Unassociated Document
Filed
Pursuant to Rule 424(b)(3)
Under
the Securities Act of
1933
Registration
No.
333-148366
GRANT
LIFE SCIENCES, INC.
35,087,719
Shares
Common
Stock
This prospectus relates to the sale by the selling stockholders of up to
35,087,719 shares of our common stock, of which 35,087,719 shares are underlying
callable secured convertible notes in the principal amount of $400,000.
The callable secured convertible notes are convertible into our common stock
at
the lower of $0.15 or 60% of the average of the three lowest intraday trading
prices for the common stock on the Over-The-Counter Bulletin Board for the
20
trading days before but not including the conversion date. The prices at which
the selling stockholders may sell shares will be determined by the prevailing
market price for the shares or in negotiated transactions. We will not
receive any proceeds from the sale of our shares by the selling stockholders.
The selling stockholders may be deemed underwriters of the shares of common
stock which they are offering. We will pay the expenses of registering these
shares.
Our common stock is listed on the Over-the-Counter Bulletin Board under the
symbol “GLIF.OB.” On January 18, 2008, the last reported price of our
common stock was $0.0222 per share.
INVESTING
IN OUR SECURITIES INVOLVES RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE
3.
No
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date
of this Prospectus is January 29, 2008.
1787
East Ft. Union Blvd., Suite 202
Salt
Lake City, Utah 84121
(801)
733-0878
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Page
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PROSPECTUS
SUMMARY
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1
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FORWARD-LOOKING
STATEMENTS
|
2
|
RISK
FACTORS
|
3
|
USE
OF PROCEEDS
|
8
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MANAGEMENT’S
PLAN OF OPERATION
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9
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MARKET
FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
|
10
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DESCRIPTION
OF BUSINESS
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10
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DESCRIPTION
OF PROPERTY
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18
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LEGAL
PROCEEDINGS
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18
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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18
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EXECUTIVE
COMPENSATION
|
19
|
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
|
21
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
22
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
23
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SELLING
STOCKHOLDERS
|
23
|
PLAN
OF DISTRIBUTION
|
24
|
DESCRIPTION
OF SECURITIES
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25
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LEGAL
MATTERS
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25
|
EXPERTS
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25
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
25
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FURTHER
INFORMATION
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26
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CONSOLIDATED
FINANCIAL STATEMENTS
|
F-1
|
PROSPECTUS
SUMMARY
This
summary does not contain all of the information that you should consider before
investing in our common stock. You should carefully read the entire
prospectus prior to making an investment decision.
About
Grant Life Sciences, Inc. (“Grant Life Sciences” or the “Company” or
“we”)
We
are
developing protein-based screening tests to screen women for cervical cancer
and
pre-cancerous conditions that typically result in cervical cancer. We
believe our tests detect the presence of certain antibodies that appear only
when cervical cancer or certain pre-cancerous conditions are present in the
body. Our tests are performed by analyzing a small amount of blood taken
from the patient. In one version of our test, the blood sample is analyzed
in a clinical testing laboratory using standard laboratory equipment and
analytic software, which generally can produce test results in about 2
hours. Our rapid test is designed to be administered at the point of care
by a health professional in a doctor’s office, hospital, and clinic or even at
home, and provides easy-to-read results in approximately 15 minutes. Our planned
cervical cancer test uses proprietary technology to detect the presence of
antibodies. In 2007, we acquired the rights to additional technology
pertaining to antigen detection tests as well as to molecular diagnostic tests
that may be useful in identifying cervical cancer and pre-cancerous conditions
that typically result in cervical cancer. This newly acquired technology may
complement the research we have done thus far using antibody detection tests.
In
addition, in the future, we believe that we may be able to use our technology
to
develop rapid tests for other diseases and cancers.
In
conjunction with the primary diagnostic cervical cancer blood tests that we
are
developing, we have also acquired the exclusive worldwide rights to diagnostic
devices for HIV-1, HIV-2 and dengue fever and a proprietary diagnostic reagent,
a key ingredient commonly used by leading manufacturers of rapid tests as a
detectable label. We acquired these rights from AccuDx Corporation in March
2005
for a period of ten years.
We
have
not generated any significant revenues since inception in July 1998. We have
a
history of losses and we expect to continue to incur losses for the foreseeable
future. For the nine months ended September 30, 2007 and 2006, we had no
revenues and incurred net losses of $2,856,114 and $7,297,538, respectively.
Cumulative losses since inception total $17,267,244 as of September 30, 2007.
As
a result of recurring losses from operations, a working capital deficit and
an
accumulated deficit, our auditors, in their report dated March 29, 2007 (June
20, 2007 as to Note B) have expressed substantial doubt about our ability to
continue as a going concern.
Executive
Offices
Our
executive offices are located at 3550 Wilshire Blvd., Suite 1700, Los Angeles,
CA 90010, and 1787 East Ft. Union Blvd, Suite 202, Salt Lake City, UT
84121.
Origin
of Grant Life Sciences
On
July
30, 2004, Grant Ventures, Inc., a Nevada corporation (“Grant Ventures”),
acquired Impact Diagnostics, Inc., a Utah corporation organized on July 9,
1998
(“Impact Diagnostics”), through the merger of Grant Ventures’ wholly owned
subsidiary, Impact Acquisition Corporation, with Impact Diagnostics (the
“Merger”). Grant Ventures was an inactive publicly registered shell corporation
with no significant assets or operations. Impact Diagnostics had been organized
to develop certain technologies owned by Dr. Yao Ziong Hu and was initially
funded by its founders, supplemented by two additional rounds of private
funding. Grant Ventures changed its name to Grant Life Sciences, Inc. in
November 2004. Impact Acquisition Corporation and Impact Diagnostics were
subsequently dissolved.
By
this
prospectus, the selling stockholders are offering up to 35,087,719 shares of
our
common stock, which are issuable upon the conversion of notes held by the
selling stockholders. The selling stockholders are not required to sell
their shares, and any sales of common stock by the selling stockholders are
entirely at the discretion of the selling stockholders. We will receive no
proceeds from the sale of the shares of common stock in this offering.
FORWARD-LOOKING
STATEMENTS
This
prospectus includes forward-looking statements. You can identify these
forward-looking statements when you see us using words such as “expect,”
“anticipate,” “estimate,” “believe,” “intend,” “may,” “predict,” and other
similar expressions. These forward-looking statements cover, among other
items:
· |
our
future capital needs;
|
· |
our
expectations about our ability to complete development of our cervical
cancer tests;
|
· |
our
expectations about the FDA and other regulatory approval processes
that
will be required for our cervical cancer
tests;
|
· |
our
expectations about reimbursement of our products by health insurance
payors;
|
· |
our
expectations about the future performance of the cervical cancer
tests
that we are developing;
|
· |
our
expectations about acceptance in the market of the cervical cancer
tests
we are developing;
|
· |
our
expectations about the ability of our planned cervical cancer tests
to
compete in the market;
|
· |
our
marketing and sales plans;
|
· |
our
expectations about our financial performance;
and
|
· |
our
intention to develop additional screening tests using our
technology;
|
We
have
based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number
of risks and uncertainties, certain of which are beyond our control.
Actual results could differ materially from those anticipated as a result of
the
factors described under “Risk Factors” including, among others:
· |
problems
that we may face in successfully completing our planned cervical
cancer
tests;
|
· |
our
inability to raise additional capital when
needed;
|
· |
uncertainty
of acceptance of our cervical cancer tests in the
market;
|
· |
reluctance
or unwillingness of laboratories and physicians to accept our
tests;
|
· |
refusal
of insurance companies and other third-party payors to reimburse
patients,
clinicians and laboratories for our
tests;
|
· |
problems
that we may face in marketing and selling our
tests;
|
· |
the
possibility that we may not be able to compete with established
companies;
|
· |
delays
in obtaining, or our inability to obtain, approval by the FDA for
our
proposed tests;
|
· |
delays
in obtaining, or our inability to obtain, approval by certain foreign
regulatory authorities for our proposed
tests;
|
· |
problems
in acquiring and protecting intellectual property important to our
business through patents, licenses and other
agreements;
|
· |
our
ability to successfully defend claims that our tests may infringe
the
intellectual property rights of
others;
|
· |
problems
that we may face in obtaining product liability insurance or defending
product liability claims;
|
· |
problems
that we may face in manufacturing and distributing our proposed
tests;
|
· |
the
risks we face in potential international markets;
and
|
· |
the
limited market for our common stock and the adverse affect on liquidity
that we may face because our common stock is considered a “penny
stock”.
|
We
do not
undertake any obligation to publicly update or revise any forward-looking
statements contained in this prospectus or incorporated by reference, whether
as
a result of new information, future events or otherwise. Because of these
risks and uncertainties, the forward-looking statements and circumstances
discussed in this prospectus might not transpire.
RISK
FACTORS
Investing in our securities involves a material degree of risk. Before
making an investment decision, you should carefully consider the risk factors
set forth in this prospectus and any accompanying prospectus supplement
delivered with this prospectus, as well as other information we include in
this
prospectus and any accompanying prospectus supplement.
Risks
Related to our Business:
We
are a development stage company and we have no meaningful operating history
on
which to evaluate our business or prospects.
We
acquired Impact Diagnostics on July 30, 2004. For several years prior to
that acquisition, we did not engage in any business. Impact Diagnostics
was formed in 1998 for the purpose of developing a cervical cancer screening
test. This is now our only business. Prior to the Merger, Impact
Diagnostics had only a limited operating history and had generated no
revenue. Subsequent to the Merger, we have generated only minimal amounts
of revenue. Our limited operating history without meaningful revenues makes
it
difficult to evaluate our business prospects and future performance. Our
business prospects must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets, such as the biotechnology market.
We
have not completed the development of our planned cervical cancer tests and
we
are not currently developing any other products. We may not successfully
develop our cervical cancer tests or any other products.
The
cervical cancer tests are the only products we are developing. We have no
other products. We may never successfully complete the development of our
cervical cancer tests. If we do not complete the development of our
cervical cancer tests or develop other products, we will not be able to generate
any revenues or become profitable, and, as a consequence, you may lose your
entire investment in us.
We
have incurred net losses to date and expect to continue to incur net losses
for
the foreseeable future. We may never become
profitable.
We
have
had substantial operating losses since our inception and have never earned
a
profit. We incurred net losses of $1,470,989 from inception in 1998 through
December 31, 2003, $1,910,351 in 2004, $7,644,857 in 2005, $3,384,933 in 2006,
and $2,856,114 for the nine months ended September 30, 2007. Our accumulated
deficit at September 30, 2007 was $17,267,244.
Our
losses have resulted principally from:
· |
expenses
associated with our research and development programs and development
of
our cervical cancer tests;
|
· |
administrative
and facilities costs; and
|
· |
non-cash
expenses arising from the application of fair value accounting
to the
derivative liability related to the Company’s
convertible notes and
warrants.
|
We
expect
to incur significant and increasing operating losses for the next few years
as
we complete development of our cervical cancer tests, initiate clinical trials,
seek regulatory approval, expand our research and development, advance other
product candidates into development and, if we receive regulatory approval,
market and sell our products. We may never become profitable.
We
will be required to raise additional capital to fund our operations, and if
we
are unable to obtain funding when needed, we may need to delay completing the
development of our planned cervical cancer tests, scale back our operations
or
close our business.
Our
auditors have added an explanatory paragraph to their opinion on our financial
statements because of concerns about our ability to continue as a going
concern. These concerns arise from the fact that we have not yet
established an ongoing source of revenues sufficient to cover our operating
costs and that we must raise additional capital in order to continue to operate
our business. If we are unable to continue as a going concern, you could
lose your entire investment in us.
We
will need to obtain regulatory approval before we can market and sell our
planned cervical cancer tests in the United States and in many other
countries.
In
the
United States, our planned cervical cancer tests will be subject to regulation
by the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug
and Cosmetic Act. Governmental agencies in other countries also regulate
medical devices. These domestic and foreign regulations govern the
majority of the commercial activities we plan to perform, including the purposes
for which our proposed tests can be used, the development, testing, labeling,
storage and use of our proposed tests with other products, and the
manufacturing, advertising, promotion, sales and distribution of our proposed
tests for the approved purposes. Compliance with these regulations could
prove expensive and time-consuming.
Products
that are used to diagnose diseases in people are considered medical devices,
which are regulated in the United States by the FDA. To obtain FDA
authorization for a new medical device, a company may have to submit data
relating to safety and effectiveness based upon extensive testing. This
testing, and the preparation and processing of necessary applications, is
expensive and may take up to a few years to complete. Whether a medical
device requires FDA authorization and the data that must be submitted to the
FDA
varies depending on the nature of the medical device.
Medical
devices or diagnostics fall into one of three classes (Class I, II, or III)
in
accordance with the FDA’s determination of controls necessary to ensure the
safety and effectiveness of the device or diagnostic. As with most diagnostic
products, we anticipate that our planned cervical cancer tests will be
classified by the FDA as a Class II device. By definition, this means that
there
could be a potential for harm to the consumer if the device is not designed
properly and/or otherwise does not meet strict standards. To market and sell
a
Class II medical device, a company must first submit a 510(k) premarket
notification, also known as a 510(k). The 510(k) application is intended to
demonstrate substantial equivalency to a Class II device already on the market.
The FDA will still require that clinical studies of device safety and
effectiveness be completed.
In
the
United States, prior to approval by the FDA, under certain conditions, companies
can sell investigational or research kits to laboratories under the Clinical
Laboratory Improvement Amendment (CLIA) of 1988. Under CLIA, companies can
sell
diagnostic assays or tests to "high complexity" laboratories for validation
as
an "analyte specific reagent". An analyte specific reagent is the active
ingredient of an "in-house" diagnostic test.
In
addition to any government requirements as to authorizing the marketing and
sales of medical devices, there are other FDA requirements. The manufacturer
must be registered with the FDA. The FDA will inspect what is being done on
a
routine basis to ascertain compliance with those regulations prescribing
standards for medical device quality and consistency. Such standards refer
to
but are not limited to manufacturing, testing, distribution, storage, design
control and service activities. The FDA also prohibits promoting a device for
unauthorized uses and routinely reviews labeling accuracy. If the FDA finds
failures in compliance, it can institute a range of enforcement actions, from
a
public warning letter to more severe sanctions like withdrawal of approval;
denial of requests for future approval; fines, injunctions and civil penalties;
recall or seizure of the product; operating restrictions, partial suspension
or
total shutdown of production; and criminal prosecution.
The
FDA's
medical device reporting regulation also will require the reporting of
information on deaths or serious injuries associated with the use of our tests,
as well as product malfunctions that are likely to cause or contribute to death
or serious injury if the malfunction were to recur.
Regardless
of FDA approval status in the U.S., we will need to obtain certification of
our
tests from regulatory authorities in other countries prior to marketing and
selling in such countries. The amount of time needed to achieve foreign approval
varies from country to country, and regulatory approval by regulatory
authorities of one country cannot by itself guarantee acceptance by another
country’s regulatory body. Additionally, implementation of more stringent
requirements or the adoption of new requirements or policies could adversely
affect our ability to sell our proposed tests in other countries. We may be
required to incur significant costs to comply with these laws and regulations.
If the U.S. and/or other countries do not issue patents to us, our operating
results will suffer and our business may fail.
In
addition to the rules and regulations of the FDA and similar foreign agencies,
we may also have to comply with other federal, state, provincial and local
laws,
rules and regulations. Out tests could be subject to rules pertaining to the
disposal of hazardous or toxic chemicals or potentially hazardous substances,
infectious disease agents and other materials, and laboratory and manufacturing
practices used in connection with our research and development activities.
If we
fail to comply with these regulations, we could be fined, may not be allowed
to
operate certain portions of our business, or otherwise suffer consequences
that
could materially harm our business.
We
currently have no sales force or distribution arrangement in any market where
we
intend to market and sell our tests.
We
currently have no sales or marketing organization for our cervical cancer
tests. When we complete the development of our cervical cancer tests and
receive the required regulatory approvals, we will attempt to market and sell
our tests to laboratories and directly to physicians, hospitals, clinics and
other healthcare providers. We plan to market and sell our tests to
laboratories in the United States and globally through third-party
distributors. We do not currently have any arrangements with any
distributors and we may not be able to enter into arrangements with qualified
distributors on acceptable terms or at all. If we are unable to enter into
distribution agreements with qualified distributors on acceptable terms, we
may
be unable to successfully commercialize our tests.
We
will not be able to sell our planned cervical cancer tests and generate revenues
if laboratories and physicians do not accept them.
If
we
successfully complete development of our cervical cancer tests and obtain
required regulatory approval, we plan to market and sell our tests initially
to
clinical testing laboratories in the United States, Western Europe and other
countries in which there is widespread cervical cancer screening and a
sophisticated testing infrastructure. We plan to market and sell the rapid
test to physicians, hospitals, clinics and other healthcare providers in some
developing countries where cervical cancer screening is not widespread and
where
there is limited or non-standardized testing infrastructure. In order to
successfully commercialize our tests, we will have to convince both laboratories
and healthcare providers that our proposed tests are an effective method of
screening for cervical cancer, whether as an independent test, used in
conjunction with Pap tests and/or HPV tests or as a follow-up screening method
for women with equivocal Pap tests. Pap tests have been the principal
means of cervical cancer screening for over 50 years and, in recent years,
HPV
tests have been introduced primarily as an adjunct to Pap tests. Failure to
achieve any of these goals could have an adverse material effect on our
business, financial condition or results of operations.
Our
planned cervical cancer tests rely on an approach that is different from the
underlying technology of Pap tests and HPV tests. Healthcare professionals,
women’s advocacy groups and other key constituencies may not view our planned
tests as an accurate means of detecting cervical cancer or pre-cancerous
conditions. In addition, some parties may view using our proposed test
along with the Pap tests and/or HPV tests for primary screening as adding
unnecessary expense to the already accepted cervical cancer screening protocol,
which could cause our product revenue to be negatively
affected.
If
third-party health insurance payors do not adequately reimburse healthcare
providers or patients for our proposed cervical cancer tests, it will be more
difficult for us to sell our tests.
We
anticipate that if government insurance plans (including Medicare and Medicaid
in the United States), managed care organizations and private insurers do not
adequately reimburse users for use of our tests, it will be more difficult
for
us to sell our tests to laboratories and healthcare providers. Third-party
payors and managed care entities that provide health insurance coverage to
approximately 225 million people in the United States currently authorize almost
universal reimbursement for the Pap tests, and Pap tests are nearly fully
reimbursed in other markets where we plan to market and sell our proposed
tests. HPV tests also are almost fully reimbursed for certain uses.
We will attempt to obtain reimbursement coverage in all markets in which we
plan
to sell our proposed cervical cancer tests to the same degree as the Pap
test.
Our
management will be required to expend significant time, effort and expense
to
provide information about the effectiveness of our planned cervical cancer
tests
to health insurance payors who are willing to consider reimbursement for our
tests. However, reimbursement has become increasingly limited for medical
diagnostic products. Health insurance payors may not reimburse laboratories,
healthcare providers or patients in the United States or elsewhere for the
use
of our planned tests, either as a stand-alone test or as an adjunct to Pap
tests
or HPV tests, which would make it difficult for us to sell our tests, which
could make our business less profitable and cause our business to
fail.
Our
competitors are much larger and more experienced than we are and, even if we
complete the development of our tests, we may not be able to successfully
compete with them.
The
diagnostic testing industry is highly competitive. When completed, we
expect that our cervical cancer tests will compete with the Pap tests, which
have been widely accepted by the medical community for many years.
Approximately 60 million Pap tests are performed annually in the United States,
and an additional 60 million Pap tests are performed annually in the rest of
the
world. Manufacturers of Pap tests include Cyctc Corporation, Tripath and
several other companies. Future improvements to the Pap test could hinder
our efforts to introduce our tests into the market.
Our
cervical cancer tests also will compete with HPV tests, which are becoming
increasingly accepted in the medical community. Manufacturers of HPV tests
include Digene Corporation, Ventana Medical Systems, Roche Diagnostics, Abbott
Laboratories, and Bayer Corporation. If market acceptance of HPV tests
becomes greater, it may be more difficult for us to introduce our tests into
the
market.
All
of
the companies who manufacture Pap tests and HPV tests are more established
than
we are and have far greater financial, technical, research and development,
sales and marketing, administrative and other resources than we do. Even
if we successfully complete the development of our tests, we may not be able
to
compete effectively with these much larger companies and their more established
products.
If
we are unable to successfully protect our intellectual property or our licensor
is unsuccessful in defending the patents on our licensed technology against
infringement, our ability to develop, market and sell our tests and any other
product we may develop in the future will be harmed.
Our
success will partly depend on our ability to obtain patents and licenses from
third parties and protect our trade secrets.
We
have
an exclusive license from Dr. Yao Xiong Hu for certain processes that we
currently include in our cervical cancer tests. Some of Dr. Hu’s
technology is covered by United States patents that have been issued, and some
of the technology is covered by United States patent applications that have
been
filed and are pending. The agreement with Dr. Hu also covers technology
included in foreign applications presently pending as PCT applications in China
and India. In the event a competitor uses our licensed technology, our licensor
may be unable to successfully assert patent infringement claims. In that event,
we may encounter direct competition using the same technology on which our
products are based and we may be unable to compete. If we cannot compete with
competitive products, our business will fail. In addition, if any third party
claims that our licensed products are infringing their intellectual property
rights, any resulting litigation could be costly and time consuming and would
divert the attention of management and key personnel from other business issues.
We also may be subject to significant damages or injunctions preventing us
from
selling or using some aspect of our products in the event of a successful patent
or other intellectual property infringement claim. In addition, from time to
time, we may be required to obtain licenses from third parties for some of
the
technology or components used or included in our tests. If we are unable
to obtain a required license on acceptable terms or at all, our ability to
develop or sell our tests may be impaired and our revenue will be negatively
affected.
We
plan
to file patent applications for any additional technology that we create in
the
future. We cannot guarantee that our patent applications will result in
patents being issued in the United States or foreign countries. In
addition, the U.S. Patent and Trademark Office may reverse its decision or
delay
the issuance of any patents that may be allowed. We also cannot guarantee
that any technologies or tests that we may develop in the future will be
patentable. In addition, competitors may develop products similar to ours
that do not conflict with patents we may receive. If our patents are
issued, others may challenge these patents and, as a result, our patents could
be narrowed or invalidated, which could have a direct adverse effect on our
profitability and liquidity.
Our
confidentiality agreements may not adequately protect our proprietary
information, the disclosure of which could decrease our competitive
edge.
Our
technology and tests are believed to be, at least in part, dependent on
unpatented trade secrets. However, trade secrets are difficult to
protect. In an effort to protect our trade secrets, we generally require
our employees, consultants and advisors to sign confidentiality
agreements. In addition, our employees are parties to agreements that
require them to assign to us all inventions and other technology that they
create while employed by us. However, we cannot guarantee that these
agreements will provide us with adequate protection if confidential information
is used or disclosed improperly. In addition, in some situations, these
agreements may conflict with, or be limited by, the rights of third parties
with
whom our employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop similar
proprietary information and techniques, or otherwise gain access to our trade
secrets. Any of these adverse consequences could negatively impact our results
of operations.
Our
products may infringe on the intellectual property rights of others and may
result in costly and time-consuming litigation.
Our
success will depend partly on our ability to operate without infringing upon
the
proprietary rights of others, as well as our ability to prevent others from
infringing on our proprietary rights. We may be required at times to take
legal action in order to protect our proprietary rights. Although we
attempt to avoid infringing upon known proprietary rights of third parties,
and
are not aware of any current or threatened claims of infringement, we may be
subject to legal proceedings and claims for alleged infringement by us or our
licensees of third-party proprietary rights, such as patents, trade secrets,
trademarks or copyrights, from time to time in the ordinary course of business.
Any claims relating to the infringement of third-party proprietary rights,
even
if not successful or meritorious, could result in costly litigation, divert
resources and management's attention or require us to enter into royalty or
license agreements which are not advantageous to us. In addition, parties making
these claims may be able to obtain injunctions, which could prevent us from
selling our products. Any of these results could lead to liability, substantial
costs and reduced growth prospects, any or all of which could negatively affect
our business.
We
do not have any manufacturing facilities.
We
have
no capacity to manufacture our proposed tests. We may not be able to
establish satisfactory arrangements with third-party manufacturers.
If
we are able to market and sell our cervical cancer tests, we may be subject
to
product liability claims or face product recalls for which our insurance may
be
inadequate.
If
we
complete development of our cervical cancer tests and begin to sell them, we
will be exposed to the risk of product liability claims and product
recalls. We currently do not market any products and therefore have
obtained only general liability insurance coverage. Any failure to obtain
product liability insurance in the future that is not continually available
to
us on acceptable terms, or at all, or that is sufficient to protect us against
product liability claims or recalls, may not have enough funds to pay legal
fees
and/or any judgments in connection with any such claims which would have an
adverse affect on our operating results and could cause our business to
fail.
If
we are unable to manage our anticipated future growth, we may not be able to
implement our business plan.
We
currently have four part-time employees and, in addition, retain consultants
on
a part-time basis. In order to complete development of our tests, obtain
FDA and other regulatory approval, seek insurance reimbursement, begin to market
and sell our tests, begin the production of our tests and continue and expand
our research and development programs, we will need to hire significant
additional qualified personnel and expand or implement our operating,
administrative, information and other systems. We cannot guarantee that we
will be able to do so or that, if we do so, we will be able to effectively
integrate them into our existing staff and systems. We will also have to
compete with other biotechnology companies to recruit, hire and train qualified
personnel. If we are unable to manage our growth, we may not be able to
implement our business plan and our business could fail.
Risks
Relating to Our Current Financing Arrangement :
There
are a large number of shares underlying our callable secured convertible notes
and warrants that may be available for future sale, and the sale of these shares
may depress the market price of our common stock.
As
of
January 18, 2008, we had 311,125,613 shares of common stock issued and
outstanding and callable secured convertible notes outstanding that may be
converted into an estimated 97,815,087 shares of common stock based on market
prices immediately preceding January 18, 2008. As of January 18, 2008, we also
had outstanding warrants to purchase 33,379,542 shares of common stock. In
addition, the number of shares of common stock issuable upon conversion of
the
outstanding callable secured convertible notes may increase if the market price
of our stock declines. All of the shares issuable upon conversion of the notes
and upon exercise of our warrants may be sold without restriction. The sale
of
these shares may adversely affect the market price of our common
stock.
The
adjustable conversion price feature of our callable secured convertible notes
results in dilution to our existing stockholders at any market
price.
Our
obligation to issue shares upon conversion of our callable secured convertible
notes is essentially limitless. These notes are convertible to common stock
of
the Company at the lower of (a) $0.15 or (b) 60% of the average of the three
lowest intraday trading prices for the 20 days immediately preceding the
conversion date. Since these notes are converted to common stock at a discount
from market regardless of market price, they are dilutive by their
nature.
The
following table sets forth the number of shares of our common stock that would
be issuable upon conversion of the callable secured convertible notes (excluding
accrued interest), based on conversion prices 25%, 50% and 75% below the current
average market price of $0.0216, based upon the high and low bid prices which
existed on January 18, 2008:
% Below
Market
|
|
Price Per
Share
|
|
With
Discount
of
40%
|
|
Number
of
Shares
Issuable
|
|
%
of
Outstanding
Stock
|
|
25%
|
|
$
|
.0162
|
|
$
|
.0097
|
|
|
114,721,399
|
|
|
26.94
|
%
|
50%
|
|
$
|
.0108
|
|
$
|
.0065
|
|
|
172,082,099
|
|
|
35.61
|
%
|
75%
|
|
$
|
.0054
|
|
$
|
.0032
|
|
|
344,164,198
|
|
|
52.52
|
%
|
As
illustrated, the conversion of our callable secured convertible notes is
dilutive to our existing common stockholders at any market price.
The
adjustable conversion price feature of our callable secured convertible notes
may encourage investors to make short sales in our common stock, which could
have a depressive effect on the price of our common stock.
The
callable secured convertible notes are convertible into shares of our common
stock at a substantial discount to the trading price of the common stock. The
significant downward pressure on the price of the common stock as the selling
stockholder converts and sells material amounts of common stock could encourage
short sales by investors. This could place further downward pressure on the
price of the common stock. The selling stockholder could sell common stock
into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise
of
notes, warrants and options, but also the mere perception that these sales
could
occur, may adversely affect the market price of the common stock.
