not been issued or earned to date. The Company evaluated the embedded conversion features within the convertible debt under ASC 815 “Derivatives and Hedging” and determined the embedded conversion feature should be classified in equity.  

NOTE 6 – SHAREHOLDER’S EQUITY

Common stock

On January 7, 2012 the Company sold 1,250,000 common shares for $25,000 cash.

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Item 2. Management's Discussion and Analysis and Results of Operation

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto that appear elsewhere herein.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

Sections of this Form 10-Q, including the Management's Discussion and Analysis or Plan of Operation, contain "forward-looking statements". These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Forward-looking statements involve assumptions and describe our plans, strategies, and expectations. You can generally identify a forward-looking statement by words such as may, will, should, would, could, plan, goal, potential, expect, anticipate, estimate, believe, intend, project, and similar words and variations thereof. This report contains forward-looking statements that address, among other things,

* Our financing plans,

* Regulatory environments in which we operate or plan to operate, and

* Trends affecting our financial condition or results of operations, the impact of competition, the start-up of certain operations and acquisition opportunities.

Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements ("Cautionary Statements") include, among others,

* Our ability to raise capital,

* Our ability to execute our business strategy in a very competitive environment,

* Our degree of financial leverage, risks associated with our acquiring and integrating companies into our own,

* Risks relating to rapidly developing technology, and regulatory considerations;

* Risks related to international economies,

* Risks related to market acceptance and demand for our products and services,

* The impact of competitive services and pricing, and

* Other risks referenced from time to time in our SEC filings.

All subsequent written and oral forward-looking statements attributable to us, or anyone acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We do not undertake any obligations to publicly release any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect unanticipated events that may occur.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012, COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011

We did not generate any revenue for the three months ended September 30, 2012 and 2011.

We had total operating expenses of $240,917 for the three months ended September 30, 2012, compared to total operating expenses of $581,311 for the three months ended September 30, 2011, an decrease of $340,394 from the prior period.  The decrease in expenses was largely due to an decrease in general and administrative to $91,711 for the three months ended September 30, 2012, compared to $483,991 for the three months ended September 30, 2011, a decrease of $392,280 from the prior period, and an increase in laboratory expenses to $43,248 for the three months ended September 30, 2012, compared to $456 for the three months ended September 30, 2011, an increase of $42,792 from the prior period.

We had a net loss of $240,927 for the three months ended September 30, 2012, compared to a net loss of $582,687 for the three months ended September 30, 2011, a decrease of $341,760 from the prior period.

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FOR THE NINE MONTHS ENDED SEPTEMBER 31, 2012, COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2011

We did not generate any revenues for the nine months ended September 30, 2012 and 2011.

We had total operating expenses of $1,093,612 for the nine months ended September 30, 2012, compared to total operating expenses of $903,919 for the nine months ended September 30, 2011, an increase of $189,693 from the prior period. The increase in expenses was largely due to an increase in payroll expense and laboratory expense to $584,334 for the nine months ended September 30, 2012, compared to $212,344 for the nine months ended September 30, 2011, an increase of $371,990 from the prior period.

We had a net loss of $1,086,563 for the nine months ended September 30, 2012, compared to a net loss of $909,469 for the nine months ended September 31, 2011.

LIQUIDITY AND CAPITAL RESOURCES

We had total assets as of September 30, 2012 of $439,218, which included cash of $3,552, accounts receivable related party of $3,894, net property and equipment of $424,772, and total other assets of $7,000.

We had total liabilities of $4,531,778 as of September 30, 2012, which included $968,267 of accounts payable, $2,032,873 of accrued expenses, $10,800 of notes payable, $874,419 of convertible notes payable and $645,419 of loan from shareholder.

We had negative working capital of $4,539,224 and a deficit accumulated during the development stage of $21,641,571.

We had net cash used in operating activities of $541,084 for the nine months ended September 30, 2012, which mainly included $1,099,590 of net loss largely offset by an increase of $540,936 of accounts payable and accrued liabilities.

It is estimated that we will require outside capital for the remainder of 2012 for the commercialization of GeneThera molecular assays as well as the development of our therapeutic vaccines. The Company intends to raise these funds by means of one or more private offerings of debt or equity securities or both and also generating revenue from Mexico. Currently the Company is in discussions with one group to obtain financing through either debt and/or equity. No definitive agreements have been signed. There are no guarantees whether the Company will be able to secure such a financing, and if the financing is secured, there are no guarantees whether the Company can achieve the goals laid out in its business plan fully. We will require significant additional funding in order to achieve our business plan.

Our longer-term working capital and capital requirements will depend upon numerous factors, including revenue and profit generation, pre-clinical studies and clinical trials, the timing and cost of obtaining regulatory approvals, the cost of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights, competing technological and market developments, and collaborative arrangements. Additional capital will be required in order to attain such goals. Such additional funds may not become available on acceptable terms and we cannot give any assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.

In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders.