If
we are required for any reason to repay our outstanding callable secured
convertible notes, we would be required to deplete our working capital, if
available, or raise additional funds. Our failure to repay the callable secured
convertible notes, if required, could result in legal action against us, which
could require the sale of substantial assets or the cessation of
business.
In
February and March 2007, we entered into financing arrangements involving the
sale of an aggregate of $300,000 principal amount of callable secured
convertible notes and stock purchase warrants to buy an aggregate of 2,000,000
shares of our common stock. The callable secured convertible notes are due
and
payable, with 6% interest, three years from the date of issuance, unless sooner
converted into shares of our common stock. As of January 18, 2008, we had
$215,092 of callable secured convertible notes outstanding with respect to
these
financings.
In
June
2007, we entered into a subsequent financing arrangement involving the sale
of
an aggregate of $500,000 principal amount of callable secured convertible notes
and stock purchase warrants to buy 10,000,000 shares of our common stock. The
callable secured convertible notes are due and payable, with 8% interest, three
years from the date of issuance, unless sooner converted into shares of our
common stock. Additionally, in November 2007, we entered into another financing
arrangement by which we sold an aggregate of $400,000 callable secured
convertible notes and stock purchase warrants to buy 8,000,000 shares of our
common stock. The callable secured convertible notes are due and payable, with
8% interest, three years from the date of issuance, unless sooner converted
into
shares of our common stock.
Any
event
of default such as our failure to repay the principal or interest when due,
our
failure to issue shares of common stock upon conversion by the holder, our
failure to timely file a registration statement or have such registration
statement declared effective, breach of any covenant, representation or warranty
in the Securities Purchase Agreement or related convertible note, the assignment
or appointment of a receiver to control a substantial part of our property
or
business, the filing of a money judgment, writ or similar process against us
in
excess of $50,000, the commencement of a bankruptcy, insolvency, reorganization
or liquidation proceeding against us, and the delisting of our common stock
could require the early repayment of the callable secured convertible notes,
including a default interest rate of 15% on the outstanding principal balance
of
the notes if the default is not cured within the specified grace
period.
As
of
January 18, 2008, $1,115,092 remained outstanding on the issued callable secured
convertible notes for the four financing arrangements discussed above. We
anticipate that the full amount of the callable secured convertible notes will
be converted into shares of our common stock. However, if we are required to
repay the callable secured convertible notes, we would be required to use our
limited working capital and raise additional funds. If we were unable to repay
the notes when required, the note holders could commence legal action against
us
and foreclose on all of our assets to recover the amounts due. Any such action
would require us to curtail or cease operations.
Risks
Related to our Common Stock:
There
is only a limited market for our common stock and the price of our common stock
may be affected by factors that are unrelated to the performance of our
business.
If
any of
the risks described in these Risk Factors or other unseen risks are realized,
the market price of our common stock could be materially adversely
affected. Additionally, market prices for securities of biotechnology and
diagnostic companies have historically been very volatile. The market for
these securities has from time to time experienced significant price and volume
fluctuations for reasons that are unrelated to the operating performance of
any
one company. In particular, and in addition to the other risks described
elsewhere in these Risk Factors, the following factors can adversely affect
the
market price of our common stock:
· |
announcements
of technological innovation or improved or new diagnostic products
by
others;
|
· |
general
market conditions;
|
· |
changes
in government regulation or patent
decisions;
|
· |
changes
in insurance reimbursement practices or policies for diagnostic
products.
|
Our
common shares have traded on the Over the Counter Bulletin Board at prices
below
$5.00 for several years. As a result, our shares are characterized as
“penny stocks” which could adversely affect the market liquidity of our common
stock.
The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks in connection with trades
in
any stock defined as a penny stock. Securities and Exchange Commission
regulations generally define a penny stock to be an equity security that has
a
market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on Nasdaq or a national
securities exchange and any equity security issued by an issuer that
has:
· |
net
tangible assets in excess of $2,000,000, if such issuer has been
in
continuous operation for three
years;
|
· |
net
tangible assets in excess of $5,000,000, if such issuer has been
in
continuous operation for less than three years;
or
|
· |
average
revenue of at least $6,000,000, for the last three
years.
|
Unless
an
exception is available, the regulations require, prior to any transaction
involving a penny stock, that a disclosure schedule explaining the penny stock
market and the risks associated therewith is delivered to a prospective
purchaser of the penny stock. We currently do not qualify for an
exception, and, therefore, our common stock is considered to be penny stock
and
is subject to these requirements. The penny stock regulations adversely
affect the market liquidity of our common shares by limiting the ability of
broker/dealers to trade the shares and the ability of purchasers of our common
shares to sell in the secondary market. In addition, certain institutions
and investors will not invest in penny stocks.
Nevada
law provides certain anti-takeover provisions for Nevada companies that may
prevent or frustrate any attempt to replace or remove our current management
by
the stockholders or discourage bids for our common stock. These provisions
may
also affect the market price of our common stock. We have chosen not to
opt out of these provisions.
We
are
subject to provisions of Nevada corporate law that limit the voting rights
of a
person who, individually or in association with others, acquires or offers
to
acquire at least 20% of our outstanding voting power unless a majority of our
disinterested stockholders elects to grant voting rights to such person.
We are also subject to provisions of Nevada corporate law that prohibit us from
engaging in any business combination with an interested stockholder, which
is a
person who, directly or indirectly, is the beneficial owner of 10% or more
of
our common stock, for a period of three years following the date that such
person becomes an interested stockholder, unless the business combination is
approved by our board of directors in a prescribed manner. These
provisions of Nevada law may make business combinations more time consuming
or
expensive and have the impact of requiring our board of directors to agree
with
a proposal before it is accepted and presented to stockholders for
consideration. Although we have the ability to opt out of these provisions,
we
have not chosen to do so. These anti-takeover provisions might discourage
bids for our common stock.
Our
board
of directors has the authority, without further action by the stockholders,
to
issue, from time to time, up to 20,000,000 shares of preferred stock in one
or
more classes or series and to fix the rights and preferences of such preferred
stock. The board of directors could use this authority to issue preferred stock
to discourage an unwanted bidder from making a proposal to acquire
us.
Future
sales of a significant number of shares of our common stock by existing
stockholders may lower the price of our common stock, which could result in
losses to our stockholders.
As
of
January 18, 2008, we had outstanding 311,125,613 voting shares. Some of
our outstanding voting shares are eligible for sale under Rule 144, are
otherwise freely tradable or will become freely tradable under Rule 144. Sales
of substantial amounts of shares of our common stock into the public market
could lower the market price of our common shares.
In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are required to be aggregated) who has owned shares for at least one
year
would be entitled to sell within any three-month period a number of shares
that
does not exceed the greater of (i) 1% of the number of our common shares
then outstanding (which equals approximately 3,111,256 shares of common
stock) or (ii) the average weekly trading volume of our common shares
during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are public information
about us. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the three months preceding a sale, and who
has
owned the shares proposed to be sold for at least two years, is entitled to
sell
his shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by selling stockholders. We will receive no proceeds
from the sale of shares of common stock in this offering.
MANAGEMENT’S
PLAN OF OPERATION
Forward-Looking
and Cautionary Statements
Some
of
the information in this Form SB-2 contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as "may," "will," "expect," "anticipate,"
"believe," "estimate" and "continue," or similar words. You should read
statements that contain these words carefully because they:
|
·
|
discuss
our future expectations;
|
|
|
|
|
·
|
contain
projections of our future results of operations or of our financial
condition; and
|
|
|
|
|
·
|
state
other "forward-looking"
information.
|
We
believe it is important to communicate our expectations. However, there may
be
events in the future that we are not able to accurately predict or over which
we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements
as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
The
Company is a development stage company. From inception in 1998 through the
date
of this prospectus, the Company has not generated significant revenues. All
audit reports issued to date have included an explanatory paragraph that there
is substantial doubt as to the Company’s ability to continue as a going
concern.
Plan
of Operation
The
Company is focused on developing technologies that will be useful in
commercializing rapid test products that can screen women for cervical cancer
or
pre-cancerous conditions. The majority of cervical cancer is generally believed
to be caused by different strains of the human papilloma virus (HPV). Most
of
the Company’s effort in prior years has centered on HPV antibody detection
tests. In 2006, the Company signed a memorandum of understanding to in-license
technology pertaining to HPV antigen detection tests. This memorandum of
understanding evolved into a contract in November 2007. In June 2007, the
Company signed another memorandum of understanding to in-license technology
based on a molecular diagnostic test for HPV. This memorandum of understanding
was also converted to a contractual arrangement in November 2007. Due to capital
constraints, the Company has been unable to devote a significant amount of
funds
to research and development, in particular, over the past year.
The
Company’s ability to conduct further research on the technologies described in
the preceding paragraph is directly related to the Company’s ability to raise
capital to fund such research. In addition to continued funding by debt and
equity transactions, which has been the Company’s primary source of funding to
date, the Company may investigate out-licensing of the technologies presently
under its control, the feasibility of merging with a cash-flow positive
operating company, and the feasibility of collaborating with other research
and
development companies that are better funded than the Company.
The
Company does not anticipate making capital expenditures or adding employees
in
the foreseeable future.
Liquidity
and Capital Resources
From
inception in 1998 through September 30, 2007, the Company has relied on loans
and equity infusions to fund its operations. The Company has never generated
positive cash flows from operating activities. In the near term, and perhaps
longer, the Company will continue to be dependent on its ability to raise debt
and/or equity capital. There is no assurance that the Company will be able
to
continue to do so. Over a longer term, the Company’s continuation as a going
concern is dependent on its ability to generate sufficient cash flows from
operating activities to meet its obligations on a timely basis and to obtain
additional financing as may be required. Since June 2005, the Company’s primary
source of funding has been from the sale of convertible notes.
As
of
September 30, 2007, the Company had a working capital deficit of $710,997.
The
Company’s cash balance as of January 18, 2008, was $141,003. In recent months,
the Company’s cash “burn rate” has ranged from $100,000 to $150,000 per month.
Absent any cash inflows from revenues or other sources, the current cash
position is expected to fund the Company until February 2008. There can be
no
assurance that the Company will be successful in obtaining adequate debt or
equity financing and, as a result, the Company may not be able to continue
its
existence.
Results
of Operations
The
Company has never been profitable. Since inception through September 30, 2007,
aggregate losses approximate $17,267,000. Since June 2005, the Company has
incurred non-cash charges of approximately $8,806,000 related to interest
expense on the Company’s convertible notes and charges arising from the change
in fair value of the derivative liabilities related to the convertible notes
and
warrants to purchase common stock of the Company.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements as of the September 30, 2007 or as
of
the date of this prospectus.
Our
common stock is quoted on the OTC Bulletin Board under the symbol
“GLIF.OB.” The following table sets forth, for the calendar periods
indicated, the range of the high and low last reported bid prices of our common
stock from January 1, 2006 through December 31, 2007, as reported by the OTC
Bulletin Board. The quotations represent inter-dealer prices without
retail mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions. The quotations may be rounded for
presentation.
Period
|
|
High
|
|
Low
|
|
First
Quarter 2006
|
|
$
|
0.042
|
|
$
|
0.018
|
|
Second
Quarter 2006
|
|
$
|
0.027
|
|
$
|
0.013
|
|
Third
Quarter 2006
|
|
$
|
0.093
|
|
$
|
0.014
|
|
Fourth
Quarter 2006
|
|
$
|
0.265
|
|
$
|
0.067
|
|
First
Quarter 2007
|
|
$
|
0.135
|
|
$
|
0.045
|
|
Second
Quarter 2007
|
|
$
|
0.081
|
|
$
|
0.025
|
|
Third
Quarter 2007
|
|
$
|
0.042
|
|
$
|
0.014
|
|
Fourth Quarter
2007
|
|
$
|
0.024
|
|
$
|
0.016
|
|
On
January 18, 2008, the last price of our common stock as reported on the
OTC Bulletin Board was $0.0222 per share.
As
of
January 18, 2008, we had approximately 135 shareholders of record. Certain
of the shares of common stock are held in “street” name and may be held by
numerous beneficial owners.
We
have
never declared nor paid cash dividends and do not expect to pay cash dividends
in the foreseeable future.
Overview
of Our Business
We
are
developing protein-based screening tests to screen woman for cervical cancer
and
pre-cancerous conditions that may become cervical cancer. Our tests detect
the presence of certain antibodies that appear only when cervical cancer or
certain pre-cancerous conditions are present in the body. Our tests are
performed by analyzing a small amount of the patient’s blood.
In
one
version of our test, the blood sample is analyzed in a clinical setting using
standard laboratory equipment and analytic software, which generally can produce
completed results in about 2 hours. Our rapid test will provide
easy-to-read results in approximately 15 minutes and is designed to be
administered by a health professional in a doctor’s office, hospital, and clinic
or even at home. This planned cervical cancer test uses proprietary technology
to detect the presence of specific antibodies associated with cervical
pre-cancers and cancer. We continue to test the validity of the results
and believe, that if they prove valid, in the future we may be able to use
that
technology to develop rapid tests for other diseases and cancers.
In
November 2007, we announced the signing of a final agreement with Alphagenics
Diaco Biotechnologies S.r.l. (Italy) to exclusively in-license the manufacturing
and marketing rights to Alphagenics’ molecular diagnostic test for human
papilloma viruses (“HPVs”) in China and the United States and non-exclusively in
Europe, India, Australia and Japan.
The
Alphagenics HPV test in-licensed by the Company is a DNA-based diagnostic that
uses standard molecular diagnostic equipment found in most commercial
laboratories. Alphagenics’ HPV DNA test complements the HPV blood test that the
Company has been developing to detect the presence of antibodies produced only
by cancer-causing HPV types. There are some 100 types of HPV; however, only
about 7 to 15 HPV types cause most cervical cancers.
The
introduction of the Alphagenics HPV test not only allows commercial laboratories
to provide molecular testing but also complements the current introduction
of
vaccines against HPVs. The current approved vaccine in the United States
provides for inoculation against four types of HPV for use in girls and women
9-to-26 years of age, who presumably have not been exposed to the viruses.
However, women who have reached sexual maturity and have not been exposed to
one
of the four HPV-types may benefit from the vaccination, according to the
Advisory Committee on Immunization Practices. Consequently, the Alphagenics
test
can be used by the balance of the female population to determine exposure and
the possible use of the vaccine if found negative.
In
addition, the Alphagenics test can be used in the current gynecological regimen
to help qualify Pap test results in the case of ambiguous readings, at a cost
less than the current approved molecular test.
In
October 2007, we announced the signing of the final agreement with Drs.
Sveshnikov and Kiselev of the Russian Republic for the in-licensing of certain
of their technologies that are highly complementary to our antibody-based test
for detecting cervical cancer. The technology is used to detect specific
cervical cancer-causing proteins. The test utilizes antibodies against these
cancer-causing proteins for detection. Thus far, the test is designed to detect
specific cancer-causing proteins and, once fully validated and expanded, would
be a synergistic and complementary test to existing Pap technology. It would
provide for very low-cost HPV testing as currently performed in Western
countries, without the need for additional cervical specimens beyond what is
now
taken. In addition, large capital outlays would not be required, since most
laboratories can readily do the necessary testing.
Drs.
Sveshnikov and Kiselev have already tested their technology in Russia and we
will be further validating their tests with more specimens from Russia and
the
United States in controlled clinical settings.
In
September 2007, we received notice from the U.S. Patent and Trademark Office
that Patent No. 7,267,961—‘PEPTIDES FROM THE E7 PROTEIN OF HUMAN PAPILLOMA
VIRUSES 16 AND 18 FOR DETECTING AND/OR DIAGNOSING CERVICAL AND OTHER HUMAN
PAPILLOMA VIRUS ASSOCIATED CANCERS’ had been granted.
This
patent further strengthens our intellectual property portfolio focusing on
HPV
detection and diagnostic technologies, including domestic patents, international
patents and patent applications that Grant Life Sciences is overseeing. This
patent would protect our investment to date in the development of our
serum-based test for cervical cancer.
In
January 2007, we announced the signing of a memorandum of understanding (“MOU”)
with Union Clinical Laboratory (“UCL”) in Taiwan, the top laboratory serving the
clinical diagnostics market in Taiwan. UCL will play a critical role to validate
our assays with its professional clinical trial laboratory services; meanwhile,
the diagnostics products are to be manufactured in Taiwan, which in turn offers
lower cost and high quality for making them available and affordable to the
global medical specialists.
We
also
have the exclusive worldwide rights to diagnostic devices for HIV-1, HIV-2
and
dengue fever testing, and a proprietary diagnostic reagent, which is a key
ingredient commonly used by leading manufacturers of rapid tests. We acquired
these rights from AccuDx Corporation in March 2005 for a period of ten
years.
Cervical
Cancer
Invasive
cervical cancer affects over 500,000 women worldwide annually, and approximately
300,000 women die each year from this disease (National Institutes of Health
Notices, Federal Press Release Library Assession Number A00295; Cleveland Clinic
Journal of Medicine, 70:641). Cervical cancer is second only to breast
cancer as the leading cause of cancer death among women (Cancer Journal,
9:348). In the United States, Western Europe and other countries where
there is widespread screening and a well developed testing or diagnostic
infrastructure, invasive cervical cancer is less prevalent. In Latin
America, China, India and many other countries, there is a much higher incidence
of invasive cervical cancer because of the lack of testing and limited
diagnostic testing infrastructure.
Pap
tests, a microscopic examination of cells scraped from the cervix, have been
the
most prevalent cervical cancer screening method for more than 50 years. In
recent years, gene- or DNA-based HPV tests have been introduced as an adjunct
to
the Pap test. In the United States, more than 82% of women 25 years or
older have gotten Pap tests over the last three years (Cancer, 97:1528), equated
to a total of more than 50 million Pap tests performed each year (CDC Morbidity
and Mortality Weekly Report, 49:1001). An equivalent number of Pap tests are
performed annually across the rest of the world, mainly in Canada, Western
Europe and Japan. Outside the United States, approximately 1.7 billion
women do not undergo regular cervical cancer testing (United States Census
Bureau International Data Base statistics). In many cases, this scarcity
of testing is the result of a lack of economic resources, as well as social,
cultural and/or religious factors which may contribute to women not undergoing
cervical cancer screening. Under these circumstances, in some nations, the
mortality rate of cervical cancer is not unlike that for incidence of cervical
cancer (Journal of American Medical Association, 285:3107; Annals of Oncology,
16:489). In other words, the mortality rate for those with cervical cancer
may
approach 100% in some places.
Virtually
all-cervical cancer is caused by HPV. However, of the more than 100 specific
types of HPV, the scientific community believes only 7 to 15 are positively
correlated with most cervical cancers. There are two types of cervical
cancer. Squamous cell carcinoma, a cancer of the flat, scale-like cells
that coat the cervix, is the most prevalent type. Adenocarcinoma is a more
virulent cancer that stems from cervical cells with glandular or secretory
properties that are increasing in incidence (Canadian Medical Association
Journal, 164:1151) but often goes undetected by Pap tests. The non-detection
of
adenocarcinomas is largely due to problems in collecting and interpreting the
correct cervical cells (Cancer [Cancer Cytopathology], 99:324 and
102:280).
Traditional
Testing for Cervical Cancer
Pap
Tests
The
most
common means of screening for cervical cancer is the Pap test, which has been
used as the primary screen for over 50 years. The Pap test is performed by
swabbing the cervical surface to collect cells that are then placed on a
microscopic slide for examination. A specially-trained, licensed
cytotechnologist, usually in a hospital or pathology laboratory, observes the
cells using a microscope and other specialized equipment to determine whether
abnormal cells are present. When a cytotechnologist identifies a potential
abnormality, a cytopathologist verifies the interpretation. A second
generation Pap test, known as a “liquid Pap test”, involves a special procedure
that puts cells onto a microscopic slide in a manner that is intended to allow
for more clear-cut scrutiny by the cytotechnologist.
Women
whose Pap test results are normal do not undergo further inspection, but instead
characteristically return for routine Pap screening on an annual basis.
However, women with abnormal Pap test results may be subjected to follow-up
Pap
tests, colposcopy (a visual examination of the cervix with the aid of a
distinctive microscope) and biopsy to clearly identify cancerous
conditions. Advanced lesions may then be removed with a cauterizing device
or scalpel, and in some cases women undergo a hysterectomy, or removal of the
entire cervix. If a patient’s Pap test cannot specifically be classified
as normal or abnormal, the result is classified as “equivocal”, or Atypical
Squamous Cells of Undetermined Significance (ASC-US). This occurs in
approximately 5-7% of cases in the United States (Modern Pathology,
12:335). Patients with equivocal Pap test results typically will undergo
multiple repeat Pap tests. Many of these patients will also undergo a
colposcopy and a biopsy. However, 80% of women with ASC-US who undergo an
expensive colposcopy do not have cervical disease or develop cervical cancer
(Journal of Medical Screening, 3:29).
While
Pap
tests have been an important screening tool for many years and have helped
reduce deaths caused by cervical cancer, they still have some significant
shortcomings, including:
·
limited predictive value
— In the United States, each year several million colposcopies are performed
on
patients with abnormal Pap test results, but only 20% of the colposcopies reveal
cervical cancer or pre-cancerous lesions (Journal of the American Medical
Association, 287:2382).
·
false
negative results — In the United States ,
Pap
tests fail to diagnose cervical cancer or pre-cancerous conditions that often
lead to cervical cancer in approximately 30% to 60% (depending on whether
a
liquid Pap test or a regular Pap test is used) of the cases where cervical
cancer or pre-cancerous conditions are present (Archives of Pathology &
Laboratory Medicine, 122:139).
·
false
positive results — Distinguishing between cervical cancer or pre-cancerous
states and benign conditions mimicking them can be difficult via Pap tests.
(Diagnostic Cytopathology, 28:23).
·
inability
to detect adenocarcinomas — Pap tests are unable to detect the presence of the
more virulent adenocarcinoma (Clinical Laboratory Medicine,
20:140).
· invasive
procedure — Pap tests require healthcare professionals to extract cells from the
cervix by inserting a collecting device into the cervix. In some
non-Western countries, women may be inhibited from undergoing this procedure
for
social, cultural or religious reasons.
·
high
costs — Highly trained physicians and other specialists are required to collect,
examine and interpret the Pap test specimen, which contributes to a higher
cost
structure for the Pap test. Following a positive test result, colposcopies
and
biopsies are required, raising the overall potential cost of
screening.
Some
of
these deficiencies may be due primarily to visual limitations associated with
microscopic examination, the inadequate or inappropriate sampling of cells,
other technical problems, and the subjective nature of cytology
interpretation.
HPV
Tests
In
the
past few years, HPV testing has been introduced as another element of the
cervical cancer screening process. The HPV test is a gene-based test that
detects the presence or absence of certain cancer-causing HPV. Like the
Pap test, it is performed by swabbing the cervix to extract cells. The
specimen is then analyzed using expensive specialized equipment and software
programs in a laboratory.
In
the
United States, women with ASC-US results from an initial Pap test often undergo
an HPV test to determine if HPV is present. That test can be performed
using the same sample taken for a liquid Pap test or a stand-alone one.
HPV testing has also been introduced in conjunction with Pap tests as an
optional screening protocol for women 30 years of age and older, even in the
absence of ASC-US or worse results.
While
HPV
tests are helpful in detecting the presence of HPV, which is a precursor for
virtually all cervical cancer, they too suffer from some significant
shortcomings:
·
limited
predictive value — HPV tests actually detect virus infection and not cervical
cancer and/or associated pre-cancerous lesions. Although HPV is an
obligate cause of cervical cancer, only 2% of patients testing positive for
HPV
will eventually progress to the disease (Journal of Clinical Microbiology,
42:2470).
·
invasive
procedure — Like Pap smear cytology, the HPV test requires that the attending
healthcare professional get cells by inserting a collection device into the
cervix. As earlier stated, women in certain non-Western cultures may be
prohibited from undergoing such a procedure for social, cultural or religious
reasons.
·
high
cost
and complex — The HPV test specimen must be processed by special and dedicated,
expensive laboratory equipment and interpretational computer software by
highly
trained technicians, thus the higher costs associated with HPV tests. Following
a positive test result, colposcopy and biopsies are required, thus further
elevating diagnostic costs.
Our
Planned Cervical Cancer Test
We
are developing cervical cancer tests that, if proven, will detect the presence
or absence of specific antibodies and proteins that are produced only if
cancer-causing HPV is present in the body, and consequent oncogenic, or
cancer-promoting, changes have occurred. Cancer-causing HPV have unique
proteins that trigger the disease. Upon disease onset, the body makes
large numbers of antibodies to these unique proteins. By detecting
specific antibodies to cancer-causing HPVs, we believe that our tests will
be
able to more reliably determine whether a patient has cervical cancer or
pre-cancerous lesions than can Pap smear cytology or HPV testing.
Our
tests
involve the analysis of a small amount of blood taken from the patient. The
collection of small volumes of blood is widely accepted as being of “minimal
risk.” It is not necessary to probe the cervix to get results.
Given the previously discussed socio-religious hesitance or prohibitions as
to
obtaining cells from the cervix, we believe our tests will have greater
acceptability and/or desirability than tests that involve obtaining cells from
the cervix. Our tests involve the following, readily completed
steps:
· The
sample is placed into a receptacle coated with proprietary detection proteins
of
a specific nature.
·
Only
certain antibodies to cancer-causing HPVs can adhere to these
proteins.
· The
container is then rinsed, thus removing everything but antibodies that have
adhered to the proteins.
·
A
special solution is added to the container. This solution includes
“detector” antibodies that attach to those specific antibodies to cancer-causing
HPVs adhered to the special detector proteins. The solution changes color
with
attachment of the “detector” antibodies, an indicator of a positive result
(i.e., cervical cancer or a pre-cancerous condition present).
We
are
developing two tests. One, known as the Enzyme Linked Immunosorbent Assay
Test (“ELISA”), is designed to be run in a laboratory. The blood specimen
is sent to the laboratory, where a laboratory technician runs the test using
standard, readily available laboratory equipment. No unique analytic or
diagnostic software is required, while such software is essential for HPV
testing. While test results typically are available in about two hours, we
anticipate that the typical turnaround time from the laboratory to the doctor
will be approximately one day. We believe that a doctor will be able to
order this test as one of a battery of tests that is run on a patient’s blood
sample after a typical office visit.
Our
second generation rapid test is designed to be a point-of-care test that will
be
able to be administered in the hospital, physician’s office, clinic or even at
home or in outdoor settings. The test kit will contain the required
container and reagents, with a color change indicating the presence of
cancer-causing proteins. We anticipate that the test will be able to
produce results within 10 to 15 minutes after administration of the
test.
We
have
not yet completed the development of our cervical cancer tests. We are
continuing to refine the existing proteins and processes currently used in
our
tests and are testing other proteins and processes, which may be included in
our
tests in the future.
We
believe that, when completed, our tests will be a more accurate and efficient
way to diagnose cervical cancer for the following reasons:
·
greater
accuracy — Our cervical cancer tests will detect specific antibodies present
only if cancer-causing HPV is present and cancer-related cellular changes
have
occurred. As a result, we believe our tests will be able to more
accurately diagnose cancer or pre-cancerous conditions than do Pap and HPV
tests, thus making for fewer false positive or false negative
results.
·
ability
to detect adenocarcinomas - Our antibody detection approach is well suited
for
finding adenocarcinomas as well as squamous cell carcinomas since cell samples
are not required.
·
less-invasive
— Our tests require a small amount of blood, which may be quickly and safely
taken via a finger prick or from a vein in the arm. We believe that in
countries where women are reluctant to allow a healthcare professional to
sample
their cervix, there will be greater willingness to allow blood sampling to
ascertain cervical disease.
· reduced
costs — We believe that because our tests will be run by laboratory technicians
using standard, readily available equipment or by a healthcare professional
using a point-of-care test, overall costs for our screening tests will be
less
than experienced with Pap or HPV tests. In addition, by providing more
accurate results, we believe that our tests will reduce the number of repeated
cervical cancer tests of any sort, along with expensive colposcopies, biopsies
and related medical procedures.
Initial
Cervical Cancer-Associated HPV Antibody Validation Studies
We
have
conducted initial studies to validate our planned cervical cancer
tests.
In
the
United States, the Institutional Review Board (“IRB”) governs collection and use
of patient specimens for research and testing purposes. The IRB Committee at
Intermountain Health Care, the largest hospital facility in the intermountain
western United States, and at St. Mark’s Hospital in Salt Lake City, Utah,
approved the evaluation of our technology for screening blood serum from
patients, some of whom had negative Pap tests and some of whom had previously
been diagnosed with cervical cancer or intraepithelial lesions, the immediate
precursor to cervical cancer. These initial non-blind studies were performed
in
May 2003 by Ameripath, Inc. on a total of 65 American patient samples from
these IRB approved sources. Our tests detected cervical cancer or pre-cancerous
conditions 94% of the time such conditions existed and were able to rule out
cervical cancer or pre-cancerous conditions 82% of the time the patient did
not
have these conditions.
Similar
testing was done in April 2003, under a Chinese IRB equivalent, at the
China Cancer Institute, China Academy of Medical Sciences, on 70 samples, of
which over half were from cervical cancer patients. Our tests detected cervical
cancer or pre-cancerous conditions 97% of the time such conditions existed
and
were able to rule out cervical cancer or pre-cancerous conditions 85% of the
time the patient did not have these conditions.
The
initial studies conduced by Ameripath and in China used a “cut off” value or
measurement standard to differentiate benign from cancerous or pre-cancerous
conditions that is higher than would typically be used in a commercially
available test. We currently are refining our technology in order to enable
our
tests to achieve similar results using a measurement standard appropriate for
a
commercial cervical cancer diagnostic test.
We
are
reformatting the assay platform and will conduct validation studies on the
refined version of our cervical cancer test in the next few months. Once the
test is validated we will develop a proposed protocol of clinical trials and
other studies that will be used to support the submissions we intend to make
to
the FDA and other foreign regulatory authorities.
Cervical
Cancer-Associated HPV Antigen Detection Immunoassay
Program
We
have
signed a final licensing agreement with Drs. Peter Sveshnikov and Vsevolod
Kiselev of the Russian Republic, for the in-licensing of technologies highly
complementary to our antibody-based test for detecting cervical cancer. The
Sveshnikov/Kiselev technology comes to us from the US State Department through
its Bio-Industry Initiative (“BII”) program. The BII is designed to foster
medical and other biological research and development in the former Soviet
Union
and to convert former biowarfare scientists to productive peacetime
activities.
Sveshnikov
and Kiselev have developed an ELISA test to detect specific cancer-causing
proteins from HPV, the obligate cause of cervical cancer, in cervical mucous
and
cells (which make up liquid-based Pap samples). The test utilizes certain
monoclonal antibodies against these cancer-causing HPV proteins for detection.
So far, the test is designed to detect cancer-causing proteins from HPV types
16
and 18, which collectively are responsible for most cervical disease. This
type-specific antigen test, once fully validated, and expanded to include
additional types of HPV associated with cervical dysplasia and cancer, would
be
a very synergistic complement test to existing Pap technology. It will provide
for very low cost HPV testing as currently performed in Western countries,
without the need for additional cervical specimens beyond what is now taken.
In
addition, large capital outlays would not be required since most laboratories
can readily do ELISA testing.
Sveshnikov
and Kiselev have already looked at their technology with 1,000 Russian samples
to confirm the potential of this technology. Grant Life Sciences will be further
validating with more specimens from Russia and with the many cervical specimens
obtained in the United States under IRB approval in controlled clinical
settings.
Together,
when validated, Grant Life Sciences will have two complementary cervical
dysplasia or cancer diagnostic tests that will work on blood serum or cervical
mucous and cells. A blood-based test is eminently suitable for the 1.7 billion
women worldwide currently not tested by Pap smear cytology.
Cervical
Cancer-Associated HPV DNA Detection Program
We
have
signed a final licensing agreement with Alphagenics Diaco Biotechnologies S.r.l.
(Italy) to exclusively in-license the manufacturing and marketing rights to
Alphagenics’ molecular diagnostic test for HPVs in China and the United States
and non-exclusively in Europe, India, Australia and Japan.
The
Alphagenics HPV test in-licensed by Grant Life Sciences is a DNA-based
diagnostic that uses standard molecular diagnostic equipment found in most
commercial laboratories. Alphagenics’ HPV DNA test complements the HPV blood
test that Grant Life Sciences has been developing to detect the presence of
antibodies produced only by cancer-causing HPV types. There are some 100 types
of HPV; however, only about 7 to 15 HPV-types cause most cervical cancers.
While
a blood-based test to detect precancerous evidence and cancer of the cervix
is
still viewed by Grant Life Sciences as the preferred test-methodology to address
the needs of the developing world, DNA testing is currently the approved test
protocol in both the U.S. and Europe to identify the presence of different
subtypes of HPV in cervix.
The
introduction of the Alphagenics HPV test not only allows commercial laboratories
to provide molecular testing but also complements the current introduction
of
vaccines against HPVs. The current approved vaccine in the U.S. provides for
inoculation against four types of HPV for use in girls and women 9-to-26 years
of age, who presumably have not been exposed to the viruses. However, women
who
have reached sexual maturity and have not been exposed to one of the four
HPV-types may benefit from the vaccination, according to the Advisory Committee
on Immunization Practices. Consequently, the Alphagenics test can be used by
the
balance of the female population to determine exposure and the possible use
of
the vaccine if found negative. Further, both vaccines on the market (GSK’s
vaccine is approved in Australia for ages 10-to-45 and Merck’s vaccine is
approved in the U.S. for ages 9-to-26) only confer protection against HPV
oncogenic types 16 and 18. While these types are predominant (approximately
60+%) in the Caucasian market, there are other types that play significant
roles
in the Asian, African, Indian, and Hispanic populations. Fortunately, the
Alphagenics test is designed to test for all the serotypes of oncogenic
HPV.
In
addition, the Alphagenics test can be used in the current gynecological regimen
to help qualify Pap test results in the case of ambiguous readings, at a cost
less than the current approved molecular test. Grant Life Sciences expects
to
launch the Alphagenics HPV DNA-based test in the Asian and Indian markets during
the first quarter of 2008 as an Analyte Specific Reagent (“ASR”) to reference
laboratories.
Regulatory
Approval
In
the
United States, our planned cervical cancer tests will be subject to regulation
by the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug
and Cosmetic Act. Governmental agencies in other countries also regulate
medical devices. These domestic and foreign regulations govern the
majority of the commercial activities we plan to perform, including the purposes
for which our proposed tests can be used, the development, testing, labeling,
storage and use of our proposed tests with other products and the manufacturing,
advertising, promotion, sales and distribution of our proposed test for the
approved purposes. Compliance with these regulations could prove expensive
and time-consuming.
Products
that are used to diagnose diseases in people are considered medical devices,
which are regulated in the United States by the FDA. To obtain FDA
authorization for a new medical device, a company may have to submit data
relating to safety and effectiveness based upon extensive testing. This
testing, and the preparation and processing of necessary applications, are
expensive and may take up to a few years to complete. Whether a medical
device requires FDA authorization and the data that must be submitted to the
FDA
varies depending on the nature of the medical device.
Medical
devices and diagnostics fall into one of three classes (Class I, II, or III)
in
accordance with the FDA’s determination of controls necessary to ensure the
safety and effectiveness of the device or diagnostic. As with most diagnostic
products, we anticipate that our planned cervical cancer tests will be
classified by the FDA as a Class II device. By definition, this means that
there
could be a potential for harm to the consumer if the device is not designed
properly and/or otherwise does not meet strict standards. To market and sell
a
Class II medical device, a company must first submit a 510(k) pre-market
notification, also known as a 510(k). The 510(k) application is intended to
demonstrate substantial equivalency to a Class II device already on the market.
The FDA will still require that clinical studies of device safety and
effectiveness be completed.
In
the
United States, prior to approval by the FDA, under certain conditions, companies
can sell investigational or research kits to laboratories under the Clinical
Laboratory Improvement Amendment (“CLIA”) of 1988. Under CLIA, companies can
sell diagnostic assays or tests to "high complexity" laboratories for validation
as an ASR. An ASR is the active ingredient of an "in-house" diagnostic
test.
We
intend
to sell the Alphagenics’s DNA test and the ELISA version of our cervical cancer
test to high complexity laboratories for validation as an ASR or for use by
such
laboratories in their own in-house diagnostic assays. Such sales would not
require FDA approval, but we are aware that the FDA might deny approval under
CLIA for sales of our product as an ASR.
We
have
not yet submitted an application for approval to the FDA or regulatory agencies
in any other countries of the cervical cancer tests we are developing. It is
highly likely that we will have to conduct clinical trials and other studies
to
generate data that the FDA and other regulatory authorities will require in
support of our application. We have not yet designed or initiated any of
these trials. We anticipate it will take a minimum of one to two years to
complete the review and approval process.
In
addition to any government requirements as to authorizing the marketing and
sales of medical devices, there are other FDA requirements. The manufacturer
must be registered with the FDA. The FDA will inspect what is being done on
a
routine basis to ascertain compliance with those regulations prescribing
standards for medical device quality and consistency. Such standards refer
to,
but are not limited to, manufacturing, testing, distribution, storage, design,
control and service activities. The FDA also prohibits promoting a device for
unauthorized uses and routinely reviews labeling accuracy. If the FDA finds
failures in compliance, it can institute a range of enforcement actions, from
a
public warning letter to more severe sanctions like withdrawal of approval;
denial of requests for future approval; fines, injunctions and civil penalties;
recall or seizure of the product; operating restrictions, partial suspension
or
total shutdown of production; and criminal prosecution.
The
FDA's
medical device reporting regulation also will require the reporting of
information on deaths or serious injuries associated with the use of our tests,
as well as product malfunctions that are likely to cause or contribute to death
or serious injury if the malfunction were to recur.
Regardless
of FDA approval status in the U.S, we will need to obtain certification of
our
tests from regulatory authorities in other countries prior to marketing and
selling in such countries. The amount of time needed to achieve foreign approval
varies from country to country, and regulatory approval by regulatory
authorities of one country cannot by itself determine acceptance by another
country's regulatory body. Additionally, implementation of more stringent
requirements or the adoption of new requirements or policies could adversely
affect our ability to sell our proposed tests in other countries in the world.
We may be required to incur significant costs to comply with these laws and
regulations.
In
addition to the rules and regulations of the FDA and similar foreign agencies,
we may also have to comply with other federal, state, provincial and local
laws,
rules and regulations. Our tests could be subject to rules pertaining to the
disposal of hazardous or toxic chemicals or potentially hazardous substances,
infectious disease agents and other materials, and laboratory and manufacturing
practices used in connection with our research and development activities.
If we
fail to comply with these regulations, we could be fined, may not be allowed
to
operate certain portions of our business, or otherwise suffer consequences
that
could materially harm our business.
Competition
We
are
not aware of other companies that are developing a protein-based screening
test
that detects antibodies to cervical cancer. However, when completed, we
expect that our cervical cancer tests will compete with the Pap tests, which
have been widely accepted by the medical community for over 50 years.
Approximately 60 million Pap tests are performed annually in the United States,
and an additional 60 million Pap tests are performed annually in the rest of
the
world. Manufacturers of Pap tests include Cyctc Corporation, TriPath
Imaging, Inc. and several other companies.
Our
cervical cancer test also will compete with HPV tests, which are becoming
increasingly accepted in the medical community. Manufacturers of HPV tests
include Digene Corporation, Ventana Medical Systems, Roche Diagnostics, Abbott
Laboratories, and Bayer Corporation.
All
of
the companies who make Pap tests and HPV tests have far greater financial,
technical, research and development, sales and marketing, administrative and
other resources than we do.
For
our
proposed tests to become accepted in the medical community, we will need to
convince those who use established tests that our proposed tests are more
reliable for the screening of cervical cancer, either as stand-alone tests
or in
conjunction with the Pap and/or HPV tests.
In
addition, we will need to obtain reimbursement coverage for our proposed
cervical cancer tests. In the United States, the American Medical
Association assigns specific Current Procedural Terminology, or CPT, codes
necessary for reimbursement. Third-party payors and managed care entities
that provide health insurance coverage to approximately 225 million people
in
the United States currently authorize almost universal reimbursement for the
Pap
test, and the Pap test is nearly fully reimbursed in other markets where we
will
sell our proposed tests. The HPV test now has full reimbursement for certain
uses. We will attempt to obtain reimbursement for our planned cervical cancer
tests to the same degree as the Pap test, but it is possible that we will be
unable to obtain third-party reimbursement for these tests.
Sales
and Marketing
When
we have completed the development of our cervical cancer tests and received
any
required regulatory approval, we plan to market and sell our ELISA test to
laboratories in the United States, Canada, Western Europe, Japan and other
countries with established cervical cancer screening programs for use as a
screening test. Initially, we do not plan to sell our test in these
countries directly to primary healthcare providers.
In
developing nations and other markets where cervical cancer screening is not
widespread and where there are few laboratories or other testing facilities,
we
plan to market and sell our rapid test to primary healthcare providers as a
stand alone point-of-care test. In some of these countries, we plan to
sell our proposed test directly to the governments or to other national
healthcare distributors who distribute tests to national healthcare
providers.
We
do not
currently have a marketing or sales force or a distribution arrangement in
place. We will need to expend resources to develop our own marketing and
sales force or enter into third-party distribution arrangements.
HIV
and Dengue Fever Tests
In
conjunction with the primary diagnostic cervical cancer blood test that we
are
developing, we have also acquired the exclusive worldwide rights to diagnostic
devices for HIV-1, HIV-2 and dengue fever, and a proprietary diagnostic reagent,
which is a key ingredient commonly used by leading manufacturers of rapid tests
as a detectable label. We acquired these rights from AccuDx in
2005.
As
access
to antiretroviral treatment is scaled up in low income countries, there is
a
critical opportunity to expand access to HIV prevention. Among the interventions
which play a critical role both in treatment and prevention, HIV testing and
counseling stands out as paramount. An estimated 40 million people are now
living with HIV/AIDS of which nearly 18 million are women (UNAIDS Report: The
Global Coalition on Women and AIDS, November 2004) and 2 million children (WHO,
Regional Offices for South-East Asia: HIV/AIDS Facts and Figures). In 2004
alone, over 5 million new infections were reported. (UNAIDS Report, Regional
HIV/AIDS Statistics and Features, end of 2004). Determination of the specific
anti-HIV antibodies still forms the primary screening/diagnostic procedure
for
HIV infection.
The
AccuDx AIDS test device consists of a blood sample pad containing HIV-antigen
gold conjugate, a capillary membrane with three capture lines for HIV-1, HIV-2
and a control line, and a fluid absorption pad. When test strips are placed
in
the tube containing the test serum or plasma, the liquid migrates upwardly
by
capillary action. Colloidal gold conjugates of the HIV antigen react with
anti-HIV-1 and anti-HIV-2 antibodies in the samples which then are captured
on
specific antigen lines as they migrate up the membrane and into the fluid
absorption pad. The results are visual and easy to interpret. For example,
a
single pink line corresponding to the control is a negative, while two lines
corresponding to the control and HIV-1 is an HIV-1 positive sample. The test
is
simple to use and performance characteristics are comparable to laboratory-based
assays. We believe that extensive utilization of HIV antibody point-of-care
tests should help to combat the current HIV/AIDS pandemic
worldwide.
Another
global illness, dengue fever, which is transmitted by mosquitoes, has had a
dramatic increase in incidence in recent decades. Dengue fever, dengue
haemorrhagic fever (“DHF”) and dengue shock syndrome (“DDS”) occur in over 100
countries and territories and threaten the health of more than 2.5 billion
people in urban, peri-urban and rural areas of the tropics and subtropics
(Dengue fever WHO Fact Sheet No. 117, April 2002). The disease is endemic in
Africa, the Americas, the Eastern Mediterranean, Southeast Asia and the Western
Pacific. Although the major disease burden is in Southeast Asia and the Western
Pacific, rising trends are also reflected in increased reporting of dengue
fever
and DHF cases in the Americas. In 1998, a total of 1.2 million cases of dengue
and DHF were reported to WHO including 15,000 deaths (USDA, Agricultural
Research Services, Center for Medical, Agricultural and Veterinary Entomology,
March 2003).
Globally,
the annual number of infections is much higher than is indicated by the number
of reported cases. Based on statistical modeling methods there are an estimated
51 million infections each year (USDA, Agricultural Research Services, Center
for Medical, Agricultural and Veterinary Entomology, March 2003).
Rapid
and
reliable tests for primary and secondary infections of dengue fever are
essential for patient management. Primary dengue infection is associated with
mild to high fever, headache, muscle pain and skin rash. Secondary infections
often result in high fever and in many cases, with haemorrhagic events and
circulatory failure. Secondary infections induce Immunoglobulins of type M
(“IgM”) response after 20 days of infection and Immunoglobulins of G type
(“IgG”) rise within 1-2 days after the onset of symptoms. A reliable and
sensitive rapid test that can simultaneously detect the presence of anti-dengue
IgG and IgM is of great clinical utility.
Intellectual
Property
We
rely
on patents, licenses from third parties, trade secrets, trademarks, copyright
registrations and non-disclosure agreements to establish and protect our
proprietary rights in our technologies and products.
We
entered into an exclusive license with Dr. Yao Xiong Hu on July 20, 2004, for
certain processes that we currently include in our cervical cancer tests based
on antibodies. Some of the technology owned by Dr. Hu is covered by United
States patents that have been issued, and some of the technology is covered
by
United States patent applications that have been filed and are pending. The
agreement with Dr. Hu also covers technology included in foreign applications
presently pending as PCT applications in China and India. The initial term
of
this license is 17 years, and it automatically renews for successive one-year
periods unless voluntarily terminated by us or by Dr. Hu in the event of our
insolvency. Under the license agreement, we are required to pay Dr. Hu a
minimum licensing fee of $48,000 per year, which is paid in monthly installments
of $4,000. If the annual royalty exceeds $48,000, we will also be required
to
pay to Dr. Hu royalties on a quarterly basis ranging from 1% to 3% depending
on
the net sales of our product.
We
plan
to file patent applications for any additional technology that we create in
the
future.
We
anticipate that we may need to license additional technology for use in our
planned cervical cancer tests from other third parties. We may be unable to
obtain these licenses on acceptable terms or at all.
Our
technology is also dependent upon unpatented trade secrets. However, trade
secrets are difficult to protect. In an effort to protect our trade
secrets, we have a policy of requiring our employees, consultants and advisors
to execute non-disclosure agreements. These agreements provide that
confidential information developed or made known to an individual during the
course of their relationship with us must be kept confidential, and may not
be
used, except in specified circumstances. In addition, our employees are
parties to agreements that require them to assign to us all inventions and
other
technology that they create while employed by us.
Research
and Development
Our
research and development program is focused on completing development of our
cervical cancer tests. We continue to refine existing technology and
develop further improvements to our tests.
We
believe that in the future we may be able to apply our technology to develop
rapid tests for other diseases and certain other cancers. We plan to
pursue development of these other tests.
We
have
signed a MOU with Union Clinical Laboratory in Taiwan, the top laboratory
serving the clinical diagnostics market in Taiwan in the Greater China region
to
validate our technologies.
For
the
fiscal years ended December 31, 2006 and 2005, we spent $244,189 (including
$151,204 associated with the grant of stock options) and $502,325 (including
$386,410 associated with the grant of stock options), respectively, on research
and development. For the nine months ended September 30, 2007, we spent $28,557
(none associated with the grant of stock options) on research and development.
Our ability to conduct the research and development necessary to validate our
technology will depend on our ability to raise sufficient capital going forward
to adequately fund the required research and development
activities.
Manufacturing
We
plan
to outsource the manufacturing and assembly of our planned cervical cancer
and
other tests to third parties. We do not currently have arrangements in
place with any such third parties.
Suppliers
We
develop the processes, including proteins and other technology that we use
in
our proposed tests, and license certain other technology from third
parties. We believe that the reagents and other supplies we will need to
manufacture our test will be readily obtained from multiple
suppliers.
Origin
of Grant Life Sciences
On
July
30, 2004, Grant Ventures, Inc., a Nevada corporation (“Grant Ventures”),
acquired Impact Diagnostics, Inc., a Utah corporation organized on July 9,
1998
(“Impact Diagnostics”), through the merger of Grant Ventures’ wholly owned
subsidiary, Impact Acquisition Corporation, with Impact Diagnostics. Grant
Ventures was an inactive publicly registered shell corporation with no
significant assets or operations. Impact Diagnostics had been organized to
develop certain technologies owned by Dr. Yao Ziong Hu and was initially funded
by its founders, supplemented by two additional rounds of private funding.
Grant
Ventures changed its name to Grant Life Sciences, Inc. in November 2004. Impact
Acquisition Corporation and Impact Diagnostics were subsequently
dissolved.
Employees
As
of
January 18, 2008, we had four part-time employees and retained three
consultants. Our employees consist of three executive officers and one
administrative assistant. It is not likely that we will be adding
employees in the foreseeable future.
Our
electronic filings with the United States Securities and Exchange Commission
(including our annual report on Form 10-KSB, quarterly reports on Form 10-QSB
and current reports on Form 8-K, and any amendments to these reports) are
available free of charge on the Securities and Exchange Commission’s website at
http://www.sec.gov.
We
currently lease office space in Los Angeles, California and Salt Lake City,
Utah. Part of our Los Angeles office space is subleased for $490 per month
on a month to month basis. We believe that our existing facilities will be
adequate for our current needs and that additional space will be available
as
needed. The material terms of our property leases are set forth in the
table below.
Location
|
|
Use
|
|
Square
Feet
|
|
Rent Payments
|
|
Term
|
|
Leased From
|
|
3550
Wilshire Blvd., Ste 1700, Los Angeles CA 90010
|
|
|
Offices
|
|
|
Approximately 500
square feet
|
|
$
|
979 per month
|
|
|
Month to month
|
|
|
Wilshire Business
Center,
LLC
|
|
1787
E. Ft. Union Blvd., Ste. 202, Salt Lake City, UT
|
|
|
Offices
|
|
|
Approximately 700
square feet
|
|
$
|
875 per month
|
|
|
April
30, 2008
|
|
|
Lowder Properties
|
|
LEGAL
PROCEEDINGS
We
are
not currently a party to any litigation.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set
forth
below is certain information regarding our directors and executive
officers. Our Board of Directors is comprised of four directors.
There are no family relationships between any of our directors or executive
officers. Each of our directors is elected to serve until our next annual
meeting of our stockholders and until his successor is elected and qualified
or
until such director’s earlier death, removal or termination.
Director
and Officer Information
Name
|
|
Age
|
|
Position
|
Stan
Yakatan
|
|
65
|
|
Chairman
of the Board of Directors
|
Dr.
Hun-Chi Lin
|
|
54
|
|
President,
Chief Scientific Officer, Director
|
Doyle
Judd
|
|
63
|
|
Chief
Financial Officer
|
Michael
Ahlin
|
|
59
|
|
Vice
President and Director
|
Jack
Levine
|
|
57
|
|
Director,
Chairman of Audit Committee
|
Stan
Yakatan.
Mr. Yakatan has been the Chairman of the Board of Directors since July 2004,
and
was the Chief Executive Officer from July 2004 until August 2005. From September
1984 to the present, Mr. Yakatan has been the Chairman, President and Chief
Executive Officer of Katan Associates, a life sciences advisory business.
From 2000 to 2005, Mr. Yakatan was also a director of Lifepoint, Inc., a
manufacturer of drug and alcohol testing systems, and is a strategic advisor
to
the state government of Victoria, Australia. Between 1968 and 1989, Mr.
Yakatan held various senior executive positions with New England Nuclear
Corporation (a division of E.I. DuPont), ICN Pharmaceuticals, Inc., New
Brunswick Scientific Co., Inc. and Biosearch.
Dr.
Hun-Chi Lin.
Dr. Lin
has been the President, Chief Scientific Officer, and a Director since October
2005. Since 2003, Dr. Hun-Chi Lin has been co-founder and President of XepMed,
Inc., which develops medical devices used for separating blood components and
treating infectious diseases. From 1999 to present, Dr. Lin has been co-founder
and President of BioMedical Research Laboratories, Inc., which developed a
Web-based healthcare partner-connectivity system to be used by individual health
maintenance organizations, individuals, and in clinical trials. From 1996 to
1999, Dr. Lin was Director of Clinical Trials at Specialty Laboratories, where
he built and managed a clinical trials division that had the broadest
esoteric-testing capabilities in the contract research organization
industry.
Doyle
Judd.
Mr. Judd
has been Chief Financial Officer since April 2007. Mr. Judd has been a member
of
Tatum LLC, a national CFO services firm, since April 2006 and serves other
Tatum
clients concurrent with his service to the Company. Prior to his engagement
by
the Company, Mr. Judd served other Tatum clients in a variety of industries.
From May 2004 through March 2006, Mr. Judd was Chief Financial Officer of The
LoveSac Corporation, an operator and franchisor of specialty retail stores,
which filed for bankruptcy protection in January 2006. From July 1994 through
June 2003, Mr. Judd was Chief Financial Officer of Slaymaker Group, Inc., which
operated causal theme restaurants in six intermountain states.
Michael
Ahlin.
Mr. Ahlin was one of the original founders of Impact Diagnostics, the
predecessor company of Grant Life Sciences. From July 1998 to May 2004,
Mr. Ahlin was the Chairman of the Board, President and Chief Executive Officer
of Impact Diagnostics. Since May 2004, Mr. Ahlin has retained the positions
of Vice President and Director. Mr. Ahlin has been President of WetCor,
Inc., a land development company, since 1983.
Jack
Levine.
Mr. Levine has been a Director since July 2004. Since 1984, Mr. Levine has
been the President of Jack Levine, PA, a certified public accounting firm.
In addition, since July 2003, Mr. Levine has served as a Director of RealCast
Corporation, an internet streaming company. From 1999 until October 2007,
Mr. Levine served as a Director and Chairman of the Audit Committee of PharmaNet
Development Group, Inc. (formerly, SFBC International Inc.), a global drug
development company. He also served as Chairman of the Board of Directors
of this company from January 2006 until October 2007. Mr. Levine served as
a
Director, Chairman of the Audit and Asset Liability Committees, and a member
of
the Executive Committee of Beach Bank from May 2000 until December 2006, and
as
a Director and Chairman of the Audit Committee of The Prairie Fund, a mutual
fund, from August 2000 until December 2006. Mr. Levine is a certified public
accountant currently licensed by the State of Florida. He also is a member
of
the National Association of Corporate Directors, Washington, DC, and a member
of
the Association of Audit Committee Members, Inc.
Code
of Ethics
On
December 15, 2004, we adopted a written code of ethics that governs all of
our
officers, directors and finance and accounting employees. The code of ethics
is
incorporated by reference herewith as Exhibit 14.1 and is posted on our website
at www.grantlifesciences.com
.
The
following table sets forth information concerning the total compensation
that we
have paid or that has accrued on behalf of our Chief Executive Officer and
other
executive officers during fiscal 2007 and
2006.
Summary
Compensation Table
Name
and
Principal
position
|
|
Year
|
|
Salary
($)
|
|
Option
Awards
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
Stan
Yakatan,
Chairman
and Former
Chief
Executive Officer (1)
|
|
|
2007
|
|
|
30,000
|
|
|
74,883
|
|
|
104,883
|
|
|
|
|
2006
|
|
|
18,000
|
|
|
-0-
|
|
|
18,000
|
|
Michael
Ahlin,
Vice
President and Director (2 )
|
|
|
2007
|
|
|
30,000
|
|
|
59,805
|
|
|
89,805
|
|
|
|
|
2006
|
|
|
40,000
|
|
|
-0-
|
|
|
40,000
|
|
Dr
Hun-Chi Lin,
President,
Chief Scientific Officer and Director ( 3)
|
|
|
2007
|
|
|
90,000
|
|
|
105,482
|
|
|
195,482
|
|
|
|
|
2006
|
|
|
60,000
|
|
|
5,868
|
|
|
65,868
|
|
Donald
Rutherford
Former
Chief Financial Officer (4)
|
|
|
2007
|
|
|
29,607
|
|
|
59,736
|
|
|
89,343
|
|
|
|
|
2006
|
|
|
116,625
|
|
|
60,892
|
|
|
177,517
|
|
Doyle
Judd
Chief
Financial Officer (5)
|
|
|
2007
|
|
|
90,050
|
|
|
61,111
|
|
|
151,161
|
|
|
|
|
2006
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
(1)
Mr. Yakatan resigned from the position of Chief Executive Officer
in
August 2005, after which he was paid $1,500 per month as
Chairman of the Board of Directors. In 2007, this compensation
was
increased to $2,500 per month. Mr. Yakatan does not have an employment
contract with the Company. In 2007, Mr. Yakatan was granted 3,359,531
share options, of
which approximately 40% vested immediately, 40% vest in 2008, and
20% vest
in 2009.
|
(2)
Mr. Ahlin had an employment contract with the company which set
his
monthly salary at $12,000. The employment contract can be terminated
by
the Company at any time. During 2005 the pay rate was reduced to
$5,000
per month and, during 2006, to $2,500 per month. In 2007, Mr. Ahlin
was
granted 3,000,000 share options, of which one-third vested immediately,
one-third vest in 2008 and one-third vest in 2009.
|
(3)
Dr. Lin joined the Company as President, Chief Scientific Officer
and
Director in October 2005 with a monthly salary of $5,000. He was
also
entitled to 500,000 share options with an exercise price of $0.05
per
share, one-third vesting effective the date of hiring and the remaining
two-thirds vesting quarterly over 2 years. On May 23, 2006, Dr.