Applied Genetics marketing agreement with Nutrición Avanzada

On February 1, 2012, Applied Genetics, a 90% owned subsidiary of GeneThera, Inc., entered into a sales and marketing agreement with Nutrición Avanzada. According to the terms of the agreement, GeneThera, Inc., through its subsidiary Applied Genetics, granted Nutrición Avanzada the exclusive right to purchase, market, and distribute

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the GeneThera Field Collection System product in Mexico. Applied Genetics will pay Nutrición Avanzada a 30% commission of the total price of each product. The initial term of the agreement is for a period of one year.

Agreement with National University Autonomous of Mexico

On February 21, 2012, Applied Genetics, entered into an agreement with National University Autonomous of Mexico (“La Universidad Nacional Autonoma de Mexico” or “La UNAM”) to conduct a joint research (study) on validation and implementation of a system for detecting the presence of Paratuberculosis Microbacterium in cattle, sheep and goats. Pursuant to the terms of the agreement, La UNAM will provide Applied Genetics with laboratory facilities to conduct necessary clinical and diagnostic tests. La UNAM will also provide Applied Genetics with 200 animal blood samples to be used in the research. Applied Genetics, on its part, will finance the research for a period of no less than 24 months, provide necessary consumables and chemicals. Applied Genetics is also responsible for remuneration to La UNAM for additional services provided by technicians participating in the study. According to the terms of the agreements, Applied Genetics will pay for all the field and operating expenses related to the study and will donate La UNAM some of the research equipment, specified in the agreement. Upon completion of the study, the parties may publish the documents presenting academic interest derived from the study, provided they have the express authorization in writing by the other party, and on condition that the correspondents’ credits are recognized. In case that the work to be published is deemed to have a commercial interest, the parties to the research cannot proceed to its disclosure until the technology is duly protected.

As of September 30, 2012, the above mentioned study hadn’t commenced; no amounts were paid and no equipment was donated to La UNAM.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective due to limited segregation  of duties to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On June 6, 2006, the Internal Revenue Service filed a Federal Tax Lien at the Jefferson County Recorder in the State of Colorado in the amount of $29,321. The Company has not satisfied the judgment.

On June 29, 2007, the Internal Revenue Service filed a Federal Tax Lien at the Jefferson County Recorder in the State of Colorado in the amount of $1,983. The Company has not satisfied the judgment.

On June 6, 2008, Mark A. Shoemaker filed a Civil Judgment at the LA County/Recorder of Deeds Court in the State of California the amount of $37,721. The Company has not satisfied the judgment.

In June 2009, James Tufts filed a complaint at the Small Claims Court in Jefferson County, Colorado in the amount of $4,000 plus expenses from a London trip. The Company has not satisfied the judgment.

On June 26, 2009, Enterprise Leasing Company of Denver filed a Civil Judgment at the Jefferson County District Court in the State of Colorado in the amount of $78,178. The Company has not satisfied the judgment.

On August 17, 2010, Banc of America Leasing filed a Civil Judgment at the Oakland County District in Troy, Michigan in the amount of $24,002. The Company has not satisfied the judgment.

On September 23, 2010, Liberty Acquisitions filed a Civil Judgment at the Jefferson County Court in the State of Colorado in the amount of $3,300. The Company has not satisfied the judgment.

On February 10, 2009, Centennial Credit Corporation filed a Civil Judgment at the Jefferson County Court in the State of Colorado in the amount of $967. The Company has not satisfied the judgment.

On August 29, 2011, the Company had a court hearing concerning a litigation filed by The Park III related to unpaid rent according to our lease agreement. The District Court of Boulder (Colorado) entered a judgment against the Company in the amount of $77,000. The Company has not satisfied the judgment.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K, filed with the Commission on April 11, 2012 and investors are encouraged to review such risk factors prior to making an investment in the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 7, 2012, the Company issued 1,250,000 shares of its common stock for cash for total proceeds of $25,000.

The Company claims an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Act”) since the foregoing issuances did not involve a public offering, the recipients took the securities for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipients were either (a) “accredited investors” and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Act. No underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions.

Item 3. Defaults upon Senior Securities

None

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description of Exhibit
10.1*	Employment Agreement with Antonio Milici (CEO)
10.2*	Employment Agreement with Tannya L. Irizarry (CFO)
10.3(1)	Marketing and Sales Agreement with Nutrición Avanzada
10.4*	Agreement with National University Autonomous of Mexico
31.1*	Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*(#)	XBRL Instance Document
101.SCH*(#)	XBRL Schema Document
101.CAL*(#)	XBRL Calculation Linkbase Document
101.DEF*(#)	XBRL Definition Linkbase Document
101.LAB*(#)	XBRL Label Linkbase Document
101.PRE*(#)	XBRL Presentation Linkbase Document

* Attached hereto.

(1) Filed as an exhibit to our Report on Form 8-K, filed with the Commission on March 5, 2012 and incorporated herein by reference.

(#) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

GENETHERA, INC.

By:  s/ Antonio Milici

Name:   Antonio Milici
Title:  President and Chief Executive Officer (Principal Executive Officer)

November 19, 2012

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