Lin received additional compensation in the form of 100,000 share
options,
vesting one-third on the grant date, one-third on the first anniversary
of
the grant date and one-third on the second anniversary of the grant
date.
In 2007, Dr. Lin’s compensation was increased to $7,500 per month and he
was granted 3,961,204 share options, of which approximately 57%
vested
immediately, 31% vest in 2008, and 12% vest in 2009.
|
(4)
Mr. Rutherford joined the Company as Chief Financial Officer on
April 1,
2005 at an annual salary of $104,167 for work on a part-time basis.
Mr.
Rutherford was granted 750,000 share options ,
one-third vesting immediately and the remainder on a monthly basis
over
two years. In 2007, Mr. Rutherford was granted 2,500,000 share
options, of
which one-third vested immediately, one-third vests in 2008, and
one-third
vests in 2009. He
was replaced by Doyle Judd, who joined the Company as Chief Financial
Officer on April 9, 2007.
|
(5)
Mr. Judd joined the Company as Chief Financial Officer on April
9, 2007 at
an annual salary of $99,000 for work on a half-time basis. Mr.
Judd was granted 2,500,000 share options, 56% of which vested immediately
with the remainder vesting in 2008.
|
For
the
year ended December 31, 2007,
we did
not have any benefit plans, except the 2004 Stock Incentive Plan which was
approved on September 30, 2004 by a majority of the shareholders (the “2004
Plan”) and the 2007 Stock Incentive Plan which was adopted by the Board of
Directors on June 27, 2007 (the “2007 Plan”).
The
following table sets forth information concerning individual grants of stock
options outstanding to the Company’s named executive officers as
of
December
31, 2007,
under
the Company’s 2004 Plan and 2007 Plan.
Outstanding
Equity Awards at Fiscal Year End
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
|
Option
Grant Date
|
|
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable(1)
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
|
Option
Exercise Price ($)
|
|
|
Option
Expiration Date
|
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested (#)
|
|
|
Equity
Incentive Plan Awards Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested ($)
|
|
Stan Yakatan,
Chairman
|
|
|
7/6/04
|
|
|
1,720,952
|
|
|
|
|
|
|
|
$
|
0.180
|
|
|
7/6/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/27/07
|
|
|
1,333,335
|
|
|
2,026,196
|
|
|
|
|
$
|
0.030
|
|
|
6/27/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Ahlin, Vice President, Director
|
|
|
6/27/07
|
|
|
1,000,000
|
|
|
2,000,000
|
|
|
|
|
$
|
0.030
|
|
|
6/27/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Hun-Chi Lin,
President,
Director
|
|
|
5/23/06
|
|
|
500,000
|
|
|
|
|
|
|
|
$
|
0.050
|
|
|
5/23/16
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
5/23/06
|
|
|
66,666
|
|
|
33,334
|
(2)
|
|
|
|
$
|
0.018
|
|
|
5/23/16
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
6/27/07
|
|
|
2,266,668
|
|
|
1,694,538
|
|
|
|
|
$
|
0.030
|
|
|
6/27/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don Rutherford,
Former
CFO
|
|
|
4/1/05
|
|
|
750,000
|
|
|
|
|
|
|
|
$
|
0.180
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/27/07
|
|
|
833,334
|
|
|
1,666,666
|
|
|
|
|
$
|
0.030
|
|
|
6/27/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doyle
Judd,
CFO
|
|
|
6/27/07
|
|
|
1,400,000
|
|
|
1,100,000
|
|
|
|
|
$
|
0.030
|
|
|
6/27/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Vesting
schedule by individual for 2007 share option grants is included in footnotes
to
Summary Compensation Table above.
(2)
Shares
vest on May 23, 2008.
Employment
Contracts and Termination of Employment and Change-In-Control
Arrangements
We
have
the following employment contracts with the named executive
officers:
Dr.
Hun-Chi Lin has an employment agreement with the Company. Pursuant to this
employment agreement, Dr. Lin was
paid
an annual salary of $60,000 through 2006 (increased to $90,000 effective
January
1, 2007) for approximately 50% of his time and the Board of Directors of
the
Company has the discretion to grant an annual bonus. Dr. Lin has been
granted 500,000 share options at $0.05 per share vesting quarterly over 2
years
from date of hiring. On June 27, 2007, he was granted 3,961,204 share
options, of which approximately 57% vested immediately, 31% vest in 2008,
and
12% vest in 2009. Dr.
Lin is entitled to participate in all employee benefit plans or programs
that are available to management employees of the Company and all other benefit
plans or programs as may be specified by the Board of Directors of the Company.
The employment agreement provides that either we or Dr. Lin may terminate
the
agreement at any time upon 30 days written notice.
Doyle
Judd has an employment agreement with the Company. Pursuant to this
employment agreement Mr. Judd is paid
an
annual salary of $99,000 for approximately 20 hours per week, depending on
the
needs of the Company. Mr. Judd was granted 2,500,000
share options on June 27, 2007 at an exercise price per share equal to the
closing price of the common stock on the date the options were granted, of
which
1,400,000
options vested
immediately with the remainder vesting in 2008.
Mr. Judd
is entitled to participate in all employee benefit plans or programs that
are
available to management employees of the Company and all other benefit plans
or
programs as may be specified by the Board of Directors of the Company. The
employment agreement provides that either we or Mr. Judd may terminate upon
30
days written notice.
Michael
Ahlin has an employment agreement with the Company. Under the terms of the
agreement he was
to
receive as compensation a monthly salary of $12,000. In 2006, Mr. Ahlin agreed
to reduce his monthly salary to $2,500. The Board of Directors has the
discretion to grant an annual bonus to Mr. Ahlin. Mr. Ahlin was granted
3,000,000 share options on June 27, 2007, of which one-third vested immediately,
one-third vest in 2008 and one-third vest in 2009. Mr.
Ahlin
is entitled to participate in all employee benefit plans or programs that
are
available to management employees of the Company. The Company currently has
no
benefit plans. The employment agreement provides that either we or
Mr. Ahlin may terminate the agreement at any time.
Compensation
of Directors
We
pay
our directors compensation in the form of options to purchase shares for
each
year that they serve as directors. These options have an exercise price
equal to the market value at the time they are granted. The vesting
schedule is established on the grant date with a typical vesting schedule
of
one
third
of the options becom ing
exercisable on the grant date, plus one-third on each of the first and second
anniversaries of the date of their grant. Mr. Yakatan became a
non-employee director after his resignation as CEO in 2005 and was
paid
a fee of $1,500 per month for his services as Chairman of the Board of
Directors. In 2007, this compensation has been increased to $2,500 per
month.
The
compensation of all directors other than Jack Levine has been reflected in
the
Summary Compensation Table above. The amount of stock option expense recognized
in the 2007
and
2006 statements
of operations with respect to stock options previously granted to Mr.
Levine totaled $75,429 and
$3,784, respectively.
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Section
78.7502 of the Nevada Revised Statutes allows a corporation to indemnify any
officer, director, employee or agent who is a party or is threatened to be
made
a party to a litigation by reason of the fact that he or she is or was an
officer, director, employee or agent of the corporation, or is or was serving
at
the request of the corporation as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such director or officer
if:
·
there was no breach by the officer, director, employee or agent of his or her
fiduciary duties to the corporation involving intentional misconduct, fraud
or
knowing violation of law; or
·
the officer, director, employee or agent acted in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
Our
Amended and Restated Articles of Incorporation provide for the indemnification
of our officers and directors to the maximum extent permitted by Nevada law,
and
also provide that:
·
the indemnification right is a contract right that may be enforced in any manner
by our officers and directors,
·
the expenses of our officers and directors incurred in any proceeding for which
they are to be indemnified are to be paid to them as they are incurred, with
such payments to be returned to us if it is determined that an officer or
director is not entitled to be indemnified,
·
the indemnification right is not exclusive of any other rights that our officers
and directors have or may acquire and includes any other rights of
indemnification under any bylaw, agreement, vote of stockholders or provision
of
law,
·
our Board of Directors may adopt bylaws to provide for the fullest
indemnification permitted by Nevada law,
·
our Board of Directors may cause us to purchase and maintain insurance for
our
officers and directors against any liability asserted against them while acting
in their capacity as our officers or directors, and
·
these indemnification rights shall continue to apply after any officer or
director has ceased being an officer or director and shall apply to their
respective heirs, executors and administrators.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of Grant Life Sciences
pursuant to the foregoing provisions, or otherwise, we have been advised that
in
the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
These
provisions of our Amended and Restated Articles of Incorporation became
effective November 12, 2004.
The
following table lists stock ownership of our common stock as of January
18, 2008. The information includes beneficial ownership by (i) holders of
more than 5% of our common stock, (ii) each of our current directors and
executive officers and (iii) all of our directors and executive officers
as a
group. The information is determined in accordance with Rule 13d-3
promulgated under the Exchange Act based upon information furnished by the
persons listed or contained in filings made by them with the Commission.
Except as noted below, to our knowledge, each person named in the table has
sole
voting and investment power with respect to all shares of our common stock
beneficially owned by them.
Name and Address of
Beneficial Owner
|
|
Director/Officer
|
|
Amount and Nature of
Beneficial Ownership (1)
|
|
Percentage
of Class (1)
|
|
|
|
|
|
|
|
|
|
Stan
Yakatan
245
33rd Street
Hermosa
Beach, CA 90254
|
|
Chairman
of the Board of Directors
|
|
3,720,953
|
(2)
|
1.20
|
%
|
|
|
|
|
|
|
|
|
Jack
Levine
16855
N.E. 2 nd
Avenue, Suite 303
N.
Miami Beach, FL 33162
|
|
Director
|
|
3,535,806
|
(3)
|
1.14
|
|
|
|
|
|
|
|
|
|
Dr.
Hun-Chi Lin
17th
Floor
3550
Wilshire Blvd.
Los
Angeles, CA 90010
|
|
President,
Chief Scientific Officer and Director
|
|
3,966,667
|
(4)
|
1.28
|
|
|
|
|
|
|
|
|
|
Michael
Ahlin
1787
E. Fort Union Blvd., Suite 202
Salt
Lake City, UT 84121
|
|
Vice
President and Director
|
|
5,227,164
|
(5)
|
1.68
|
|
|
|
|
|
|
|
|
|
Doyle
Judd
1787
E. Fort Union Blvd., Suite 202
Salt
Lake City, UT 84121
|
|
Chief
Financial Officer
|
|
1,400,000
|
(6)
|
0.45
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group
|
|
|
|
17,850,590
|
(7)
|
5.75
|
%
|
(1)
Applicable percentage ownership is based on 311,125,613 shares of common
stock
outstanding as of January 18, 2008 ,
together with securities exercisable or convertible into shares of common
stock
within 60 days of January 18, 2008 for
each
stockholder. Beneficial ownership is determined in accordance with the rules
of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock that
are
currently exercisable or exercisable within 60 days of January 18, 2008
are
deemed to be beneficially owned by the person holding such securities for
the
purpose of computing the percentage of ownership of such person, but are
not
treated as outstanding for the purpose of computing the percentage ownership
of
any other person.
(2)
Represents
options to purchase 3,720,953
shares
of our common stock beneficially owned by Mr. Yakatan exercisable within
60
days. Does not include options to purchase 1,359,530 shares
of
our common stock that are not exercisable within 60 days.
(3)
Includes options to purchase 2,175,001
shares
of our common stock beneficially owned by Mr. Levine that are exercisable
within
60 days. Does not include options to purchase 1,359,530 shares
of
our common stock that are not exercisable within 60 days.
(4)
Represents options to purchase 3,966,667 shares of our common stock beneficially
owned by Mr. Lin that are exercisable within 60 days. Does not include options
to purchase 561,203 shares
of
our common stock that are not exercisable within 60 days.
(5)
Includes options to purchase 1,500,000 shares of our common stock beneficially
owned by Mr. Ahlin that are exercisable within 60 days. Does not include
options
to purchase 1,500,000 shares of our common stock that are not exercisable
within
60 days.
(6)
Represents options to purchase 1,400,000 shares of our common stock beneficially
owned by Mr. Judd that are exercisable within 60 days. Does not include options
to purchase 1,100,000
shares of our common stock not exercisable within 60 days. Mr. Judd replaced
Don
Rutherford as Chief Financial Officer in April 2007. Mr. Rutherford maintains
ownership of options of purchase 2,416,667 shares of our common stock that
are
exercisable within 60 days. Such ownership does not include options to purchase
833,333 shares of our common stock that are not exercisable within 60
days.
(7)
Includes options to purchase 12,762,621
shares
of our common stock exercisable within 60 days. Does not include options
to
purchase 5,880,263
shares of our common stock that are not exercisable within 60
days.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table gives information about the Company’s common stock that may be
issued upon the exercise of options
granted
to employees, directors and consultants, under its 2004 Plan and 2007 Plan
as of
December 31, 2007.
Equity
Compensation Plan Information
|
|
|
Number
of Securities to
be
Issued Upon
Exercise
of
Outstanding
Options,
Warrants
and Rights
|
|
|
Weighted
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
|
|
Number
of Securities Remaining
Available
for Future Issuance
Under
Equity Compensation Plan
|
|
Equity
Compensation approved by Security Holders (1)
|
|
|
7,120,867
|
|
$
|
0.088
|
|
|
1,325,000
|
|
Equity
Compensation not approved by Security Holders ( 2)
(3)
|
|
|
15,355,351
|
|
$
|
0.032
|
|
|
14,894,649
|
|
TOTAL
|
|
|
22,476,218
|
|
$
|
0.050
|
|
|
|
|
(1)
|
The
2004 Plan was approved by stockholders.
|
(2)
|
The
2007 Plan has not yet been approved by stockholders.
|
(3)
|
Includes
250,000 warrants to purchase shares at $0.180 per share issued
to a
consultant for performing research services on our behalf, prior
to the
Merger in July 2004.
|
Except
as
set forth below, there have been no material transactions during the past two
years between us and any officer, director or any stockholder owning greater
than 5% of our outstanding shares, or any of their immediate family
members.
Seth
Yakatan has been contracted as a consultant to us in the business development
area since November 1, 2004, at a fee of $5,000 each month. Mr. Yakatan is
the
son of Stan Yakatan, our Board Chairman
In
October 2007, Mr. Ahlin advanced $7,000 to the Company. He was repaid in full,
without interest, in December 2007.
We
believe that these transactions were on terms as favorable as could have been
obtained from unaffiliated third parties. Any future transactions we enter
into
with our directors, executive officers and other affiliated persons will be
on
terms no less favorable to us than can be obtained from an unaffiliated party
and will be approved by a majority of the independent, disinterested members
of
our board of directors, who have access, at our expense, to independent legal
counsel.
The
following table details the name of each selling stockholder, the number of
shares owned by that selling stockholder, and the number of shares that may
be
offered by each selling stockholder for resale under this prospectus. The
selling stockholders may sell up to 35,087,719 shares of our common stock
from time to time in one or more offerings under this prospectus, all
shares of which are issuable upon the conversion of notes held by certain
selling stockholders. Because each selling stockholder may offer all, some
or none of the shares it holds, and because, based upon information provided
to
us, there are currently no agreements, arrangements, or understandings with
respect to the sale of any of the shares, no definitive estimate as to the
number of shares that will be held by each selling stockholder after the
offering can be provided. The following table has been prepared on the
assumption that all shares offered under this prospectus will be sold to parties
unaffiliated with the selling stockholders. Except as indicated below, no
selling stockholder nor any of their affiliates have held a position or office,
or had any other material relationship, with us.
Name
of Selling Stockholder
*
|
|
|
Total
Shares of Common Stock and Common Stock Issuable Upon Conversion
of Notes
and Warrants**
|
|
|
Total
Percentage of Common Stock, Assuming Full
Conversion
|
|
|
Shares
of Common Stock Included in Prospectus
|
|
|
Beneficial
Ownership Before the Offering ***
|
|
|
|
|
Percentage
of Common
Stock Owned Before Offering ***
|
|
|
Ownership
After Completion of Offering ****
|
|
New
Millenium Capital Partners II, LLC (1)
|
|
|
1,923,454
|
|
|
0.62
|
%
|
|
Up
to 456,140 shares of common stock
|
|
|
15,560,504
|
|
(2)
|
|
|
4.99
|
%
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AJW
Master Fund, Ltd. (1)
|
|
|
88,771,474
|
|
|
28.53
|
%
|
|
Up
to 32,771,930 shares of common stock
|
|
|
15,560,504
|
|
(2)
|
|
|
4.99
|
%
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AJW
Partners, LLC (1)
|
|
|
7,714,568
|
|
|
2.48
|
%
|
|
Up
to 1,859,649 shares of common stock
|
|
|
15,560,504
|
|
(2)
|
|
|
4.99
|
%
|
|
0
|
|
*
Except
as set forth below, we have been notified by the selling stockholders that
they
are not broker-dealers or affiliates of broker-dealers and that they believe
they are not required to be broker-dealers.
**
This
column includes shares underlying 8,000,000 warrants and represents an estimated
number based on a current conversion price of $.019, divided into the principal
amount.
***
These
columns represent the aggregate maximum number and percentage of shares that
the
selling stockholders can own at one time (and therefore, offer for resale at
any
one time) due to their 4.99% limitation.
****
Assumes that all securities registered will be sold.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, as amended, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power
and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the secured convertible notes is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
(1)
Some
of the selling stockholders are affiliates of each other because they are under
common control. AJW Partners, LLC is a private investment funds that is owned
by
its investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey
S. Ribotsky is the fund manager, has voting and investment control over the
shares listed below owned by AJW Partners, LLC. New Millennium Capital Partners
II, LLC and AJW Master Fund, Ltd. are private investment funds that are owned
by
their investors and managed by First Street Manager II, LLC.
(2)
The
actual number of shares of common stock offered in this prospectus, and included
in the registration statement of which this prospectus is a part, includes
such
additional number of shares of common stock as may be issued or issuable upon
conversion of the secured convertible notes, in accordance with Rule 416 under
the Securities Act of 1933, as amended. However the selling stockholders have
contractually agreed to restrict their ability to convert their secured
convertible notes and receive shares of our common stock such that the number
of
shares of common stock held by them in the aggregate and their affiliates after
such conversion does not exceed 4.99% of the then issued and outstanding shares
of common stock as determined in accordance with Section 13(d) of the Exchange
Act. Accordingly, the number of shares of common stock set forth in the table
for the selling stockholders exceeds the number of shares of common stock that
the selling stockholders could own beneficially at any given time through their
ownership of the secured convertible notes. In that regard, the beneficial
ownership of the common stock by the selling stockholder set forth in the table
is not determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended.
The
common stock offered by this prospectus is being offered by the selling
stockholders. The common stock may be sold or distributed from time to
time by the selling stockholders directly to one or more purchasers or through
brokers, dealers or underwriters who may act solely as agents at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the common stock offered by this prospectus may be effected in
one
or more of the following methods:
·
|
ordinary
brokers’ transactions,
|
·
|
through
brokers, dealers, or underwriters who may act solely as
agents,
|
·
|
“at
the market” into an existing market for the common
stock,
|
·
|
in
other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through
agents,
|
·
|
in
privately negotiated transactions,
and
|
·
|
any
combination of the foregoing.
|
In
order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or dealers. In addition,
in certain states, the shares may not be sold unless they have been registered
or qualified for sale in the state or an exemption from the registration or
qualification requirement is available and complied with.
The
selling stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by a selling stockholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act of 1933, as amended, in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933, as
amended.
We
will
pay all of the expenses incident to the registration, offering, and sale of
the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify the selling
stockholders and related persons against specified liabilities, including
liabilities under the Securities Act.
While
they are engaged in a distribution of the shares included in this prospectus
the
selling stockholders are required to comply with Regulation M promulgated under
the Securities Exchange Act of 1934, as amended. With certain exceptions,
Regulation M precludes the selling stockholders, any affiliated purchasers,
and
any broker-dealer or other person who participates in the distribution, from
bidding for or purchasing, or attempting to induce any person to bid for or
purchase any security which is the subject of the distribution until the entire
distribution is complete. Regulation M also prohibits any bids or purchases
made
in order to stabilize the price of a security in connection with the
distribution of that security. All of the foregoing may affect the marketability
of the shares offered by this prospectus.
The
selling stockholders may also sell shares under Rule 144 promulgated under
the
Securities Act of 1933, as amended, rather than selling under this prospectus.
This offering will terminate on the date that all shares offered by this
prospectus have been sold by the selling stockholders or are eligible for sale
under Rule 144(k). In general, under Rule 144 as currently in effect, a
person (or persons whose shares are required to be aggregated) who has owned
shares for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
number of shares of our common stock then outstanding, (which will equal
approximately 3,111,256 shares of common stock) or (ii) the average weekly
trading volume of our shares of common stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Under Rule 144(k),
a person who is not deemed to have been our affiliate at any time during the
three months preceding a sale, and who has owned the shares proposed to be
sold
for at least two years, is entitled to sell his shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
Our
authorized capital stock currently consists of 750,000,000 shares of common
stock and 20,000,000 shares of preferred stock. Each share of common stock
is
entitled to one vote on all matters voted upon by our stockholders.
Holders of our common stock have no preemptive or other rights to subscribe
for
additional shares or other securities. There are no cumulative voting
rights.
Holders
of our common stock are entitled to dividends in such amounts as may be declared
by our board of directors from time to time from funds legally available
therefore. We have not declared or paid cash dividends or made
distributions in the past on our common stock, and we do not anticipate that
we
will pay cash dividends or make distributions in the foreseeable future.
We currently intend to retain and invest future earnings to finance
operations.
Our
Amended and Restated Articles of Incorporation allow our Board of Directors
the
authorization, without further stockholder approval, to issue up to 20,000,000
shares of preferred stock from time to time in one or more series and to fix
the
number of shares and the relative dividend rights, conversion rights, voting
rights and other rights and qualifications of any such series. The Board
has not fixed any series of preferred stock and no shares of preferred stock
are
issued and outstanding.
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby.
EXPERTS
Our
audited financial statements for the years ended December 31, 2006 and 2005
have
been audited by Singer, Lewak, Greenbaum and Goldstein, LLP, an independent
registered public accounting firm. The report of this independent
registered public accounting firm, which appears elsewhere herein, includes
an
explanatory paragraph as to substantial doubt about our ability to continue
as a
going concern and an explanatory paragraph regarding the restatement of our
financial statements. Our financial statements are included in reliance
upon such reports and upon the authority of said firm as experts in auditing
and
accounting.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
January 24, 2005, the Audit Committee of Grant Life Sciences engaged Russell
Bedford Stefanou Mirchandani LLP (“RBSM”) as our independent registered public
accounting firm to audit the Company’s financial statements for the year ended
December 31, 2004. Prior to engaging RBSM, neither the Company, nor anyone
on
our behalf, consulted with RBSM regarding the application of accounting
principles to a specific completed or contemplated transaction, or the type
of
audit opinion that might be rendered on the Company’s consolidated financial
statements, or any other matters.
On
January 24, 2006, Grant Life Sciences dismissed RBSM as our independent
registered public accounting firm. Effective January 24, 2006, we engaged
Singer, Lewak, Greenbaum & Goldstein LLP (“SLGG”) as our new independent
registered public accounting firm. Our board of directors approved the dismissal
of RBSM and the appointment of SLGG as our new independent registered public
accounting firm.
From
the
date of RBSM's appointment through the date of their dismissal on January 24,
2006, there were no disagreements between our company and RBSM on any matter
listed under Item 304 Section (a)(1)(iv) A to E of Regulation S-B, including
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of RBSM would
have
caused RBSM to make reference to the matter in its reports on our financial
statements.. The report on the financial statements prepared by RBSM for the
year ended December 31, 2004 contained a paragraph with respect to there being
substantial doubt about our ability to continue as a going concern.
Prior
to
engaging SLGG, we did not consult SLGG regarding either:
|
1.
|
the
application of accounting principles to any specified transaction,
either
completed or proposed, or the type of audit opinion that might be
rendered
on our financial statements, and neither a written report was provided
to
our company nor oral advice was provided that SLGG concluded was
an
important factor considered by our company in reaching a decision
as to
the accounting, auditing or financial reporting issue;
or
|
|
|
|
|
2.
|
any
matter that was either the subject of disagreement or event, as defined
in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
to
Item 304 of Regulation S-B, or a reportable event, as that term is
explained in Item 304(a)(1)(iv)(A) of Regulation
S-B.
|
Prior
to
engaging SLGG, SLGG did not provide our company with either written or oral
advice that was an important factor considered by our company in reaching a
decision to change our independent registered public accounting firm from RBSM
to SLGG.
On
April
17, 2007, Grant Life Sciences dismissed SLGG as its independent registered
public accounting firm. Effective April 17, 2007, we engaged Tanner LC as our
new independent registered public accounting firm. Our board of directors has
approved the dismissal of SLGG and the appointment of Tanner LC as our new
independent registered public accounting firm.
From
the
date of SLGG's appointment through the date of their dismissal on April 17,
2007, there were no disagreements between our company and SLGG on any matter
listed under Item 304 Section (a)(1)(iv) A to E of Regulation S-B, including
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of SLGG would
have
caused SLGG to make reference to the matter in its reports on our financial
statements. The report prepared by SLGG on the Company’s financial statements
for the years ended December 31, 2006 and 2005, contained neither an adverse
opinion nor a disclaimer of opinion; however, such report contained qualifying
paragraphs setting forth that there was substantial doubt as to our ability
to
continue as a going concern and the restatement of the financial
statements.
Prior
to
engaging Tanner LC, we did not consult Tanner LC regarding either:
1.
|
the
application of accounting principles to any specified transaction,
either
completed or proposed, or the type of audit opinion that might be
rendered
on our financial statements, and neither a written report was provided
to
our Company nor oral advice was provided by Tanner LC that was an
important factor considered by our Company in reaching a decision
as to
the accounting, auditing or financial reporting issue;
or
|
2.
|
any
matter that was either the subject of disagreement or event, as defined
in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
to
Item 304 of Regulation S-B, or a reportable event, as that term is
explained in Item 304(a)(1)(iv)(A) of Regulation
S-B.
|
Prior
to
engaging Tanner LC, Tanner LC did not provide our Company with either written
or
oral advice that was an important factor considered by our Company in reaching
a
decision to change our independent registered public accounting firm from SLGG
to Tanner LC.
We
are
subject to the reporting requirements of the Securities Exchange Act of 1934,
as
amended, and file reports, proxy statements and other information with the
Securities and Exchange Commission. These reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Securities and Exchange Commission’s regional
offices. You can obtain copies of these materials from the Public
Reference Section of the Securities an Exchange Commission upon payment of
fees
prescribed by the Securities and Exchange Commission. You may obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission’s Web site contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
INDEX
TO FINANCIAL STATEMENTS
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
|
|
Page
|
|
For
the Nine Months Ended September 30, 2007 and September 30,
2006
|
|
|
|
Condensed
Consolidated Balance Sheets - September 30, 2007 and December 31,
2006
|
|
|
F-2
|
|
Condensed
Consolidated Statement of Operations - three months and nine
months ended
September 30, 2007 and 2006 and for the period July 9, 1998 (date
of
inception) through September 30, 2007
|
|
|
F-3
|
|
Condensed
Consolidated Statement of Deficiency in Stockholder’s Equity- July 9,
1998
|
|
|
|
|
(date
of inception) through September 30, 2007
|
|
|
F-4
|
|
Condensed
Consolidated Statement of Cash Flows - nine months ended September
30,
2007 and
|
|
|
|
|
2006
and July 9, 1998 (date of inception) through September 30,
2007
|
|
|
F-7
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
|
F-9
|
|
|
|
|
|
|
For
the Years Ended December 31, 2006 and December 31,
2005
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-14
|
|
Consolidated
Balance Sheet (Restated) as of December 31, 2006 and 2005
|
|
|
F-15
|
|
Consolidated
Statements of Losses (Restated) for the years ended December
31, 2006 and
2005 and for the period July 9, 1998 (date of inception) through
December
31, 2006
|
|
|
F-16
|
|
Consolidated
Statement of Deficiency in Stockholders’ Equity (Restated) for the period
July 9, 1998 (date of inception) through December 31, 2006
|
|
|
F-17
|
|
Consolidated
Statements of Cash Flows (Restated) for the years ended December
31, 2006
and 2005 and for the period July 9, 1998 (date of inception)
through
December 31, 2006
|
|
|
F-18
|
|
Notes
to Restated Consolidated Financial Statements
|
|
|
F-20
|
|
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
BALANCE SHEETS
(Unaudited)
|
|
September 30,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
38,329
|
|
$
|
287,992
|
|
Accounts
receivable
|
|
|
2,550
|
|
|
1,338
|
|
Prepaid
expenses
|
|
|
11,667
|
|
|
1,875
|
|
Deposits
and other
|
|
|
24,038
|
|
|
4,375
|
|
Total
current assets
|
|
|
76,584
|
|
|
295,580
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment, net of accumulated depreciation of $17,567 and
$19,922 as
of September 30, 2007 and December 31, 2006, respectively
|
|
|
4,068
|
|
|
10,772
|
|
|
|
|
|
|
|
|
|
Patents,
net of accumulated amortization of $2,722 and $1,555 as of September
30,
2007 and December 31, 2006, respectively
|
|
|
20,612
|
|
|
21,779
|
|
|
|
|
|
|
|
|
|
Deferred
financing fees, net of accumulated amortization of $92,660 and
$38,542 as
of September 30, 2007 and December 31, 2006, respectively
|
|
|
34,790
|
|
|
48,908
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
136,054
|
|
$
|
377,039
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
46,861
|
|
$
|
276,715
|
|
Accrued
liabilities
|
|
|
117,935
|
|
|
50,000
|
|
Accrued
interest payable
|
|
|
259,660
|
|
|
153,559
|
|
Notes
payable
|
|
|
363,125
|
|
|
365,523
|
|
Total
current liabilities
|
|
|
787,581
|
|
|
845,797
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Convertible
notes payable, net of discount of $692,603 and $1,201,765 as
of September
30, 2007 and December 31, 2006, respectively
|
|
|
107,397
|
|
|
683,015
|
|
Derivative
liability related to convertible notes
|
|
|
1,546,910
|
|
|
4,233,656
|
|
Derivative
liability related to warrants
|
|
|
418,863
|
|
|
1,274,600
|
|
Total
long-term liabilities
|
|
|
2,073,170
|
|
|
6,191,271
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,860,751
|
|
|
7,037,068
|
|
|
|
|
|
|
|
|
|
Contingencies
(Note A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficiency
in stockholders' equity:
|
|
|
|
|
|
|
|
Common
stock, par value $.001; authorized 750,000,000 shares; 294,050,019
and
136,420,423 shares issued and outstanding as of September 30,
2007 and
December 31, 2006, respectively
|
|
|
294,050
|
|
|
136,420
|
|
Additional
paid-in capital
|
|
|
14,248,497
|
|
|
7,614,681
|
|
Deficit
accumulated during the development stage
|
|
|
(17,267,244
|
)
|
|
(14,411,130
|
)
|
Total
deficiency in stockholders' equity
|
|
|
(2,724,697
|
)
|
|
(6,660,029
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and deficiency in stockholders' equity
|
|
$
|
136,054
|
|
$
|
377,039
|
|
See
accompanying notes to condensed financial statements.
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
July 9, 1998
|
|
|
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
through
|
|
|
|
Ended September 30
|
|
Ended September 30
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
(Restated)
|
|
|
|
(Restated)
|
|
|
|
Sales
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
72,675
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,805
|
|
Gross
margin
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
363,936
|
|
|
198,712
|
|
|
1,245,235
|
|
|
856,796
|
|
|
7,173,457
|
|
Research
and development
|
|
|
7,500
|
|
|
99,966
|
|
|
28,557
|
|
|
227,576
|
|
|
1,741,252
|
|
Total
|
|
|
371,436
|
|
|
298,678
|
|
|
1,273,792
|
|
|
1,084,372
|
|
|
8,914,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(371,436
|
)
|
|
(298,678
|
)
|
|
(1,273,792
|
)
|
|
(1,084,372
|
)
|
|
(8,904,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liability related to convertible
notes and
warrants
|
|
|
480,852
|
|
|
(6,779,546
|
)
|
|
(84,218
|
)
|
|
(5,748,227
|
)
|
|
(5,276,154
|
)
|
Interest
expense and financing costs
|
|
|
(694,418
|
)
|
|
(168,671
|
)
|
|
(1,498,104
|
)
|
|
(464,939
|
)
|
|
(3,530,244
|
)
|
Gain
on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,105
|
|
Acquisition
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(585,002
|
)
|
|
(7,246,895
|
)
|
|
(2,856,114
|
)
|
|
(7,297,538
|
)
|
|
(17,266,944
|
)
|
Provision
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
Net
loss
|
|
$
|
(585,002
|
)
|
$
|
(7,246,895
|
)
|
$
|
(2,856,114
|
)
|
$
|
(7,297,538
|
)
|
$
|
(17,267,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
(0.06
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
|
|
237,982,075
|
|
|
127,685,236
|
|
|
184,062,640
|
|
|
126,890,482
|
|
|
n/a
|
|
See
accompanying notes to condensed financial statements.
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY
FOR
THE PERIOD JULY 9, 1998 (Date of Inception) THROUGH
SEPTEMBER
30, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Deficiency
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Additional
|
|
During the
|
|
in
|
|
|
|
Common
|
|
Common
|
|
Subscription
|
|
Deferred
|
|
Paid-in
|
|
Development
|
|
Stockholders'
|
|
|
|
Shares
|
|
Stock
|
|
Receivable
|
|
Compensation
|
|
Capital
|
|
Stage
|
|
Equity
|
|
Balance,
July 9, 1998 (inception)
|
|
|
9,272,200
|
|
$
|
9,272
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(9,272
|
)
|
$
|
-
|
|
$
|
-
|
|
Issued
stock for subscription receivable at $0.005 per share
|
|
|
18,795,000
|
|
|
18,795
|
|
|
(100,000
|
)
|
|
|
|
|
81,205
|
|
|
|
|
|
-
|
|
Balance,
December 31, 1998
|
|
|
28,067,200
|
|
|
28,067
|
|
|
(100,000
|
)
|
|
-
|
|
|
71,933
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
stock for cash at $0.004 per share
|
|
|
1,253,000
|
|
|
1,253
|
|
|
|
|
|
|
|
|
3,747
|
|
|
|
|
|
5,000
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,053
|
)
|
|
(5,053
|
)
|
Balance,
December 31, 1999
|
|
|
29,320,200
|
|
|
29,320
|
|
|
(100,000
|
)
|
|
-
|
|
|
75,680
|
|
|
(5,053
|
)
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of subscription receivable
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,641
|
)
|
|
(43,641
|
)
|
Balance,
December 31, 2000
|
|
|
29,320,200
|
|
|
29,320
|
|
|
-
|
|
|
-
|
|
|
75,680
|
|
|
(48,694
|
)
|
|
56,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
stock for cash at $0.004 per share
|
|
|
250,600
|
|
|
251
|
|
|
|
|
|
|
|
|
749
|
|
|
|
|
|
1,000
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(522,213
|
)
|
|
(522,213
|
)
|
Balance,
December 31, 2001
|
|
|
29,570,800
|
|
|
29,571
|
|
|
-
|
|
|
-
|
|
|
76,429
|
|
|
(570,907
|
)
|
|
(464,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
stock for cash at $0.13 per share
|
|
|
689,150
|
|
|
689
|
|
|
|
|
|
|
|
|
91,811
|
|
|
|
|
|
92,500
|
|
Issued
stock for services at $0.06 per share
|
|
|
1,591,310
|
|
|
1,591
|
|
|
|
|
|
|
|
|
101,659
|
|
|
|
|
|
103,250
|
|
Issued
stock in satisfaction of debt at $0.14 per share
|
|
|
1,790,000
|
|
|
1,790
|
|
|
|
|
|
|
|
|
248,210
|
|
|
|
|
|
250,000
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(646,201
|
)
|
|
(646,201
|
)
|
Balance,
December 31, 2002
|
|
|
33,641,260
|
|
|
33,641
|
|
|
-
|
|
|
-
|
|
|
518,109
|
|
|
(1,217,108
|
)
|
|
(665,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
stock for cash at $0.13 per share
|
|
|
930,800
|
|
|
931
|
|
|
|
|
|
|
|
|
119,069
|
|
|
|
|
|
120,000
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253,881
|
)
|
|
(253,881
|
)
|
Balance,
December 31, 2003
|
|
|
34,572,060
|
|
|
34,572
|
|
|
-
|
|
|
-
|
|
|
637,178
|
|
|
(1,470,989
|
)
|
|
(799,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
stock for cash at $0.0838 per share
|
|
|
238,660
|
|
|
239
|
|
|
|
|
|
|
|
|
19,761
|
|
|
|
|
|
20,000
|
|
Issued
stock for services at $0.08 per share
|
|
|
500,000
|
|
|
500
|
|
|
|
|
|
|
|
|
39,500
|
|
|
|
|
|
40,000
|
|
Issued
stock for cash at $0.1835 per share
|
|
|
9,560,596
|
|
|
9,561
|
|
|
|
|
|
|
|
|
1,485,376
|
|
|
|
|
|
1,494,937
|
|
Reverse
merger with Grant Ventures, Inc.
|
|
|
6,000,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Warrants
issued as part of restructuring of debt (89,500 valued at
$0.03779)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,382
|
|
|
|
|
|
3,382
|
|
Recognition
of beneficial conversion feature on issuance of note
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
200,000
|
|
Conversion
of note payable and accrued interest at $0.07569 per share
|
|
|
2,720,000
|
|
|
2,720
|
|
|
|
|
|
|
|
|
203,165
|
|
|
|
|
|
205,885
|
|
Issued
stock in satisfaction of debt at $0.1835 per share
|
|
|
249,475
|
|
|
249
|
|
|
|
|
|
|
|
|
45,530
|
|
|
|
|
|
45,779
|
|
Exercise
of $0.01 warrants
|
|
|
2,403,000
|
|
|
2,403
|
|
|
|
|
|
|
|
|
21,627
|
|
|
|
|
|
24,030
|
|
Issued
250,000 warrants for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
|
|
|
11,000
|
|
Stock
options issued to employees, directors, consultants
|
|
|
|
|
|
|
|
|
|
|
|
(1,523,966
|
)
|
|
1,523,966
|
|
|
|
|
|
-
|
|
Vesting
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
426,081
|
|
|
|
|
|
|
|
|
426,081
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,910,351
|
)
|
|
(1,910,351
|
)
|
Balance,
December 31, 2004
|
|
|
56,243,791
|
|
$
|
56,244
|
|
$
|
-
|
|
$
|
(1,097,885
|
)
|
$
|
4,190,485
|
|
$
|
(3,381,340
|
)
|
$
|
(232,496
|
)
|
(Continued
on Next Page)
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY
FOR
THE PERIOD JULY 9, 1998 (Date of Inception) THROUGH
SEPTEMBER
30, 2007
(Unaudited)
(Continued
from Preceding Page)
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Deficiency
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Additional
|
|
During the
|
|
in
|
|
|
|
Common
|
|
Common
|
|
Subscription
|
|
Deferred
|
|
Paid-in
|
|
Development
|
|
Stockholders'
|
|
|
|
Shares
|
|
Stock
|
|
Receivable
|
|
Compensation
|
|
Capital
|
|
Stage
|
|
Equity
|
|
Balance,
December 31, 2004
|
|
|
56,243,791
|
|
$
|
56,244
|
|
$
|
-
|
|
$
|
(1,097,885
|
)
|
$
|
4,190,485
|
|
$
|
(3,381,340
|
)
|
$
|
(232,496
|
)
|
Conversion
of notes payable and accrued interest at $0.092178 per
share
|
|
|
1,395,322
|
|
|
1,395
|
|
|
|
|
|
|
|
|
127,225
|
|
|
|
|
|
128,620
|
|
Stock
options issued to new director
|
|
|
|
|
|
|
|
|
|
|
|
(26,725
|
)
|
|
26,725
|
|
|
|
|
|
-
|
|
Value
of 250,000 warrants issued as part of bridge loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,540
|
|
|
|
|
|
65,540
|
|
Shares
issued for services at $0.40 per share
|
|
|
500,000
|
|
|
500
|
|
|
|
|
|
|
|
|
199,500
|
|
|
|
|
|
200,000
|
|
Stock
options granted to employee
|
|
|
|
|
|
|
|
|
|
|
|
(327,197
|
)
|
|
327,197
|
|
|
|
|
|
-
|
|
Stock
options exercised
|
|
|
50,000
|
|
|
50
|
|
|
|
|
|
|
|
|
8,950
|
|
|
|
|
|
9,000
|
|
Reclassify
warrants to liability (restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(656,607
|
)
|
|
|
|
|
(656,607
|
)
|
Shares
issued for legal services at $0.22 per share
|
|
|
200,000
|
|
|
200
|
|
|
|
|
|
|
|
|
43,800
|
|
|
|
|
|
44,000
|
|
Conversion
of convertible notes payable at conversion rates ranging from
$0.00423 to
$0.0105 per share, including applicable derivative value
|
|
|
67,580,405
|
|
|
67,581
|
|
|
|
|
|
|
|
|
2,708,685
|
|
|
|
|
|
2,776,266
|
|
Stock
options issued to interim CEO
|
|
|
|
|
|
|
|
|
|
|
|
(3,762
|
)
|
|
3,762
|
|
|
|
|
|
-
|
|
Shares
issued on exercise of warrant
|
|
|
250,000
|
|
|
250
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
2,750
|
|
Shares
issued at $0.09 on exercise of warrant
|
|
|
267,000
|
|
|
267
|
|
|
|
|
|
|
|
|
2,403
|
|
|
|
|
|
2,670
|
|
Vesting
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
976,987
|
|
|
|
|
|
|
|
|
976,987
|
|
Cancellation
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
193,275
|
|
|
|
|
|
|
|
|
193,275
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,644,857
|
)
|
|
(7,644,857
|
)
|
Balance,
December 31, 2005
|
|
|
126,486,518
|
|
|
126,487
|
|
|
-
|
|
|
(285,307
|
)
|
|
7,050,165
|
|
|
(11,026,197
|
)
|
|
(4,134,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
84,972
|
|
|
|
|
|
|
|
|
84,972
|
|
Reclassification
of deferred compenstion
|
|
|
|
|
|
|
|
|
|
|
|
200,335
|
|
|
(200,335
|
)
|
|
|
|
|
-
|
|
Vesting
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,577
|
|
|
|
|
|
153,577
|
|
Conversion
of convertible notes at conversion rates ranging from $0.00633
to $0.0278
per share, including applicable derivative value
|
|
|
2,594,644
|
|
|
2,595
|
|
|
|
|
|
|
|
|
241,973
|
|
|
|
|
|
244,568
|
|
Issued
stock at $0.01 per share in satisfaction of debt
|
|
|
5,226,534
|
|
|
5,226
|
|
|
|
|
|
|
|
|
47,039
|
|
|
|
|
|
52,265
|
|
Issued
stock at $0.038 per share for services rendered
|
|
|
1,150,627
|
|
|
1,150
|
|
|
|
|
|
|
|
|
163,397
|
|
|
|
|
|
164,547
|
|
Issued
stock on exercise of options at $0.18 per share
|
|
|
150,000
|
|
|
150
|
|
|
|
|
|
|
|
|
26,850
|
|
|
|
|
|
27,000
|
|
Repricing
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,422
|
|
|
|
|
|
17,422
|
|
Cashless
exercise of $0.01 warrants, includng applicable derivative
value
|
|
|
812,100
|
|
|
812
|
|
|
|
|
|
|
|
|
114,593
|
|
|
|
|
|
115,405
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,384,933
|
)
|
|
(3,384,933
|
)
|
Balance,
December 31, 2006
|
|
|
136,420,423
|
|
$
|
136,420
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,614,681
|
|
$
|
(14,411,130
|
)
|
$
|
(6,660,029
|
)
|
(Continued
on Next Page)
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY
FOR
THE PERIOD JULY 9, 1998 (Date of Inception) THROUGH
SEPTEMBER
30, 2007
(Unaudited)
(Continued
from Preceding Page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Deficiency
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Additional
|
|
During the
|
|
in
|
|
|
|
Common
|
|
Common
|
|
Subscription
|
|
Deferred
|
|
Paid-in
|
|
Development
|
|
Stockholders'
|
|
|
|
Shares
|
|
Stock
|
|
Receivable
|
|
Compensation
|
|
Capital
|
|
Stage
|
|
Equity
|
|
Balance,
December 31, 2006
|
|
|
136,420,423
|
|
$
|
136,420
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,614,681
|
|
$
|
(14,411,130
|
)
|
$
|
(6,660,029
|
)
|
Conversion
of convertible notes payable at conversion rates ranging from
$0.0096 to
$0.0387 per share, including applicable derivative value
|
|
|
154,118,242
|
|
|
154,118
|
|
|
|
|
|
|
|
|
6,153,409
|
|
|
|
|
|
6,307,527
|
|
Issued
stock at $0.0782 per share for services rendered
|
|
|
95,000
|
|
|
95
|
|
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
7,426
|
|
Issued
stock at $0.01333 per share in settlement of liability
|
|
|
470,250
|
|
|
471
|
|
|
|
|
|
|
|
|
5,799
|
|
|
|
|
|
6,270
|
|
Issued
stock at $0.0217 per share for legal services
|
|
|
2,075,000
|
|
|
2,075
|
|
|
|
|
|
|
|
|
42,925
|
|
|
|
|
|
45,000
|
|
Cashless
exercise of $0.01 warrants, including applicable derivative
value
|
|
|
64,879
|
|
|
65
|
|
|
|
|
|
|
|
|
2,465
|
|
|
|
|
|
2,530
|
|
Exercise
of warrant at $0.01 per share, including applicable derivative
value
|
|
|
98,092
|
|
|
98
|
|
|
|
|
|
|
|
|
2,306
|
|
|
|
|
|
2,404
|
|
Issued
stock at $0.06 per share for prior unpaid compensation
|
|
|
708,133
|
|
|
708
|
|
|
|
|
|
|
|
|
41,780
|
|
|
|
|
|
42,488
|
|
Vesting
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,801
|
|
|
|
|
|
377,801
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,856,114
|
)
|
|
(2,856,114
|
)
|
Balance,
September 30, 2007
|
|
|
294,050,019
|
|
$
|
294,050
|
|
$
|
-
|
|
$
|
-
|
|
$
|
14,248,497
|
|
$
|
(17,267,244
|
)
|
$
|
(2,724,697
|
)
|
See
accompanying notes to condensed financial statements.
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
July 9, 1998
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
For the Nine Months
|
|
through
|
|
|
|
Ended September 30
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
(Restated)
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,856,114
|
)
|
$
|
(7,297,538
|
)
|
$
|
(17,267,244
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,533
|
|
|
31,404
|
|
|
102,061
|
|
Change
in fair value of derivative liabilities related to convertible
notes and
warrants
|
|
|
84,218
|
|
|
5,748,227
|
|
|
5,276,154
|
|
Loss
on abandonment of assets
|
|
|
4,304
|
|
|
|
|
|
8,094
|
|
Vesting
of stock options
|
|
|
377,801
|
|
|
212,305
|
|
|
2,019,417
|
|
Common
stock or warrants issued in exchange for services
|
|
|
101,184
|
|
|
|
|
|
565,974
|
|
Cancellation
of stock options
|
|
|
|
|
|
|
|
|
193,275
|
|
Accreted
interest on convertible notes payable
|
|
|
1,363,279
|
|
|
332,619
|
|
|
2,442,243
|
|
Beneficial
conversion feature discount
|
|
|
|
|
|
|
|
|
298,507
|
|
Gain
on extinguishment of debt
|
|
|
|
|
|
|
|
|
(510,105
|
)
|
Acquisition
costs
|
|
|
|
|
|
|
|
|
65,812
|
|
Change
in working capital components:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,212
|
)
|
|
51,337
|
|
|
(2,550
|
)
|
Prepaid expenses
|
|
|
(9,792
|
)
|
|
36,000
|
|
|
(11,667
|
)
|
Deposits and other assets
|
|
|
(19,663
|
)
|
|
3,822
|
|
|
(75,998
|
)
|
Accounts payable
|
|
|
(229,854
|
)
|
|
30,122
|
|
|
368
|
|
Short-term notes payable
|
|
|
(2,398
|
)
|
|
(6,195
|
)
|
|
13,125
|
|
Accrued liabilities
|
|
|
67,935
|
|
|
45,958
|
|
|
144,765
|
|
Accrued interest payable
|
|
|
106,101
|
|
|
56,777
|
|
|
502,387
|
|
Net
cash used in operating activities
|
|
|
(1,009,678
|
)
|
|
(755,162
|
)
|
|
(6,235,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of furniture and equipment
|
|
|
(966
|
)
|
|
(3,854
|
)
|
|
(42,334
|
)
|
Net
cash used in investing activities
|
|
|
(966
|
)
|
|
(3,854
|
)
|
|
(42,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock and exercise of warrants, net
|
|
|
981
|
|
|
|
|
|
2,080,039
|
|
Proceeds
from issuance of notes payable, net of origination fees
|
|
|
760,000
|
|
|
|
|
|
4,252,805
|
|
Other
|
|
|
|
|
|
|
|
|
(16,799
|
)
|
Net
cash provided by financing activities
|
|
|
760,981
|
|
|
-
|
|
|
6,316,045
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(249,663
|
)
|
|
(759,016
|
)
|
|
38,329
|
|
Cash
at beginning of the period
|
|
|
287,992
|
|
|
800,472
|
|
|
-
|
|
Cash
at end of the period
|
|
$
|
38,329
|
|
$
|
41,456
|
|
$
|
38,329
|
|
(Continued
on Next Page)
G RANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued
from Preceding Page)
Supplemental
disclosure of non-cash investing and financing activities:
During
the nine months ended September 30, 2007, the Company issued 154,118,242
shares
of common stock upon conversion of $1,884,779 of secured convertible notes
payable. The value of the related derivative at the time of conversion
was
$4,422,748, which was credited to additional paid-in capital.
During
the nine months ended September 30, 2007, the Company issued 64,879 shares
of
common stock upon the cashless exercise of a warrant. The value of the
related
derivative at the time of conversion was $2,530.
See
accompanying notes to condensed financial statements.
GRANT
LIFE SCIENCES, INC.
(A
Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 and 2006
(Unaudited)
NOTE
A - ORGANIZATION AND BASIS OF PRESENTATION
Organization
and Business
On
July
30, 2004, Grant Ventures, Inc., a Nevada corporation, acquired Impact
Diagnostics, Inc., a Utah corporation organized on July 9, 1998, through
the
merger of Grant Ventures, Inc.’s wholly owned subsidiary, Impact Acquisition
Corporation, with Impact Diagnostics, Inc. Grant Ventures, Inc. was an
inactive
publicly registered shell corporation with no significant assets or operations.
For accounting purposes, the merger was treated as a recapitalization.
Grant
Ventures, Inc. changed its name to Grant Life Sciences, Inc. (the Company)
in
November 2004. Impact Acquisition Corporation and Impact Diagnostics, Inc.
were
subsequently dissolved.
The
Company’s purpose is to research, develop, market and sell diagnostic kits for
detecting disease with emphasis on the detection of low-grade cervical
cancer.
Development
Stage Company
Since
July 9, 1998 (date of inception), the Company has operated as a development
stage company as defined in Statement of Financial Accounting Standards
No. 7,
Accounting
and Reporting by Development Stage Companies.
The
Company’s development stage activities have consisted primarily of the
development of medical diagnostic kits. These development stage activities
have
been funded primarily through debt and equity financing. The Company has
not yet
established a significant source of revenue.
Going
Concern
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern. Continuing as a going concern is dependent
upon
successfully obtaining additional working capital through debt or equity
financing and, eventually, achieving profitable operations. There can be
no
assurance of either obtaining additional funding or achieving profitable
operations. No adjustments have been made to the accompanying condensed
financial statements that might result from the outcome of this
uncertainty.
Interim
Financial Information
The
interim financial information as of September 30, 2007, and for the three
and
nine-month periods ended September 30, 2007 and 2006, is unaudited. The
condensed balance sheet as of December 31, 2006 is derived from audited
financial statements, the report on which included an explanatory paragraph
that
there is substantial doubt as to the Company’s ability to continue as a going
concern. The accompanying financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
notes
required by U.S. generally accepted accounting principles for complete
financial
statements. The accompanying condensed financial statements and notes should
be
read in conjunction with the financial statements and notes included in
the
Company's Annual Report on Form 10-KSB/A for the year ended December 31,
2006.
In
the
opinion of management, all adjustments that are necessary for a fair
presentation of the financial information for the interim periods reported
have
been made, which consist only of normal recurring adjustments. The results
of
operations for the three and nine-month periods ended September 30, 2007
are not
necessarily indicative of the results that can be expected for the entire
year
ending December 31, 2007.
Certain
reclassifications have been made to prior period financial statements to
conform
with the current presentation.
NOTE
B - SIGNIFICANT ACCOUNTING POLICIES
Cash
Equivalents
The
Company considers all highly liquid investments with original maturities
of
three months or less to be cash equivalents.
Concentration
of Credit Risk
Financial
instruments and related items that potentially subject the Company to
concentrations of credit risk consist primarily of cash. The Company places
its
cash and temporary cash investments with credit quality institutions. At
times,
such investments may be in excess of the insurance limit of the Federal
Deposit
Insurance Corporation.
Furniture
and Equipment
Furniture
and equipment are stated at cost less accumulated depreciation. Depreciation
is
computed using the straight-line method based on the estimated useful lives
of
the assets. Furniture is depreciated over seven years and equipment over
three
to five years. When assets are retired or otherwise disposed of, the cost
and
related accumulated depreciation are removed from the accounts and any
resulting
gain or loss is recognized.
Patents
Patents
are stated at cost less accumulated amortization. Amortization is computed
using
the straight-line method based on an estimated useful life of fifteen years.
When patents are retired or otherwise disposed of, the cost and related
accumulated amortization are removed from the accounts and any resulting
gain or
loss is recognized.
Long-Lived
Assets
Long-lived
tangible and intangible assets held and used by the Company are reviewed
for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted, undiscounted
cash
flows. Should a material impairment in value be indicated, the carrying
value of
intangible assets is adjusted based on estimates of future discounted cash
flows
resulting from the use and ultimate disposition of the asset.
Convertible
Notes and Related Discount
The
convertible notes give the holder the right to convert such notes to common
stock at a specified discount from the market price of the Company’s common
stock at the time of conversion. The size of the discount provides the
holder
with substantial incentive to convert the notes to common stock, such that
it is
expected that the notes will be converted to common stock rather than repaid.
Thus, when a convertible note is issued, a note discount equivalent to
the face
amount of the note is established. The note discount is subsequently accreted
to
interest expense over the life of the note.
Derivative
Liability Related to Convertible Notes and Warrants
The
derivative liability related to convertible notes and warrants arises because
the conversion price of the Company’s convertible notes is solely a function of
the market price of the Company’s common stock. Thus, the number of shares that
may be issued upon conversion of such notes is indeterminate, which gives
rise
to the possibility that the Company may not be able to fully settle its
convertible note and warrant obligations by the issuance of common
stock.
The
derivative liability related to convertible notes and warrants is adjusted
to
fair value as of each date that a note is converted or a warrant is exercised,
as well as at each reporting date, using the Black-Scholes pricing model.
Any
change in fair value between reporting dates that arises because of changes
in
market conditions is recognized as a gain or loss. To the extent the derivative
liability is reduced as a consequence of the conversion of notes or the
exercise
of warrants, such reduction is recognized as additional paid-in capital
as of
the conversion or exercise date.
Revenue
Recognition
Revenues
are recognized in the period that the following four criteria are met:
(1)
persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the
selling price is fixed or determinable; and (4) collectibility is reasonably
assured. Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the products
delivered and the collectibility of those amounts. Provisions for discounts
and
rebates to customers, estimated returns and allowances, and other adjustments
are provided for in the same period the related sales are recorded. The
Company
defers any revenue for which the product has not been delivered or is subject
to
refund until such time that the Company and the customer jointly determine
that
the product has been delivered or no refund will be required.
Stock-Based
Compensation
The
cost
of employee and board member services received in exchange for an award
of an
equity instrument is based on the grant-date fair value of the award, determined
by using the Black-Scholes pricing model. This cost is recognized over
the
period during which the award recipient is required to provide service
in
exchange for the award, which generally corresponds to the vesting
period.
Research
and Development Costs
Research
and development costs are expensed as incurred. These costs include direct
expenditures for goods and services, as well as some indirect expenditures
such
as consulting fees.
Deferred
Income Taxes
Deferred
income taxes are provided using the asset and liability method for financial
reporting purposes. Under this method, deferred income 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 are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be removed or settled. The effect on deferred income tax assets and liabilities
of a change in income tax rates is recognized in the statements of operations
in
the period that includes the enactment date. Valuation allowances are provided
when it is more likely than not that some or all of the net deferred income
tax
assets may not be realized.
Net
Loss Per Common Share
The
computation of basic net loss per common share is based on the weighted
average
number of shares outstanding during each period. The computation of diluted
earnings per common share is based on the weighted average number of common
shares outstanding during the period plus common stock equivalents, unless
the
effect of their inclusion is anti-dilutive. During periods of net losses,
basic
and diluted net loss per common share are equivalent.
Use
of
Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of reporting dates and the reported
amounts
of revenue and expenses during the reporting periods. Actual results could
differ from those estimates.
New
Accounting Pronouncements Applicable to the Company
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109
(FIN
48),
which
clarifies the accounting for uncertainty in income taxes recognized in
an
enterprise’s financial statements in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes.
The
interpretation prescribes a recognition threshold and measurement attribute
for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. FIN 48 requires recognition of tax
benefits that satisfy a greater than 50% probability threshold. FIN 48
also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 became
effective for the Company beginning January 1, 2007. The adoption of FIN 48
had no impact on the Company’s financial statements.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
U.S.
generally accepted accounting principles, and expands disclosures about
fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing
a
fair value hierarchy used to classify the source of the information. This
statement is effective for the Company beginning January 1, 2008. The
Company is currently assessing the potential impact that adoption of SFAS
No. 157 will have on its financial statements.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities-Including
an
Amendment of SFAS No. 115.
SFAS
No. 159 permits entities to choose to measure many financial instruments
and
certain other items at fair value. Most of the provisions of this statement
apply only to entities that elect the fair value option. This statement
is
effective for the Company beginning January 1, 2008. The Company is
currently assessing the potential impact that adoption of SFAS No. 159 will
have on its financial statements.
NOTE
C - RESTATEMENT OF FINANCIAL STATEMENTS
In
June
2005, the Company issued $2,000,000 of convertible notes and, subsequently,
has
issued additional convertible notes. At the holder’s option, these notes are
convertible into common stock of the Company at a specified discount from
the
market price of the Company’s common stock. As a consequence of this provision,
an indeterminate number of shares are issuable upon conversion. While
convertible notes are normally exempt from derivative accounting and are
viewed
as an equity instrument with the expectation that they will be settled
by
issuing stock, pursuant to the provisions of Emerging Issues Task Force
Issue
00-19 (EITF 00-19), the conversion feature of the Company’s convertible notes
results in the requirement to use derivative accounting since the possibility
exists that the Company will not be able to settle its convertible notes
by
issuing stock.
In
addition to its applicability to the Company’s convertible notes, EITF 00-19
also applies to other contracts, except those pertaining to employee
compensation, normally settled by issuing stock. Thus, warrants issued
by the
Company to non-employees which entitle the holder to purchase common stock
of
the Company at a specified price also become subject to derivative accounting
as
a consequence of the conversion feature of the Company’s convertible
notes.
When
the
Company initially applied derivative accounting as a consequence of the
foregoing in 2005, it inadvertently excluded warrants already issued as
of June
2005 from its derivative calculations and only applied derivative accounting
to
warrants issued on a prospective basis. Further, the intrinsic value method,
which is not generally considered to be a measure of fair value as defined
in
SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
was used
to value the derivative liability arising from the convertible notes. Finally,
on reporting dates subsequent to June 2005, when the Company revalued the
derivative liability applicable to its convertible notes and warrants,
it failed
to segregate the change in value arising from note conversions and the
exercise
of warrants from the change in value arising from changes in market conditions.
Thus, the accounting process used by the Company, in essence, recognized
gains
from the conversion of notes and the exercise of warrants rather than treating
such changes as additions to additional paid-in capital.
The
Company restated its 2006 and 2005 financial statements (as reported in
its
Annual Report on Form 10-KSB/A) to (1) recognize the derivative liability
arising from all of its warrants, regardless of when issued; (2) value
the
derivative liability arising from its convertible notes using the Black-Scholes
pricing model, which is widely accepted as a measurement of fair value;
and (3)
recognize the fair value of converted notes and exercised warrants as additional
paid-in capital, rather than as a gain, at the point of conversion or
exercise.
As
a
consequence of the foregoing restatement, the reported net income (loss)
for the
three and nine-month periods ended September 30, 2006, were changed from
that
initially reported in the Form 10-QSB for the third quarter of 2006, as
follows:
Net
Income (Loss)
|
|
Previously
Reported
|
|
Change
|
|
As
Restated
|
|
For
the three months ended September 30, 2006
|
|
$
|
(7,415,840
|
)
|
$
|
168,945
|
|
$
|
(7,246,895
|
)
|
For
the nine months ended September 30, 2006
|
|
|
(7,480,568
|
)
|
|
183,030
|
|
|
(7,297,538
|
)
|
NOTE
D - CONVERTIBLE NOTES PAYABLE AND WARRANTS
During
the first nine months of 2007, the Company issued 154,118,242 common shares
upon
the conversion of $1,884,779 of convertible notes payable in several separate
transactions. The fair values of the related derivative liabilities at
the dates
of the respective conversions totaled $4,422,748 which amounts were credited
to
additional paid-in capital.
Also
during the first nine months of 2007, the Company issued an additional
$800,000
of convertible notes plus warrants to purchase an additional 12,000,000
shares
of the Company’s common stock.
As
of
September 30, 2007, the remaining convertible notes were convertible into
87,912,088 shares of the Company’s common stock based on the market price of the
common stock.
The
following table summarizes changes in outstanding warrants during the nine
months ended September 30, 2007, plus the related weighted average exercise
price and the related remaining term of such warrants:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Number
of
|
|
Exercise
|
|
|
|
|
|
Shares
|
|
Price
|
|
Expiration
Date
|
|
Balances,
December 31, 2006
|
|
|
13,549,432
|
|
$
|
0.310
|
|
|
July
2009 to December 2013
|
|
Issued
|
|
|
12,000,000
|
|
$
|
0.065
|
|
|
February
2014 to June 2014
|
|
Exercised
|
|
|
(169,890
|
)
|
$
|
0.010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2007
|
|
|
25,379,542
|
|
$
|
0.195
|
|
|
July
2009 to June 2014
|
|
NOTE
E - STOCK OPTIONS
On
June
27, 2007, the Company’s board of directors approved establishment of the 2007
Stock Incentive Plan (the “2007 Plan”) under which options to purchase up to
30,000,000 shares of the Company’s common stock can be granted. Terms of the
2007 Plan are essentially equivalent to the 2004 Stock Incentive Plan
(the “2004
Plan”) previously approved by the Company’s shareholders. After consideration of
the grants described in the following paragraph and subsequent forfeitures,
options to purchase an aggregate of 1,325,000 and 14,894,649 shares of the
Company’s common stock can be granted under the 2004 Plan and 2007 Plan,
respectively.
During
the second quarter of 2007, the Company granted directors, officers,
employees
and a consultant options to purchase an aggregate of 19,080,266 shares of
the Company’s common stock. The exercise price of those options is $0.03 per
share, which was the closing price of the Company’s common stock on the grant
date. The options vest over a period of up to two years; however, vesting
is
accelerated, subject to certain restrictions, in the event of a merger,
the
acquisition of the Company by another entity or other similar transaction.
The
options have a contractual life of ten years.
The
fair
value of the stock options issued, as described in the preceding paragraph,
was
determined using the Black-Scholes pricing model, an expected term of five
years, a volatility rate of 201%, a quarterly dividend rate of 0.00%, and
a risk
free interest rate of 4.47%.
The
Company recorded $126,857 and $377,801 of compensation expense related
to these
option grants plus previously issued option grants existing as of December
31,
2006, for the three and nine-month periods ended September 30, 2007,
respectively. Compensation expense during the corresponding periods of
2006 was
$35,921 and $212,305, respectively.
The
following table summarizes changes in outstanding stock options during
the nine
months ended September 30, 2007, and the related weighted average exercise
price:
|
|
Total
Options
|
|
Vested
Options
|
|
Unvested
Options
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Number
of
|
|
Exercise
|
|
Number
of
|
|
Exercise
|
|
Number
of
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Balances,
December 31, 2006
|
|
|
4,620,952
|
|
$
|
0.170
|
|
|
4,037,618
|
|
$
|
0.170
|
|
|
583,334
|
|
$
|
0.170
|
|
Grants
|
|
|
19,080,266
|
|
$
|
0.030
|
|
|
8,300,006
|
|
$
|
0.030
|
|
|
10,780,260
|
|
$
|
0.030
|
|
Forfeitures
|
|
|
(1,475,000
|
)
|
$
|
0.165
|
|
|
(1,116,666
|
)
|
$
|
0.173
|
|
|
(358,334
|
)
|
$
|
0.138
|
|
Vesting
|
|
|
|
|
|
|
|
|
233,333
|
|
$
|
0.110
|
|
|
(233,333
|
)
|
$
|
0.110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2007
|
|
|
22,226,218
|
|
$
|
0.049
|
|
|
11,454,291
|
|
$
|
0.066
|
|
|
10,771,927
|
|
$
|
0.030
|
|
Unrecognized
compensation expense applicable to unvested options as of September 30,
2007,
was $188,978.
NOTE
F - INCOME TAXES
The
Company incurred a net loss of $585,002 and $7,246,895 for the three months
ended September 30, 2007 and 2006, respectively, and $2,856,114 and $7,297,538
for the nine months ended September 30, 2007 and 2006, respectively. The
Company
has established a valuation allowance to fully reserve against all of its
net
deferred income tax assets, as management has determined that it is more
likely
than not that those assets will not be realized based on the Company’s operating
history. As a result, there are no net deferred income tax assets presented
in
the Company’s condensed balance sheets.
Section
382 of the Internal Revenue Code places limitations on the amount of taxable
income which can be offset by net operating loss carryforwards and other
tax
attributes after a change in control of a loss corporation. As a result,
there
can be no assurance that some or all of the Company’s net operating loss
carryforwards and other tax attributes will be available to offset future
taxable income and associated tax, if any.
As
of
September 30, 2007, the Company has net operating loss carryforwards of
approximately $8,290,000, which begin expiring in 2019.
NOTE
G - SUBSEQUENT EVENTS
Subsequent
to September 30, 2007 and through December 21, 2007, the Company issued
13,783,727 shares of common stock upon the conversion of $84,908 of convertible
notes.
On
November 27, 2007, the Company issued an additional $400,000 of convertible
notes plus additional warrants to purchase 8,000,000 shares of the Company’s
common stock. These notes and warrants were issued on essentially the same
terms
and conditions as previously issued convertible notes and stock purchase
warrants.
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Grant
Life Sciences, Inc.
Los
Angeles, CA
We
have
audited the restated consolidated balance sheets of Grant Life Sciences,
Inc.
and subsidiary (a development stage company) as of December 31, 2006 and
2005,
and the related restated consolidated statements of losses, deficiency
in
stockholders’ equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the restated consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grant
Life
Sciences, Inc. and subsidiary (a development stage company) as of December
31,
2006 and 2005, and the restated results of their operations and their cash
flows
for the years then ended in conformity with U.S. generally accepted accounting
principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note C to
the
consolidated financial statements, the Company is in the development stage
and
has not established a significant source of revenues. This raises substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note C. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
As
described in Note B to the consolidated financial statements, the Company
has
restated its consolidated financial statements for each of the two years
in the
period ended December 31, 2006 for corrections of errors related to the
incomplete and/or incorrect application of derivative accounting to convertible
notes and warrants.
SINGER
LEWAK GREENBAUM & GOLDSTEIN LLP
Los
Angeles, California
March
29,
2007, except for Note B, as to which the date is June 20, 2007
(A
development stage company)
CONSOLIDATED
BALANCE SHEETS
(Restated
- Note B)
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
287,992
|
|
$
|
800,472
|
|
Accounts
receivable
|
|
|
1,338
|
|
|
72,675
|
|
Prepaid
expenses
|
|
|
1,875
|
|
|
69,125
|
|
Deposits
& other assets
|
|
|
4,375
|
|
|
21,875
|
|
Total
current assets
|
|
|
295,580
|
|
|
964,147
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $19,922
|
|
|
|
|
|
|
|
and
$12,519 at December 31, 2006 and 2005, respectively (Note
E)
|
|
|
10,772
|
|
|
14,321
|
|
Patents,
net of accumulated amortization of $1,555 and $0 at December
31,
|
|
|
|
|
|
|
|
2006
and December 31, 2005 respectively
|
|
|
21,779
|
|
|
23,334
|
|
Deferred
financing fees, net of accumulated amortization of $25,000
|
|
|
|
|
|
|
|
and
$13,542, at December 31, 2006 and December 31, 2005,
respectively
|
|
|
48,908
|
|
|
61,458
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
377,039
|
|
$
|
1,063,260
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
276,715
|
|
$
|
124,846
|
|
Accrued
liabilities
|
|
|
50,000
|
|
|
130,555
|
|
Accrued
interest payable
|
|
|
153,559
|
|
|
106,637
|
|
Accrued
payroll liabilities
|
|
|
-
|
|
|
94,680
|
|
Notes
payable, current portion (Note G)
|
|
|
365,523
|
|
|
21,875
|
|
Total
current liabilities
|
|
|
845,797
|
|
|
478,593
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Notes
payable - long term (Note G)
|
|
|
-
|
|
|
350,000
|
|
Convertible
notes payable (Note G)
|
|
|
683,015
|
|
|
240,491
|
|
Derivative
liability related to convertible notes
|
|
|
4,233,656
|
|
|
3,915,506
|
|
Warrant
liability related to convertible notes
|
|
|
1,274,600
|
|
|
213,522
|
|
Total
Liabilities
|
|
|
7,037,068
|
|
|
5,198,112
|
|
Commitments
and contingencies (Note K)
|
|
|
-
|
|
|
-
|
|
Deficiency
in stockholders' equity:
|
|
|
|
|
|
|
|
Preferred
stock, par value: $.001, authorized 20,000,000 shares; no
shares
|
|
|
|
|
|
|
|
issued
and outstanding at December 31, 2006 and 2005 (Note H)
|
|
|
-
|
|
|
-
|
|
Common
stock, par value; $.001, authorized 750,000,000 shares at
|
|
|
|
|
|
|
|
December
31, 2006 and 2005, 136,420,423 and 67,803,070 shares
issued
|
|
|
|
|
|
|
|
and
outstanding at December 31, 2006 and 2005, respectively (Note
H)
|
|
|
136,420
|
|
|
126,487
|
|
Additional
paid in capital
|
|
|
7,614,681
|
|
|
7,050,165
|
|
Deferred
compensation
|
|
|
-
|
|
|
(285,307
|
)
|
Deficit
accumulated during development stage
|
|
|
(14,411,130
|
)
|
|
(11,026,197
|
)
|
Total
deficiency in stockholders' equity:
|
|
|
(6,660,029
|
)
|
|
(4,134,852
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and deficiency in stockholders' equity:
|
|
$
|
377,039
|
|
$
|
1,063,260
|
|
See
accompanying notes to consolidated financial statements
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
CONSOLIDATED
STATEMENTS OF LOSSES
(Restated
- Note B)
|
|
For the Year Ended December 31,
|
|
For the Period July
9, 1998 (date of
inception) through
December 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
-
|
|
$
|
72,675
|
|
$
|
72,675
|
|
Cost
of Sales
|
|
|
-
|
|
|
62,805
|
|
|
62,805
|
|
Gross
Margin
|
|
|
-
|
|
|
9,870
|
|
|
9,870
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,176,688
|
|
|
2,385,740
|
|
|
5,901,416
|
|
Depreciation
(Note E)
|
|
|
7,403
|
|
|
6,662
|
|
|
26,806
|
|
Acquisition
cost (Note D)
|
|
|
-
|
|
|
-
|
|
|
65,812
|
|
Research
and development
|
|
|
244,189
|
|
|
502,325
|
|
|
1,712,695
|
|
Total
Operating Expenses
|
|
|
1,428,280
|
|
|
2,894,727
|
|
|
7,706,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,428,280
|
)
|
|
(2,884,857
|
)
|
|
(7,696,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt (Note G)
|
|
|
-
|
|
|
-
|
|
|
510,105
|
|
Change
in fair value related to adjustment of
|
|
|
|
|
|
|
|
|
|
|
derivative
and warrant liability to fair value of underlying
securities
|
|
|
(1,294,293
|
)
|
|
(3,897,643
|
)
|
|
(5,191,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(662,160
|
)
|
|
(862,257
|
)
|
|
(2,032,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(3,384,733
|
)
|
|
(7,644,757
|
)
|
|
(14,410,830
|
)
|
Income
tax expense
|
|
|
(200
|
)
|
|
(100
|
)
|
|
(300
|
)
|
Net
loss
|
|
$
|
(3,384,933
|
)
|
$
|
(7,644,857
|
)
|
$
|
(14,411,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share -
|
|
|
|
|
|
|
|
|
|
|
basic
and diluted (Note A)
|
|
$
|
(0.03
|
)
|
$
|
(0.11
|
)
|
|
n/a
|
|
Weighted
average shares -
|
|
|
|
|
|
|
|
|
|
|
basic
and diluted
|
|
|
132,810,185
|
|
|
67,803,070
|
|
|
n/a
|
|
See
accompanying notes to consolidated financial statements
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY
FOR
THE PERIOD JULY 9, 1998 (Date of Inception) THROUGH
DECEMBER
31, 2006
(Restated
- Note B)
|
|
Common
Shares
|
|
Common
Shares
Amount
|
|
Subscription
Receivable
|
|
Deferred
Compensation
|
|
Additional
Paid
In Capital
|
|
Accumulated
Deficit
|
|
Total
(Deficiency)
In
Stockholders
Equity
|
|
Balance
July 9, 1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(date
of inception)
|
|
|
9,272,200
|
|
$
|
9,272
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(9,272
|
)
|
$
|
-
|
|
$
|
-
|
|
Issued
stock for subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
at $0.005 per share
|
|
|
18,795,000
|
|
|
18,795
|
|
|
(100,000
|
)
|
|
-
|
|
|
81,205
|
|
|
-
|
|
|
-
|
|
Balance,
December 31, 1998
|
|
|
28,067,200
|
|
|
28,067
|
|
|
(100,000
|
)
|
|
-
|
|
|
71,933
|
|
|
-
|
|
|
-
|
|
Issued
stock for cash at $0.004 per share
|
|
|
1,253,000
|
|
|
1,253
|
|
|
-
|
|
|
-
|
|
|
3,747
|
|
|
-
|
|
|
5,000
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,053
|
)
|
|
(5,053
|
)
|
Balance,
December 31, 1999
|
|
|
29,320,200
|
|
|
29,320
|
|
|
(100,000
|
)
|
|
-
|
|
|
75,680
|
|
|
(5,053
|
)
|
|
(53
|
)
|
Payment
of subscriptions receivable
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(43,641
|
)
|
|
(43,641
|
)
|
Balance,
December 31, 2000
|
|
|
29,320,200
|
|
|
29,320
|
|
|
-
|
|
|
-
|
|
|
75,680
|
|
|
(48,694
|
)
|
|
56,306
|
|
Issued
stock for cash at $0.004 per share
|
|
|
250,600
|
|
|
251
|
|
|
-
|
|
|
-
|
|
|
749
|
|
|
-
|
|
|
1,000
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(522,213
|
)
|
|
(522,213
|
)
|
Balance,
December 31, 2001
|
|
|
29,570,800
|
|
|
29,571
|
|
|
-
|
|
|
-
|
|
|
76,429
|
|
|
(570,907
|
)
|
|
(464,907
|
)
|
Beneficial
conversion feature on issuance of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
98,507
|
|
|
-
|
|
|
98,507
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(98,507
|
)
|
|
-
|
|
|
(98,507
|
)
|
Issued
stock for cash at $0.13 per share
|
|
|
689,150
|
|
|
689
|
|
|
-
|
|
|
-
|
|
|
91,811
|
|
|
-
|
|
|
92,500
|
|
Issued
stock for services at $0.06 per share
|
|
|
1,591,310
|
|
|
1,591
|
|
|
-
|
|
|
-
|
|
|
101,659
|
|
|
-
|
|
|
103,250
|
|
Issued
stock in satisfaction of debt at $0.14 per share
|
|
|
1,790,000
|
|
|
1,790
|
|
|
-
|
|
|
-
|
|
|
248,210
|
|
|
-
|
|
|
250,000
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(646,201
|
)
|
|
(646,201
|
)
|
Balance,
December 31, 2002
|
|
|
33,641,260
|
|
|
33,641
|
|
|
-
|
|
|
-
|
|
|
518,109
|
|
|
(1,217,108
|
)
|
|
(665,358
|
)
|
Issued
stock for cash at $0.13 per share
|
|
|
930,800
|
|
|
931
|
|
|
-
|
|
|
-
|
|
|
119,069
|
|
|
-
|
|
|
120,000
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(253,881
|
)
|
|
(253,881
|
)
|
Balance,
December 31, 2003
|
|
|
34,572,060
|
|
|
34,572
|
|
|
-
|
|
|
-
|
|
|
637,178
|
|
|
(1,470,989
|
)
|
|
(799,239
|
)
|
Issued
stock for cash at $0.0838 per share
|
|
|
238,660
|
|
|
239
|
|
|
-
|
|
|
-
|
|
|
19,761
|
|
|
-
|
|
|
20,000
|
|
Issued
stock for services at $0.08 per share
|
|
|
500,000
|
|
|
500
|
|
|
-
|
|
|
-
|
|
|
39,500
|
|
|
-
|
|
|
40,000
|
|
Issued
stock for cash at $0.1835 per share
|
|
|
9,560,596
|
|
|
9,561
|
|
|
-
|
|
|
-
|
|
|
1,485,376
|
|
|
-
|
|
|
1,494,937
|
|
Reverse
merger with Grant Ventures, Inc.
|
|
|
6,000,000
|
|
|
6,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,000
|
|
Warrants
issued as part of restructuring of debt (89,500 valued at
$0.03779)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,382
|
|
|
-
|
|
|
3,382
|
|
Recognition
of beneficial conversion feature on issuance of note
payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
|
|
|
200,000
|
|
Conversion
of note payable and accrued interest at $0.07569 per share
|
|
|
2,720,000
|
|
|
2,720
|
|
|
-
|
|
|
-
|
|
|
203,165
|
|
|
-
|
|
|
205,885
|
|
Issued
stock in satisfaction of debt at $0.1835 per share
|
|
|
249,475
|
|
|
249
|
|
|
-
|
|
|
-
|
|
|
45,530
|
|
|
-
|
|
|
45,779
|
|
Exercise
of $0.01 warrants
|
|
|
2,403,000
|
|
|
2,403
|
|
|
-
|
|
|
-
|
|
|
21,627
|
|
|
-
|
|
|
24,030
|
|
Issued
250,000 warrants for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,000
|
|
|
-
|
|
|
11,000
|
|
Stock
options issued to employees, directors, consultants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,523,966
|
)
|
|
1,523,966
|
|
|
-
|
|
|
-
|
|
Vesting
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
426,081
|
|
|
-
|
|
|
-
|
|
|
426,081
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,910,351
|
)
|
|
(1,910,351
|
)
|
Balance,
December 31, 2004
|
|
|
56,243,791
|
|
|
56,244
|
|
|
-
|
|
|
(1,097,885
|
)
|
|
4,190,485
|
|
|
(3,381,340
|
)
|
|
(232,496
|
)
|
Conversion
of notes payable and accrued interest at $0.092178 per share
on
3/31/05
|
|
|
1,395,322
|
|
|
1,395
|
|
|
-
|
|
|
-
|
|
|
127,225
|
|
|
-
|
|
|
128,620
|
|
Stock
options issued to new director on 2/21/05
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(26,725
|
)
|
|
26,725
|
|
|
-
|
|
|
-
|
|
Value
of 250,000 warrants issued as part of bridge loan on
3/15/05
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
65,540
|
|
|
-
|
|
|
65,540
|
|
Shares
issued 4/28/05 for services at $0.40
|
|
|
500,000
|
|
|
500
|
|
|
-
|
|
|
-
|
|
|
199,500
|
|
|
|
|
|
200,000
|
|
Stock
options granted to employee 4/1/05
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(327,197
|
)
|
|
327,197
|
|
|
-
|
|
|
-
|
|
Stock
options exercised 6/2/05
|
|
|
50,000
|
|
|
50
|
|
|
-
|
|
|
-
|
|
|
8,950
|
|
|
-
|
|
|
9,000
|
|
Reclassify
warrants to liability 6/14/05
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(656,607
|
)
|
|
-
|
|
|
(656,607
|
)
|
Shares
issued 9/28 for legal services at $0.22
|
|
|
200,000
|
|
|
200
|
|
|
-
|
|
|
-
|
|
|
43,800
|
|
|
|
|
|
44,000
|
|
Partial
conversion of convertible notes payable between 9/8/05 and 12/16/05
at
conversion rates ranging from $0.00423 to $0.0105 per
share
|
|
|
67,580,405
|
|
|
67,581
|
|
|
-
|
|
|
-
|
|
|
2,708,685
|
|
|
-
|
|
|
2,776,266
|
|
Stock
options issued to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interim
CEO 9/28
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,762
|
)
|
|
3,762
|
|
|
-
|
|
|
-
|
|
Shares
issued on exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
warrant CAMFO II
|
|
|
250,000
|
|
|
250
|
|
|
-
|
|
|
-
|
|
|
2,500
|
|
|
-
|
|
|
2,750
|
|
Shares
issued at $0.09 on exercise of warrant
|
|
|
267,000
|
|
|
267
|
|
|
-
|
|
|
-
|
|
|
2,403
|
|
|
-
|
|
|
2,670
|
|
Vesting
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
976,987
|
|
|
-
|
|
|
-
|
|
|
976,987
|
|
Cancellation
of stock options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
193,275
|
|
|
-
|
|
|
-
|
|
|
193,275
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,644,857
|
)
|
|
(7,644,857
|
)
|
Balance,
December 31, 2005
|
|
|
126,486,518
|
|
|
126,487
|
|
|
|
|
|
(285,307
|
)
|
|
7,050,165
|
|
|
(11,026,197
|
)
|
|
(4,134,852
|
)
|
Vesting
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
84,972
|
|
|
-
|
|
|
-
|
|
|
84,972
|
|
Adjustment
of presentation of Deferred Compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200,335
|
|
|
(200,335
|
)
|
|
-
|
|
|
-
|
|
Stock
option expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
153,577
|
|
|
-
|
|
|
153,577
|
|
Partial
conversion of convertible notes payable on 8/1/06 and 10/31/06
at
conversion rates $0.0063 to $0.0278 per share,
respectively
|
|
|
2,594,644
|
|
|
2,595
|
|
|
-
|
|
|
-
|
|
|
241,973
|
|
|
-
|
|
|
244,568
|
|
Issued
stock in satisfaction of debt
|
|
|
5,226,534
|
|
|
5,226
|
|
|
-
|
|
|
-
|
|
|
47,039
|
|
|
-
|
|
|
52,265
|
|
Issued
stock in exchange for services rendered at $$0.038 per
share
|
|
|
1,150,627
|
|
|
1,150
|
|
|
-
|
|
|
-
|
|
|
163,397
|
|
|
-
|
|
|
164,547
|
|
Exercise
of 150,000 options at $0.18 per share
|
|
|
150,000
|
|
|
150
|
|
|
-
|
|
|
-
|
|
|
26,850
|
|
|
-
|
|
|
27,000
|
|
Repricing
of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,422
|
|
|
-
|
|
|
17,422
|
|
Issue
shares on exercise of warrants
|
|
|
812,100
|
|
|
812
|
|
|
-
|
|
|
-
|
|
|
114,593
|
|
|
-
|
|
|
115,405
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,384,933
|
)
|
|
(3,384,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
136,420,423
|
|
$
|
136,420
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,614,681
|
|
$
|
(14,411,130
|
)
|
$
|
(6,660,029
|
)
|
See
accompanying notes to consolidated financial statements
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Restated
- Note B)
|
|
For the Year Ended
December 31,
|
|
For the
Period July 9,
1998 (date of
inception)
through
December 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,384,933
|
)
|
$
|
(7,644,857
|
)
|
$
|
(14,411,130
|
)
|
Adjustments
to reconcile net loss to cash used in operations:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
(Note E)
|
|
|
7,403
|
|
|
6,662
|
|
|
26,806
|
|
Amortization
|
|
|
44,055
|
|
|
26,667
|
|
|
70,722
|
|
Change
in fair value related to adjustment of derivative and
|
|
|
|
|
|
|
|
|
|
|
warrant
liability to fair value of underlying securities
|
|
|
1,294,293
|
|
|
3,897,643
|
|
|
5,191,936
|
|
Loss
on abandonment of assets (Note E)
|
|
|
-
|
|
|
-
|
|
|
3,790
|
|
Deferred
compensation (Note J)
|
|
|
238,550
|
|
|
976,986
|
|
|
1,641,616
|
|
Common
stock issued in exchange for services rendered (Note H)
|
|
|
-
|
|
|
244,000
|
|
|
388,250
|
|
Cancellation
of stock options
|
|
|
-
|
|
|
193,275
|
|
|
193,275
|
|
Interest
on convertible notes payable
|
|
|
487,430
|
|
|
591,534
|
|
|
1,078,964
|
|
Warrants
issued in connection with bridge loan
|
|
|
-
|
|
|
65,540
|
|
|
65,540
|
|
Warrants
issued in exchange for services rendered (Note J)
|
|
|
-
|
|
|
-
|
|
|
11,000
|
|
Beneficial
conversion feature discount (Note G)
|
|
|
-
|
|
|
-
|
|
|
298,507
|
|
Gain
on extinguishment of debt (Note G)
|
|
|
-
|
|
|
-
|
|
|
(510,105
|
)
|
Write
off of accounts payable due to stockholders
|
|
|
-
|
|
|
(1,230
|
)
|
|
(2,108
|
)
|
Acquisition
cost (Note D)
|
|
|
-
|
|
|
-
|
|
|
65,812
|
|
Decrease
(increase) in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
71,337
|
|
|
(69,675
|
)
|
|
(1,338
|
)
|
Employee
receivables
|
|
|
-
|
|
|
334
|
|
|
-
|
|
Prepaid
expense
|
|
|
67,250
|
|
|
(63,912
|
)
|
|
(1,875
|
)
|
Deferred
financing costs
|
|
|
(12,450
|
)
|
|
-
|
|
|
(12,450
|
)
|
Deposits
& other
|
|
|
-
|
|
|
(55,070
|
)
|
|
(56,335
|
)
|
(Decrease)
increase in:
|
|
|
|
|
|
|
|
|
-
|
|
Accounts
payable
|
|
|
166,417
|
|
|
29,007
|
|
|
288,736
|
|
Notes
payable
|
|
|
(6,352
|
)
|
|
21,875
|
|
|
15,523
|
|
Accounts
payable - assumed liabilities
|
|
|
-
|
|
|
-
|
|
|
(17,506
|
)
|
Accounts
payable - stockholders
|
|
|
-
|
|
|
-
|
|
|
(38,900
|
)
|
Accrued
expenses
|
|
|
(51,726
|
)
|
|
93,556
|
|
|
76,830
|
|
Accrued
payroll liabilities
|
|
|
(94,680
|
)
|
|
81,521
|
|
|
-
|
|
Accrued
interest payable
|
|
|
99,188
|
|
|
106,981
|
|
|
396,286
|
|
Net
cash (used in) operating activities
|
|
|
(1,074,218
|
)
|
|
(1,499,163
|
)
|
|
(5,238,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Payments
for property and equipment
|
|
|
(3,854
|
)
|
|
(5,743
|
)
|
|
(41,368
|
)
|
Net
cash used in investing activities
|
|
|
(3,854
|
)
|
|
(5,743
|
)
|
|
(41,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock, net of costs and fees (Note H)
|
|
|
148,170
|
|
|
14,420
|
|
|
1,919,058
|
|
Net
proceeds from notes payable (Note G)
|
|
|
400,000
|
|
|
1,925,000
|
|
|
3,505,255
|
|
Proceeds
from re-pricing of warrants
|
|
|
17,422
|
|
|
-
|
|
|
17,422
|
|
Proceeds
from related party notes payable
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
Payments
for related party notes payable
|
|
|
-
|
|
|
-
|
|
|
(34,221
|
)
|
Proceeds
from stock subscriptions receivable
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
Net
cash provided by financing activities
|
|
|
565,592
|
|
|
1,939,420
|
|
|
5,567,514
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(512,480
|
)
|
|
434,514
|
|
|
287,992
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
800,472
|
|
|
365,958
|
|
|
-
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
287,992
|
|
$
|
800,472
|
|
$
|
287,992
|
|
Supplemental
cash flow information for the years ended December 31, 2006 and 2005 and
July 9,
1998 (date of inception) through December 31, 2006 is as follows:
|
|
2006
|
|
2005
|
|
July 9, 1998
(date of
inception)
through
December
31, 2006
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
48,114
|
|
$
|
116,417
|
|
Cash
paid for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Cash Investing and Financing Transactions:
|
|
|
|
|
|
|
|
|
|
|
Loss
on abandonment of assets
|
|
|
-
|
|
|
-
|
|
|
3,790
|
|
Deferred
compensation
|
|
|
238,550
|
|
|
976,987
|
|
|
1,641,646
|
|
Common
stock issued in exchange for services rendered(H)
|
|
|
-
|
|
|
244,000
|
|
|
144,250
|
|
Warrants
issued in exchange for services rendered
|
|
|
-
|
|
|
-
|
|
|
11,000
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
(510,105
|
)
|
Write
off of accounts payable due to stockholders
|
|
|
-
|
|
|
(1,230
|
)
|
|
(2,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Merger
with Impact:
|
|
|
|
|
|
|
|
|
|
|
Common
stock retained
|
|
|
-
|
|
|
-
|
|
|
6,000
|
|
Liabilities
assumed in excess of assets acquired
|
|
|
-
|
|
|
-
|
|
|
59,812
|
|
Acquisition
cost recognized
|
|
|
-
|
|
|
-
|
|
|
65,812
|
|
NOTE
A - SUMMARY OF ACCOUNTING POLICIES
Business
and Basis or Presentation
Grant
Life Sciences, Inc. (formerly Impact Diagnostics, Inc.) (the “Company”) was
organized under the laws of the State of Utah on July 9, 1998. The
Company’s purpose is to research, develop, market and sell diagnostic kits for
detecting disease with emphasis on the detection of low-grade cervical
disease.
On
July
30, 2004, the Company became a wholly owned subsidiary of Grant Ventures,
Inc.,
a Nevada Corporation, by merging with Impact Acquisition Corporation, a
Utah
corporation and wholly owned subsidiary of Grant Ventures, Inc. Grant Ventures,
Inc. was an inactive publicly registered shell corporation with no significant
assets or operations. For accounting purposes the merger was treated as
a
recapitalization of the Company. Grant Ventures, Inc. changed its name
to Grant
Life Sciences, Inc. in November 2004.
The
consolidated financial statements include the accounts of the Company and
its
wholly-owned subsidiary, Impact Diagnostics. All intercompany transactions
and
balances have been eliminated in consolidation.
Development
Stage Company
Effective
July 9, 1998 (date of inception), the Company is considered a development
stage
Company as defined in SFAS No. 7. The Company’s development stage activities
consist of the development of medical diagnostic kits. Sources of financing
for
these development stage activities have been primarily debt and equity
financing. The Company has, at the present time, not paid any dividends
and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three
months
or less to be cash equivalents.
Concentration
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents.
The Company places its cash and temporary cash investments with credit
quality
institutions. At times, such investments may be in excess of the FDIC insurance
limit.
Property
and Equipment
Furniture
and equipment is stated at cost less accumulated depreciation. Depreciation
is
computed using a straight-line basis based on the estimated useful lives
of the
assets. Equipment is depreciated over 3 to 5 years and furniture over 7
years.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed and any resulting gain or loss is
recognized.
Long-Lived
Assets
The
Company has adopted Statement of Financial Accounting Standards No. 144
(“SFAS
No. 144”). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of
an asset may not be recoverable. Events relating to recoverability may
include
significant unfavorable changes in business conditions, recurring losses,
or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon
forecasted undiscounted cash flows. Should impairment in value be indicated,
the
carrying value of intangible assets will be adjusted, based on estimates
of
future discounted cash flows resulting from the use and ultimate disposition
of
the asset. SFAS No. 144 also requires assets to be disposed of, be reported
at
the lower of the carrying amount or the fair value less costs to
sell.
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value
of
Financial Instruments," requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents,
accounts
receivable, accounts payable and short-term borrowings, as reflected in
the
balance sheets, approximate fair value because of the short-term maturity
of
these instruments.
Revenue
Recognition
Revenues
are recognized in the period that services are provided. For revenue from
product sales, the Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, “Revenue Recognition” ("SAB No. 104"), which
superseded Staff Accounting Bulletin No. 101, “Revenue Recognition In Financial
Statements” ("SAB No. 101"). SAB No. 101 requires that four basic criteria must
be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the selling price is
fixed
and determinable; and (4) collectibility is reasonably assured. Determination
of
criteria (3) and (4) are based on management's judgments regarding the
fixed
nature of the selling prices of the products delivered and the collectibility
of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for
which
the product has not been delivered or is subject to refund until such time
that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
SAB
No.
104 incorporates Emerging Issues Task Force No. 00-21, “Multiple-Deliverable
Revenue Arrangements” ("EITF 00-21"). EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company's consolidated financial position and results of operations
was not
significant.
Research
and Development Costs
Research
and development costs are expensed as incurred. These costs include direct
expenditures for goods and services, as well as indirect expenditures such
as
salaries and various allocated costs.
Liquidity
As
shown
in the accompanying consolidated financial statements, the Company has
incurred
a net loss of $3,384,933 and $7,644,857 during the years ended December
31, 2006
and 2005, respectively. Consequently, its operations are subject to all
risks
inherent in the establishment of a new business enterprise.
Income
Taxes
Income
taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes.” Under this method 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 are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date.
Net
Loss Per Common Share
The
computation of net loss per common share is based on the weighted average
number
of shares outstanding during each period. The computation of diluted earnings
per common share is based on the weighted average number of shares outstanding
during the period plus the common stock equivalents which would arise from
the
exercise of stock options and warrants outstanding using the treasury stock
method and the average market price per share during the period. At year
end
December 31, 2006, there were 13,549,432 warrants, 4,037,618 vested stock
options and 583,334 unvested options outstanding. As well there was $1,484,779
of the $2,000,000 10%, convertible note and $400,000 of the 6% convertible
notes
outstanding. The notes were convertible at 43% and 60% respectively of
the
average of the three lowest intraday trading prices for the common stock
during
the 20 trading days before, but not including, the conversion date. As
of
December 31, 2006, the average of the three lowest intraday trading prices
for
the common stock during the preceding 20 trading days as reported on the
Over-The-Counter Bulletin Board was $.09 and, therefore, the conversion
prices
for the secured convertible notes were $0.039 and $0.054 respectively,
Therefore
based on these conversion prices, the convertible notes, excluding interest,
would be convertible into 45,773,790 shares of common stock. These options,
warrants and potential shares on conversion of notes were not included
in the
diluted loss per share calculation because the effect would have been anti
dilutive. At year end December 31, 2005, there were 10,405,010 warrants,
3,187,618 vested stock options and 983.334 unvested options outstanding.
These
options and warrants were not included in the diluted loss per share calculation
because the effect would have been anti dilutive.
Stock-Based
Compensation
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (SFAS No.123R). This Statement requires public entities to measure the
cost of equity awards to employees based on the grant-date value of the
award.
The Company elected early adoption of this Statement, effective for 2004,
in
advance of the Company's required adoption date of December 15,
2005.
The
Company began granting options to its employees, directors, and consultants
in
the 3rd quarter of 2004 under the Company's Stock Incentive Plan. In 2006
a
total of 600,000 options and in 2005 a total of 950,000 options were granted,
all of which vest over time periods ranging from 0 to 3 years. Fair value
at the
date of grant was estimated using the Black-Scholes pricing model with
the
following assumptions: 2006: dividend yield of 0%, expected volatility
of 420%,
risk-free interest rate of 4.8% and an expected life of 3 years, and 2005:
dividend yield of 0%, expected volatility of 107%, risk-free interest rate
of
3.6% and an expected life of 3 years. In 2006 the exercise price was $0.018
for
100,000 options and $0.05 for 500,000 options. The exercise price for all
but
100,000 options was granted in 2005 was $0.18, with 100,000 options having
an
exercise price of $0.40 The weighted average grant date fair value for
the
options granted in 2006 was $0.018 and the weighted average grant date
fair
value for the options granted in 2005 was $0.43.
Use
of
Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the end of the financial
statements and the reported amounts of revenue and expenses during the
reporting
period. Actual results could differ from those estimates.
New
Accounting Pronouncements
In
May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections” (“SFAS No. 154”), an amendment to Accounting Principles Bulletin
Opinion No. 20, “Accounting Changes” (“APB No. 20”), and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements”. Though SFAS
No. 154 carries forward the guidance in APB No.20 and SFAS No.3 with
respect to accounting for changes in estimates, changes in reporting entity,
and
the correction of errors, SFAS No. 154 establishes new standards on
accounting for changes in accounting principles, whereby all such changes
must
be accounted for by retrospective application to the financial statements
of
prior periods unless it is impracticable to do so. SFAS No. 154 is
effective for accounting changes and error corrections made in fiscal years
beginning after December 15, 2005, with early adoption permitted for
changes and corrections made in years beginning after May 2005. The Company
implemented SFAS No. 154 in its fiscal year beginning January 1, 2006. The
Company does not believe that SFAS No. 156 will have a material impact
on its
financial position, results of operations or cash flows.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives
Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS No.
155 amends SFAS No. 133 to narrow the scope exception for interest-only
and
principal-only strips on debt instruments to include only such strips
representing rights to receive a specified portion of the contractual interest
or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
qualifying special-purpose entities to hold a passive derivative financial
instrument pertaining to beneficial interests that itself is a derivative
instrument. The Company is currently evaluating the impact this new Standard
but
believes that it will not have a material impact on the Company’s financial
position, results of operations, or cash flows.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets” (“SFAS NO. 156”), which provides an approach to simplify efforts to
obtain hedge-like (offset) accounting. This Statement amends FASB Statement
No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities”, with respect to the accounting for separately
recognized servicing assets and servicing liabilities. The Statement (1)
requires an entity to recognize a servicing asset or servicing liability
each
time it undertakes an obligation to service a financial asset by entering
into a
servicing contract in certain situations; (2) requires that a separately
recognized servicing asset or servicing liability be initially measured
at fair
value, if practicable; (3) permits an entity to choose either the amortization
method or the fair value method for subsequent measurement for each class
of
separately recognized servicing assets or servicing liabilities; (4) permits
at
initial adoption a one-time reclassification of available-for-sale securities
to
trading securities by an entity with recognized servicing rights, provided
the
securities reclassified offset the entity’s exposure to changes in the fair
value of the servicing assets or liabilities; and (5) requires separate
presentation of servicing assets and servicing liabilities subsequently
measured
at fair value in the balance sheet and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is
effective
for all separately recognized servicing assets and liabilities as of the
beginning of an entity’s fiscal year that begins after September 15, 2006, with
earlier adoption permitted in certain circumstances. The Statement also
describes the manner in which it should be initially applied. The Company
does
not believe that SFAS No. 156 will have a material impact on its financial
position, results of operations or cash flows.
In
June
2006, the FASB issued FIN No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109,
which
clarifies the accounting for uncertainty in income taxes recognized in
an
enterprise’s financial statements in accordance with FASB Statement
No. 109, Accounting
for Income Taxes.
The
interpretation prescribes a recognition threshold and measurement attribute
for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. FIN No. 48 requires recognition of
tax benefits that satisfy a greater than 50% probability threshold. FIN
No. 48 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition.
FIN
No. 48 is effective for us beginning January 1, 2007. We are currently
assessing the potential impact that adoption of FIN No. 48 will have on our
financial statements.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about
fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing
a
fair value hierarchy used to classify the source of the information. This
statement is effective for us beginning January 1, 2008. We are currently
assessing the potential impact that adoption of SFAS No. 157 will have on
our financial statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Current Year
Misstatements.
SAB
No. 108 requires analysis of misstatements using both an income statement
(rollover) approach and a balance sheet (iron curtain) approach in assessing
materiality and provides for a one-time cumulative effect transition adjustment.
SAB No. 108 is effective for our fiscal year 2007 annual financial
statements. We are currently assessing the potential impact that adoption
of SAB
No. 108 will have on our financial statements.
In
September 2006, the FASB issued Statement No. 158, “Employer’s Accounting
for Defined Benefit Pension and Other Postretirement Plans - an amendment
of
FASB Statements No. 87, 88, 106, and 132(R) ( “FASB
158”
). FASB
158 requires the full recognition, as an asset or liability, of the overfunded
or underfunded status of a company-sponsored postretirement benefit plan.
Adoption of FASB 158 is required effective for the Company’s fiscal year ending
December 31, 2007. We are currently assessing the potential impact that
adoption of FASB 158 may have on our financial statements.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159). Under the provisions
of
SFAS 159, Companies may choose to account for eligible financial instruments,
warranties and insurance contracts at fair value on a contract-by-contract
basis. Changes in fair value will be recognized in earnings each reporting
period. SFAS 159 is effective for financial statements issued for fiscal
years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is required to and plans to adopt the provisions of
SFAS 159
beginning in the first quarter of 2008. The Company is currently assessing
the
impact of the adoption of SFAS 159.
NOTE
B - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
In
June
2005, the Company issued $2,000,000 of convertible notes and, subsequently,
has
issued additional convertible notes. At the holder’s option these notes are
convertible into common stock of the Company using a formula calculated
at the
time of conversion as explained more fully in Note G. As a consequence
of this
provision, an indeterminate number of shares are issuable upon conversion.
While
convertible notes are normally excepted from derivative accounting and
are
viewed as an equity instrument with the expectation that they will be settled
by
issuing stock, pursuant to the provisions of Emerging Issues Task Force
Issue
00-19 (“EITF 00-19”), the conversion feature of the Company’s convertible notes
results in the requirement to use derivative accounting since the possibility
exists that the Company will not have a sufficient number of authorized
shares to settle its convertible notes by issuing stock.
In
addition to its applicability to the Company’s convertible notes, EITF 00-19
also applies to other contracts, except those pertaining to employee
compensation, normally settled by issuing stock. Thus, warrants issued
by the
Company which entitle the holder to purchase common stock of the Company
at a
specified price also become subject to derivative accounting as a consequence
of
the conversion feature of the Company’s convertible notes being determined to be
a derivative.
When
the
Company initially applied derivative accounting as a consequence of the
foregoing in 2005, it inadvertently excluded warrants already issued as
of June
2005 from its derivative calculations but, rather, only applied derivative
accounting to warrants issued on a prospective basis. Further, the intrinsic
value method, which is not generally considered to be a measure of fair
value as
defined in SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
was used
to value the derivative liability arising from the convertible notes. Finally,
on reporting dates subsequent to June 2005, when the Company revalued the
derivative liability applicable to its convertible notes and warrants,
it failed
to segregate the change in value arising from note conversions and the
exercise
of warrants from the change in value arising from changes in market conditions.
Thus, the accounting process used by the Company recognized gains from
the
conversion of notes and the exercise of warrants rather than treating such
changes as additions to additional paid-in capital.
The
Company has restated its 2006 and 2005 financial statements to (1) recognize
the
derivative liability arising from all of its warrants, regardless of when
issued; (2) value the derivative liability arising from its convertible
notes
using the Black-Scholes valuation method, which is widely accepted as a
measurement of fair value; and (3) recognize the fair value of the derivative
liability related to converted notes and exercised warrants as an addition
to
paid-in capital, rather than as a gain, at the point of conversion or
exercise.
As
a
consequence of the foregoing restatement, the following line items of the
Company’s consolidated balance sheet as of December 31, 2006, as included in the
2006 Form 10-KSB originally filed, differ from those included in the Company’s
consolidated balance sheet as of December 31, 2006, presented
herein:
Line
Item Caption
|
|
Previously
Reported
|
|
Increase
or
(Decrease)
|
|
Restated
|
|
Derivative
liability related to convertible notes
|
|
$
|
2,692,600
|
|
$
|
1,541,056
|
|
$
|
4,233,656
|
|
Warrant
liability related to convertible notes
|
|
|
1,103,918
|
|
|
170,682
|
|
|
1,274,600
|
|
Additional
paid-in capital
|
|
|
5,650,271
|
|
|
1,964,410
|
|
|
7,614,681
|
|
Accumulated
deficit
|
|
|
(10,734,982
|
)
|
|
(3,676,148
|
)
|
|
(14,411,130
|
)
|
Net
change
|
|
$
|
(1,288,193
|
)
|
$
|
0
|
|
$
|
(1,288,193
|
)
|
For
2005,
the equivalent differences in the consolidated balance sheet are as
follows:
Line
Item Caption
|
|
Previously
Reported
|
|
Increase
or (Decrease)
|
|
Restated
|
|
Derivative
liability related to convertible notes
|
|
$
|
2,606,377
|
|
$
|
1,309,129
|
|
$
|
3,915,506
|
|
Warrant
liability related to convertible notes
|
|
|
161,472
|
|
|
52,050
|
|
|
213,522
|
|
Additional
paid-in capital
|
|
|
5,400,819
|
|
|
1,649,346
|
|
|
7,050,165
|
|
Accumulated
deficit
|
|
|
(8,015,672
|
)
|
|
(3,010,525
|
)
|
|
(11,026,197
|
)
|
Net
change
|
|
$
|
152,996
|
|
$
|
0
|
|
$
|
152,996
|
|
As
a
consequence of the restatement, the following line items of the Company’s
consolidated statement of losses for the year ended December 31, 2006,
as
included in the 2006 Form 10-KSB originally filed, differ from those included
in
the Company’s consolidated statement of losses for the year ended December 31,
2006, presented herein:
Line
Item Caption
|
|
Previously
Reported
|
|
Change
|
|
Restated
|
|
Change
in fair value related to adjustment of derivative and warrant
liability to
fair value of underlying securities - gain (loss)
|
|
$
|
(628,670
|
)
|
$
|
(665,623
|
)
|
$
|
(1,294,293
|
)
|
Net
loss before income taxes
|
|
$
|
(2,719,110
|
)
|
$
|
(665,623
|
)
|
$
|
(3,384,733
|
)
|
Net
loss
|
|
$
|
(2,719,310
|
)
|
$
|
(665,623
|
)
|
$
|
(3,384,933
|
)
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
For
2005,
the equivalent differences in the consolidated statement of losses are
as
follows:
Line
Item Caption
|
|
Previously
Reported
|
|
Change
|
|
Restated
|
|
Change
in fair value related to adjustment of derivative and warrant
liability to
fair value of underlying securities - gain (loss)
|
|
$
|
(887,118
|
)
|
$
|
(3,010,525
|
)
|
$
|
(3,897,643
|
)
|
Net
loss before income taxes
|
|
$
|
(4,634,232
|
)
|
$
|
(3,010,525
|
)
|
$
|
(7,644,757
|
)
|
Net
loss
|
|
$
|
(4,634,332
|
)
|
$
|
(3,010,525
|
)
|
$
|
(7,644,857
|
)
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.04
|
)
|
$
|
(0.11
|
)
|
From
inception through December 31, 2006, the equivalent differences in the
consolidated statement of losses are as follows:
Line
Item Caption
|
|
Previously
Reported
|
|
Change
|
|
Restated
|
|
Change
in fair value related to adjustment of derivative and warrant
liability to
fair value of underlying securities - gain (loss)
|
|
$
|
(1,515,788
|
)
|
$
|
(3,676,148
|
)
|
$
|
(5,191,936
|
)
|
Net
loss before income taxes
|
|
$
|
(10,734,682
|
)
|
$
|
(3,676,148
|
)
|
$
|
(14,410,830
|
)
|
Net
loss
|
|
$
|
(10,734,982
|
)
|
$
|
(3,676,148
|
)
|
$
|
(14,411,130
|
)
|
Within
the Company’s consolidated statements of cash flows, the changes in line item
captions (“net loss” and “change in fair value related to adjustment of
derivative and warrant liability to fair value of underlying securities”) are
the same as the changes presented above for the same line item captions
pertaining to the changes in the Company’s consolidated statement of losses for
the years ended December 31, 2006 and 2005, and for the period from inception
through December 31, 2006. The restatement did not affect net cash used
in
operating activities or cash balances.
NOTE C
- GOING CONCERN
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in
the normal course of business. As shown in the consolidated financial statements
during the years ended December 31, 2006 and 2005, the Company incurred
losses
from operations of $3,384,733 and $7,644,857, respectively, and has a deficit
accumulated during the development stage of $14,411,130 as of December
31, 2006.
In addition, the Company has had negative cash flow from operating activities
since inception. These factors among others may indicate that the Company
will
be unable to continue as a going concern for a reasonable period of
time.
The
Company’s existence is dependent upon management’s ability to develop profitable
operations and resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through
the
continued development and sale of its products and additional equity investment
in the Company. The accompanying financial statements do not include any
adjustments that might result should the Company be unable to continue
as a
going concern.
In
order
to improve the Company’s liquidity, the Company is actively pursing additional
debt and equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful
in
its effort to secure additional equity financing.
NOTE D
- BUSINESS COMBINATION AND CORPORATE RESTRUCTURE
On
July
30, 2004, the Company completed a merger transaction with Impact Diagnostics,
Inc. (“Impact”), a privately held Utah company, pursuant to an agreement dated
July 6, 2004. As a result of the merger, there was a change in control
of the
public entity. Impact Diagnostics is a wholly owned subsidiary of the
Company.
In
accordance with SFAS No. 141, Impact was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in
substance the Agreement is a recapitalization of the Impact’s capital
structure.
For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition and Impact is the surviving entity. The total purchase price and
carrying value of net assets acquired was $65,812. The Company did not
recognize
goodwill or any intangible assets in connection with the transaction. From
1999
until the date of the Agreement, Grant was an inactive corporation with
no
significant assets and liabilities.
Effective
with the Agreement, all 35,060,720 previously outstanding shares owned
by the
Impact’s members were exchanged on a share for share basis with shares of the
Company’s common stock.
On
September 20, 2004, the Company’s Board of Directors approved a change in the
Company’s name to Grant Life Sciences, Inc. The accompanying financial
statements have been changed to reflect the change as if it had happened
at the
beginning of the periods presented. Stockholders approved this change effective
November 12, 2004.
The
total
consideration was $65,812 and the significant components of the transaction
are
as follows:
Common
stock retained
|
|
$
|
6,000
|
|
Assets
acquired
|
|
|
-
|
|
Liabilities
assumed - accounts payable
|
|
|
20,034
|
|
Liabilities
assumed - accounts payable - stockholder
|
|
|
39,778
|
|
Cash
paid
|
|
|
-
|
|
Total
consideration paid/organization cost
|
|
$
|
65,812
|
|
In
accordance with SOP No. 98-5, the Company expensed $65,812 as organization
costs.
NOTE E
- PROPERTY AND EQUIPMENT
Major
classes of property and equipment at December 31, 2006 and 2005 consist
of the
followings:
|
|
2006
|
|
2005
|
|
Furniture
and fixtures
|
|
$
|
23,501
|
|
$
|
23,501
|
|
Equipment
|
|
|
7,193
|
|
|
3,339
|
|
|
|
|
30,694
|
|
|
26,840
|
|
Less:
Accumulated Depreciation
|
|
|
(19,922
|
)
|
|
(12,519
|
)
|
|
|
|
|
|
|
|
|
Net
Property and Equipment
|
|
$
|
10,772
|
|
$
|
14,321
|
|
Depreciation
expense was $7,403 and $6,662 for the years ended December 31, 2006 and
2005,
respectively.
NOTE F
- RELATED PARTY TRANSACTIONS
Messrs.
Seth Yakatan and Clifford Mintz have been contracted as consultants to
us in the
business development area since November 1, 2004 and August 1, 2004,
respectively. They were paid $5,000 each month for their services Mr. Mintz’
services were terminated on March 31, 2005. Mr. Yakatan is the son of Stan
Yakatan, our Board Chairman. Mr. Mintz is an affiliate of Katan Associates,
of
which Stan Yakatan is the Chairman.
As
of
December 31, 2006 and 2005, the Company had no receivables from
employees.
NOTE G
- NOTES PAYABLE
Notes
payable at December 31, 2006 and December 31, 2005 are as follows:
|
|
December
31, 2006
|
|
December
31, 2005
|
|
10%
note payable, unsecured, originally due on 11/30/2002. The note
payable
was in default as of December 31, 2002. The venture capital firm
that
issued the loan has since been placed in receivership. As of
December 31,
2003 the note balance was $587,753 with accrued interest payable
of
$141,501. In August 2004, this note for $587,753 and accrued
interest of
$175,787 was restructured into a 3-year convertible note of $350,000
plus
89,500 5-year warrants to purchase additional shares at $0.01
per share.
The note is convertible into shares of common stock at a conversion
price
of $0.83798 per share. Interest is payable quarterly at 6% per
year. The
89,500 warrants have an option value of $0.0378 per share. The
conversion
resulted in a $411,597 gain on extinguishment of debt in
2004.
|
|
|
350,000
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
$2,000,000
10% and $400,000 6% convertible debenture with interest due quarterly
subject to certain conditions, due three years from the date
of the notes.
The holder has the option to convert unpaid principal of the
$2,000,000
notes to the Company's common stock at the lower of (i) $0.40
or (ii) 43%
of the average of the three lowest intraday trading prices for
the common
stock on a principal market for the twenty trading days before,
but not
including, conversion date, and of the $400,000 notes at the
lower of (i)
$0.15 or (ii) 60% of the average of the three lowest intraday
trading
prices for the common stock on a principal market for the twenty
trading
days before, but not including, conversion date. The Company granted
the note holder a security interest in substantially all of
the Company's assets and intellectual property and registration
rights. (see below) In 2006 $44,908 of the $2,000,000 convertible
note was
converted into 2,594,644 shares at an average conversion rate
of $0.017
per share, and in 2005 $470,313 of the $2,000,000 note principal
was
converted into 67,580,405 shares at an average conversion rate
of $0.007
per share.
|
|
|
683,015
|
|
|
240,491
|
|
|
|
|
|
|
|
|
|
6%
note payable, unsecured, interest and principal to be paid in
eight equal
quarterly payments beginning 6/07/05. Final payment was due 3/7/2007
and
remains unpaid.
|
|
|
15,523
|
|
|
21,875
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
1,048,538
|
|
|
612,366
|
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
(365,523
|
)
|
|
(21,875
|
)
|
|
|
|
|
|
|
|
|
Balance
notes payable (long term portion)
|
|
$
|
683,015
|
|
$
|
590,491
|
|
In
March
2005, convertible notes totaling $122,500 plus accrued interest of $7,350
converted into 1,395,322 shares of stock, per the terms of the notes. $1,230
of
interest was forgiven.
On
March
15, 2005, the Company obtained bridge financing of $200,000 from a shareholder
who owns 5.2% of the Company’s outstanding shares. The Company signed a $200,000
note, secured by the Company's assets, with an interest rate of 8% due
June 15,
2005 or when the Company receives proceeds of $2,000,000 from the sale
of stock
or debt securities, whichever is sooner. Interest is payable in cash at
the end
of each month. The Company issued 250,000 5-year warrants, with an exercise
price of $0.40, to the lender. The exercise price of the warrants is adjustable
downward if equity is issued in the future for a price less than the exercise
price of these warrants. The note was paid off on the due date of June
15, 2005
with the proceeds from the sale of convertible debt on June 14,
2005.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 14, 2005 and on December 28, 2006 for the issuance of
an
aggregate of $2,000,000 and $400,000 of convertible notes respectively
("Convertible Notes"), and attached to the Convertible Notes were warrants
to
purchase 11,692,308 shares of the Company's common stock. The $2,000,000
of
Convertible Notes accrue interest at 10% per annum, payable quarterly,
and are
due three years from the date of the note. The $400,000 of Convertible
Notes
accrue interest at 6% per annum, payable quarterly, and are due three years
from
the date of the note. The note holder has the option to convert any unpaid
note
principal of the $2,000,000 of notes to the Company's common stock at a
rate of
the lower of (i) $0.45 or (ii) 43% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including conversion date. The note holder has the
option to
convert any unpaid note principal of the $400,000 of notes to the Company's
common stock at a rate of the lower of (i) $0.15 or (ii) 60% of the average
of
the three lowest intraday trading prices for the common stock on a principal
market for the 20 trading days before but not including conversion
date.
As
of
December 31, 2006, the Company issued to the investors Convertible Notes
in a
total amount of $2,400,000 in exchange for net proceeds of $1,761,670.
The
proceeds that the Company received were net of prepaid interest of $133,330
representing the first eight month's interest calculated at 10% per annum
for
the aggregate of $2,000,000 of convertible notes, $30,000 that was placed
into
an escrow fund to purchase key man life insurance, and related costs of
$75,000.
Prepaid interest is amortized over the first eight months of the note and
capitalized financing costs are amortized over the maturity period (three
years)
of the convertible notes.
The
transactions, to the extent that it is to be satisfied with common stock
of the
Company, would normally be included as equity obligations. However, in
the
instant case, due to the indeterminate number of shares which might be
issued
under the embedded convertible host debt conversion feature, the Company
is
required to record a liability for the fair value of the detachable warrants
and
the embedded convertible feature of the note payable (included in the
liabilities as a "derivative liability").
The
accompanying financial statements comply with current requirements relating
to
warrants and embedded conversion features as described in FAS 133, EITF
98-5,
00-19, and 00-27, and APB 14 as follows:
·
The Company allocated the proceeds received between convertible debt and
the
detachable warrants based upon the relative fair market values on the dates
the
proceeds were received.
·
Subsequent to the initial recording, the change in the fair value of the
detachable warrants, determined under the Black-Scholes option pricing
formula,
and the change in the fair value of the embedded derivative in the conversion
feature of the convertible debentures, also determined under the Black-Scholes
option pricing formula, are recorded as adjustments to the liabilities at
December 31, 2006 and 2005.
·
The expense relating to the change in the fair value of the Company's stock
reflected in the change in the fair value of the warrants and derivatives
(noted
above) is included as other income (expense).
·
Accreted interest of $1,078,967 as of December 31, 2006 and $591,534 as
of
December 31, 2005.
During
2006, $44,908 of the June 14 th
convertible note was converted into 2,594,644 shares at an average conversion
rate of $0.017, and during 2005, $470,311 of the June 14 th
convertible note was converted into 67,580,405 shares at an average conversion
rate of $0.007 according to the terms of the note.
The
following table summarizes the various components of the convertible notes
as of
December 31, 2006 and 2005:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Restated)
|
|
(Restated)
|
|
Convertible
notes
|
|
$
|
683,015
|
|
$
|
240,491
|
|
Warrant
liability
|
|
|
1,274,600
|
|
|
213,522
|
|
Derivative
liability
|
|
|
4,233,656
|
|
|
3,915,506
|
|
|
|
|
|
|
|
|
|
|
|
|
6,191,271
|
|
|
4,369,519
|
|
|
|
|
|
|
|
|
|
Change
in fair value of warrants and convertible notes
|
|
|
(5,191,936
|
)
|
|
(3,897,643
|
)
|
Credited
to additional paid-in capital upon conversion of notes or exercise
of
warrants
|
|
|
1,964,410
|
|
|
1,649,347
|
|
Accretion
of interest related to convertible debenture
|
|
|
(1,078,966
|
)
|
|
(591,534
|
)
|
Converted
to common shares
|
|
|
515,221
|
|
|
470,311
|
|
|
|
|
|
|
|
|
|
Total
convertible notes
|
|
$
|
2,400,000
|
|
$
|
2,000,000
|
|
NOTE H
- COMMON STOCK
The
Company is authorized to issue 750,000,000 shares of common stock with
$0.001
par value per share. As of December 31, 2006, the Company has issued and
outstanding 136,420,423 shares of common stock. Also, the Company is
authorized to issue 20,000,000 shares of preferred stock with $0.001 par
value
per share. No shares of preferred stock have been issued to date.
In
1998,
the Company issued 18,795,000 shares of its common stock at $0.005 per
share for
$100,000 which is shown as subscription receivable until it was settled
in the
year 2000.
In
1999
the Company issued 1,253,000 shares of its common stock at $0.004 per share
for
$5,000 in cash.
In
2001
the Company issued 250,600 shares of its common stock at $0.004 per share
for
$1,000 in cash.
In
2002
the Company issued 689,150 shares of its common stock at $0.13 per share
for
$92,500 in cash.
In
2002
the Company issued 1,591,310 shares of its common stock at $0.06 per share
in
return for services valued at $103,250.
In
2002
the Company issued 1,790,000 shares of its common stock at $0.14 per share
in
satisfaction of $250,000 of debt.
In
2003
the Company issued 930,800 shares of its common stock at $0.13 per share
for
$120,000 in cash.
In
July
2004, per the Agreement and Plan of Merger with Impact Diagnostics, Inc.
all
previously outstanding 35,060,720 shares of common stock owned by the Impact’s
stockholders were exchanged for the same number of shares of the Company’s
common stock. The value of the stock that was issued was the historical
cost of
the Company’s net tangible assets, which did not differ materially from their
fair value.
In
connection with the Merger, on July 5, 2004, the board of directors of
Impact
Diagnostics, Inc. approved a stock split of 3.58 shares to 1. As a result
of the
split, the outstanding common stock of Impact Diagnostics, Inc. increased
from
9,793,497 to 35,060,720 shares. Pursuant to the Merger Agreement, each
share of
Impact Diagnostics common stock was exchanged for one share of Grant Life
Sciences common stock. All numbers, in the financial statements and notes
to the
financial statements have been adjusted to reflect the stock split for
all
periods presented.
On
September 20, 2004, the Company’s Board of Directors approved a change in the
Company’s name to Grant Life Sciences, Inc. The accompanying financial
statements have been changed to reflect the change as if it had happened
at the
beginning of the periods presented. Stockholders approved this change effective
November 12, 2004.
In
March
and April of 2004, the Company issued 238,660 shares of common stock for
cash at
$0.0838 per share for $20,000.
In
June
2004, the Company issued 500,000 shares of common stock in exchange for
services
valued at $40,000 to consultants. The stock issued was valued at $.08 per
share, which represents the fair value of the stock issued, which did not
differ
materially from the value of the services rendered. Expense of $20,000,
related
to financial consulting, is included in general administrative expense
and
expense of $20,000 related to R&D consulting is included in R&D
expense.
On
August
19, 2004, the Company completed a private placement of 9,560,596 shares
to
accredited investors at a price of $0.1835 per share. As an additional
enticement to purchase the shares, one 5-year warrant to purchase stock
at
$0.1835 was issued for each 5 shares of stock purchased. The private placement
resulted in net proceeds to the company of approximately $1,494,937. The
Company
also issued warrants to purchase 2,670,000 shares at an exercise price
of $0.01
per warrant and warrants to purchase 411,104 shares at an exercise price
of
$0.185 per warrant to its placement agent in connection with the Merger
and
private placement.
A
bridge
loan of $50,000, made to the Company on July 6, 2004, was converted to
equity on
July 31, 2004 as part of the private placement. In addition to the warrants
received as part of the offering, 50,000 warrants with an exercise price
of
$0.1835 were issued to the lender.
In
July,
2004, the Company issued 2,720,000 shares of common stock for a convertible
note
payable and accrued interest of $205,885.
In
August
2004, the Company issued 249,475 shares of common stock at $0.1835 per
share in
satisfaction of two related party notes payable of $45,779. Accrued interest
was
forgiven by the lenders.
In
November 2004, the Company issued 2,403,000 shares of common stock for
exercise
of warrants at $0.01 strike price, for total cash proceeds of $24,030.
These
warrants were originally issued in connection with the Merger and private
placement of common stock.
In
March
2005, convertible notes, maturing in January and February 2005, were converted
into 1,395,322 shares of stock. The conversion price per share was $0.092178,
as
stated in the notes, which originated in January and February of
2004.
In
April
2005, the Company issued 500,000 shares of common stock to its financial
advisory group in exchange for services rendered over the 2005 calendar
year.
The stock issued was valued at $0.40 per share, which represents the fair
value
of the stock issued, which did not differ materially from the value of
the
services rendered.
In
June
2005, the Company issued 50,000 shares of common stock for exercise of
stock
options for cash $9,000.
In
September 2005, 200,000 shares were issued in exchange for legal services
at
$.22 per share. The commitment to issue the shares was made on June 14,
2005.
From
September 2005 to December 2005, $470,311 of principal of the Senior 10%
convertible notes converted into 67,580,405 shares. The average conversion
price per share was $0.0070.
During
the fourth quarter of 2005 warrants for 517,000 shares were exercised for
$5,420
in cash.
During
the third and fourth quarters of 2006, $44,908 of principal of the Senior
10%
convertible notes converted into 2,594,644 shares. The average conversion
price per share was $0.017.
In
July
2006, the Company issued 5,226,534 shares of common stock in settlement
of
indebtedness of resulting from the settlement of a lawsuit at $0.01 per
share.
The settlement included the payment of $17,422 which amount was subsequently
repaid to the Company in exchange for the repricing the price per warrant
to
$0.01 of 1,317,013 warrants originally issued in 2004 at $0.18. During
the last
quarter of 2006 the Company issued 812,100 shares in exchange for the cashless
exercise of 855,578,of the $0.01warrants.
In
October 2006, 1,150,627 shares were issued in exchange for services at
an
average price of $.037 per share.
In
November 2006, the Company issued 150,000 shares of common stock for exercise
of
stock options for cash $27,000.
NOTE I
- INCOME TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires
the
recognition of deferred tax liabilities and assets for the expected future
tax
consequences of events that have been included in the financial statement
or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets
and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes
are
insignificant.
For
income tax reporting purposes, the Company’s aggregate unused net operating
losses approximate $7,016,000 and unused credits of $80,342 which expire
through
2026, subject to limitations of Section 382 of the Internal Revenue Code,
as
amended. The Company has provided a valuation reserve against the full
amount of
the net operating loss benefit, because in the opinion of management based
upon
the earning history of the Company, it is more likely than not that the
benefits
will not be realized.
Components
of deferred tax assets as of December 31, 2006 and 2005 are as follows:
|
|
2006
|
|
2005
|
|
|
|
(Restated)
|
|
(Restated)
|
|
Non
current
|
|
|
|
|
|
Net
Operating Loss Carryforwards
|
|
$
|
2,729,867
|
|
$
|
1,883,717
|
|
Accrued
Interest
|
|
|
57,299
|
|
|
38,610
|
|
R&D
Credit
|
|
|
80,342
|
|
|
43,200
|
|
Stock
Options
|
|
|
556,231
|
|
|
595,899
|
|
Unrealized
Loss
|
|
|
2,024,855
|
|
|
1,520,080
|
|
Amortization
|
|
|
-
|
|
|
10,400
|
|
Contribution
Carryover
|
|
|
156
|
|
|
156
|
|
Less
Valuation Allowance
|
|
|
(5,267,056
|
)
|
|
(4,005,835
|
)
|
Total
Deferred Tax Assets
|
|
$
|
181,694
|
|
$
|
86,227
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Liability
|
|
|
|
|
|
|
|
State
Taxes
|
|
$
|
(181,694
|
)
|
$
|
(86,227
|
)
|
Total
Deferred Tax Liabilities
|
|
$
|
(181,694
|
)
|
$
|
(86,227
|
)
|
Net
Deferred Tax Assets
|
|
$
|
0
|
|
$
|
0
|
|
The
following table presents the current and deferred income tax provision
for
(benefit from) federal and state income taxes for the years ended
December 31, 2006 and 2005:
|
|
2006
|
|
|
|
Federal
|
|
Utah
|
|
Other
|
|
Total
|
|
Provision
for income tax
|
|
|
|
|
|
|
|
|
|
Current
provision
|
|
$
|
-
|
|
$
|
200
|
|
|
|
|
$
|
200
|
|
Deferred
provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax- beginning of year
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Deferred
tax - end of year
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Change
in deferred tax provision
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision
|
|
$
|
-
|
|
$
|
200
|
|
$
|
-
|
|
$
|
200
|
|
|
|
2005
|
|
|
|
Federal
|
|
Utah
|
|
Other
|
|
Total
|
|
Provision
for income tax
|
|
|
|
|
|
|
|
|
|
Current
provision
|
|
$
|
-
|
|
$
|
100
|
|
|
|
|
$
|
100
|
|
Deferred
provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax- beginning of year
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Deferred
tax - end of year
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Change
in deferred tax provision
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision
|
|
$
|
-
|
|
$
|
100
|
|
$
|
-
|
|
$
|
100
|
|
The
provision for income taxes differs from the amount that would result from
applying the federal statutory rate for the years ended December 31, 2006,
and 2005 as follows:
|
|
2006
|
|
2005
|
|
Calculation
of rate of taxes on income
|
|
|
|
|
|
Tax
@ statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
|
|
|
|
|
|
|
|
Permanent
differences:
|
|
|
|
|
|
|
|
R&D
credit
|
|
|
1
|
%
|
|
1
|
%
|
State
tax (net of fed benefit)
|
|
|
3
|
%
|
|
3
|
%
|
Change
in valuation allowance
|
|
|
-38
|
%
|
|
-38
|
%
|
Total
|
|
|
0
|
|
|
0
|
%
|
R&D
credit for the year 2006 is $13,244
NOTE J
- STOCK OPTIONS AND WARRANTS
The
Company's has a Stock Incentive Plan. The options granted under the Plan
may be
either qualified or non-qualified options. Up to 25,000,000 options may
be
granted to employees, directors and consultants under the plan. Options
may be
granted with different vesting terms and expire no later than 10 years
from the
date of grant. In 2006, 600,000 options were granted, 500,000 with an exercise
price of $0.05 and 100,000 with an exercise price of $0.018. In 2005, 950,000
options were granted under the plan, 850,000 with an exercise price of
$0.18 and
100,000 with an exercise price of $0.04. 150,000 options were exercised
in 2006
and 50,000 were exercised in 2005. Stockholders approved the plan effective
November 12, 2004.
Stock
Options
Transactions
involving stock options issued to employees, directors and consultants
under the
Company’s 2004 Stock Incentive Plan are summarized below. Options issued under
the plan have a maximum life of 10 years. The following table summarizes
the
options outstanding and the related exercise prices for the shares of the
Company’s common stock issued under the 2004 Stock Incentive plan and as of
December 31, 2006:
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise Prices
|
|
Number Outstanding
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
Weighed Average
Exercise Price
|
|
Number Exercisable
|
|
Weighted Average
Exercise Price
|
|
$0.18
|
|
|
4,020,952
|
|
|
7.5
|
|
|
|
|
|
3,637,618
|
|
|
|
|
$0.05
|
|
|
500,000
|
|
|
9.4
|
|
|
|
|
|
366,667
|
|
|
|
|
$0.018
|
|
|
100,000
|
|
|
9.4
|
|
|
|
|
|
33,333
|
|
|
|
|
|
|
|
4,620,952
|
|
|
7.8
|
|
$
|
0.17
|
|
|
4,037,618
|
|
$
|
0.17
|
|
|
|
Number of
options
|
|
Weighted
average exercise
price
|
|
Outstanding
at December 31, 2004 (613,150 options exerciseable at weighted
average
exercise price of $ 0.18)
|
|
|
5,243,254
|
|
$
|
0.18
|
|
Granted
(weighted average fair value $ 0.38)
|
|
|
950,000
|
|
$
|
0.19
|
|
Exercised
(total fair value $6,264)
|
|
|
(50,000
|
)
|
$
|
0.18
|
|
Cancelled
|
|
|
(1,972,302
|
)
|
$
|
0.18
|
|
Outstanding
at December 31, 2005 (3,187,618 options exerciseable at weighted
average
exercise price of $ 0.18)
|
|
|
4,170,952
|
|
$
|
0.18
|
|
Granted
(weighted average fair value $ 0.012)
|
|
|
600,000
|
|
$
|
0.05
|
|
Exercised
(total fair value $27,000)
|
|
|
(150,000
|
)
|
$
|
0.18
|
|
Cancelled
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2006 (4,037,618 options exerciseable at weighted
average
exercise price of $ 0.17)
|
|
|
4,620,952
|
|
$
|
0.17
|
|
A
summary
of the status of the Company’s nonvested options as of December 31, 2005 and
changes during the year ended December 31, 2006 is as follows:
Nonvested
Options
|
|
Number of
options
|
|
Weighted
average grant
date fair value
|
|
Nonvested
at December 31, 2004
|
|
|
4,629,604
|
|
$
|
0.31
|
|
Granted
|
|
|
950,000
|
|
$
|
0.38
|
|
Vested
|
|
|
(2,918,968
|
)
|
$
|
0.27
|
|
Forfeited
|
|
|
(1,677,302
|
)
|
$
|
0.20
|
|
Nonvested
at December 31, 2005
|
|
|
983,334
|
|
$
|
0.66
|
|
Granted
|
|
|
600,000
|
|
$
|
0.01
|
|
Vested
|
|
|
(1,000,000
|
)
|
$
|
0.37
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
Nonvested
at December 31, 2006
|
|
|
583,334
|
|
$
|
0.49
|
|
As
at
December 31, 2006, the total compensation cost not yet recognized related
to
nonvested option awards is $54,548 which is expected to be realized over
a
weighted average period of 0.5 years.
The
weighted-average significant assumptions used to determine those fair values,
using a Black-Scholes option pricing model are as follows:
|
|
2006
|
|
2005
|
|
Significant
assumptions (weighted-average):
|
|
|
|
|
|
Risk-free
interest rate at grant date
|
|
|
4.9
|
%
|
|
3.6
|
%
|
Expected
stock price volatility
|
|
|
201
|
%
|
|
107
|
%
|
Expected
dividend payout
|
|
|
0
|
%
|
|
0
|
%
|
Expected
option life-years based on management’s estimate (a)
|
|
|
3yrs
|
|
|
3yrs
|
|
(a)The
expected option life is based on management’s estimate.
The
Company elected early adoption of SFAS No. 123R effective for 2004, in
advance
of the Company's required adoption date of December 15, 2005. This Statement
requires public entities to measure the cost of equity awards to employees
based
on the grant-date value of the award. During the years ended December 31,
2006
and 2005, the Company recognized $238,550 and $976,987 respectively as
expense
relating to vested stock options. For the year ended December 31, 2006
$151,204
was recognized as R&D expense and $87,345 as general and administrative
expense, and for the year ended December 31, 2005 $386,410 was recognized
as
R&D expense and $590,577 as general and administrative expense.
Warrants
The
following tables summarize the warrants outstanding and the related exercise
prices for the shares of the Company’s common stock issued by the
Company as of December 31, 2006:
Warrants
Outstanding & Exercisable
|
|
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted Average Remaining
Contractual Life (Years)
|
|
Weighed Average Exercise
Price
|
|
$
|
0.01
|
|
|
550,935
|
|
|
2.6
|
|
$
|
0.01
|
|
$
|
0.14
|
|
|
4,000,000
|
|
|
7.0
|
|
$
|
0.14
|
|
$
|
0.18
|
|
|
1,306,191
|
|
|
2.6
|
|
$
|
0.18
|
|
$
|
0.45
|
|
|
7,692,306
|
|
|
3.6
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,549,432
|
|
|
4.5
|
|
$
|
0.31
|
|
|
|
Number
of
Shares
|
|
Weighted
Average Exercise
Price
|
|
Outstanding
at December 31, 2004
|
|
|
2,979,704
|
|
$
|
0.16
|
|
Granted
|
|
|
7,942,306
|
|
$
|
0.45
|
|
Exercised
|
|
|
(517,000
|
)
|
$
|
0.01
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2005
|
|
|
10,405,010
|
|
$
|
0.38
|
|
Granted
|
|
|
4,000,000
|
|
$
|
0.14
|
|
Exercised
|
|
|
(855,578
|
)
|
$
|
0.01
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2006
|
|
|
13,549,432
|
|
$
|
0.31
|
|
All
warrants were exercisable at the date of grant. All of the warrants, except
250,000 warrants, were issued in connection with financings. The exercise
price
of the warrants issued in 2005 and 2006 can be adjusted downward if stock
is
issued below the market price. The Company granted a warrant to purchase
250,000
shares at $0.18 per share to a non-employee for past consulting services
in June
2004. The warrant was valued at the fair market value of services performed.
The
Black-Scholes option pricing model was used to value the 4,000,000 warrants
with
an exercise price of $0.14 which were issued in connection with the $400,000
note payable. The following assumptions were used.
|
|
2006
|
|
2005
|
|
Significant
assumptions (weighted-average):
|
|
|
|
|
|
Risk-free
interest rate at grant date
|
|
|
4.7
|
%
|
|
3.6
|
%
|
Expected
stock price volatility
|
|
|
213
|
%
|
|
107
|
%
|
Expected
dividend payout
|
|
|
0
|
%
|
|
0
|
%
|
Expected
option life-years based on management’s estimate (a)
|
|
|
3
to 7 yrs
|
|
|
3yrs
|
|
(a)The
expected option life is based on management’s estimate.
NOTE K
- COMMITMENTS AND CONTINGENCIES
On
July
20, 2004, the Company entered into an exclusive license agreement to use
certain
technologies in its cervical cancer tests. The term of the license agreement
is
17 years, and requires the Company to make annual royalty payments ranging
from
1% to 3% of net sales, with annual minimum royalty payments of $48,000
to be
paid monthly in $4,000 installments. The license agreement can be terminated
with 90 days notice.
Minimum
payments due under this license agreement are as follows:
Year
|
|
Amount
|
|
2007
|
|
$
|
48,000
|
|
2008
|
|
|
48,000
|
|
2009
|
|
|
48,000
|
|
2010
|
|
|
48,000
|
|
2011
|
|
|
48,000
|
|
2012
and after
|
|
|
504,000
|
|
|
|
$
|
744,000
|
|
On
March
7, 2005, the Company signed a 10-year licensing agreement for rapid test
technologies. Under the terms of the agreement, the Company made an initial
payment of $15,000, executed a note for $35,000 payable over two years,
and pay
3% royalties on net sales of licensed products. The license can be terminated
with 90 days notice by the Company. On March 7, 2005, the Company also
entered
into a 27-month consulting Agreement with Ravi Pottahil and Indira
Pottahil in support of the License, pursuant to which these Consultants
received
310,000 shares of common stock of the Company. As at December 31, 2006,
the
310,000 shares had been issued.
NOTE
L- SUBSEQUENT EVENTS
In
January 2007 the Company issued 95,000 shares to a vendor in payment for
services provided.
During
January, February and until March 21, 2007, the Company issued 18,000,000
shares
upon conversion of $578,840 of the convertible notes payable.
In
March
2007 the Board of Directors awarded 11,550,000 options to members of management
and the board. The options vest over a period of 2 years, are exercisable
at
$0.054 and expire in 10 years from date of issue.
In
February and March 2007, the Company entered into Securities Purchase Agreements
with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC for the sale of (i) $300,000 in callable
secured convertible notes and (ii) stock purchase warrants to buy 2,000,000
shares of our common stock. As with the previous convertible notes the
Company
will treat the detachable warrants and the embedded derivative in the
conversion feature of the convertible note as liabilities.
35,087,719
Shares
Common
Stock
PROSPECTUS
January
29, 2008
You
should rely only on the information contained in this prospectus. We have
not
authorized anyone to provide you with information different from that which
is
set forth in this prospectus. We are offering to sell shares of our common
stock
and seeking offers to buy shares of our common stock only in jurisdictions
where
offers and sales are permitted. The information contained in this prospectus
is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of these securities. Our business,
financial condition, results of operation and prospects may have changed
after
the date of this prospectus.