Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB/A
x
ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2006
o
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION
FILE NO. 000-50133
Grant
Life Sciences, Inc.
(Name
of
Small Business Issuer in Its Charter)
Nevada
|
82-0490737
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
Incorporation
or Organization)
|
|
|
84121
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(801)
733-0878
(Issuer's
Telephone Number, Including Area Code)
SECURITIES
REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES
REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common
Stock, $.001 Par Value Per Share
Check
whether the Issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90 days: Yes x No o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act. Yes o No
x
State
issuer’s revenues for the most recent fiscal year: none.
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. As of March 19, 2007:
$7,214,294 (150,297,796 shares
at
$0.048/share).
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 154,515,423 shares
of
common stock, $.001 par value per share, as of March 19, 2007.
Explanatory
Note
Grant
Life Sciences, Inc. (the “Company”) is filing this amended Annual Report on Form
10-KSB/A for the year ended December 31, 2006, to file restated consolidated
financial statements which contain adjustments to correct errors arising
from
the incomplete and/or incorrect application of derivative accounting to
the
Company’s convertible notes and warrants, as more fully explained in Note B to
the restated, consolidated financial statements as of and for the years
ended
December 31, 2006 and 2005.
The
Company has also amended Item 6, “Management’s Discussion and Analysis or Plan
of Operation” as well as Item 8A, “Controls and Procedures” and, in addition,
has updated the signature page and made other updating changes.
The
amended Annual Report on Form 10-KSB/A is set forth in its entirely on
the
following pages.
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Page
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PART
I
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Item
1.
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DESCRIPTION
OF BUSINESS
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3
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Item
2.
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DESCRIPTION
OF PROPERTY
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13
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Item
3.
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LEGAL
PROCEEDINGS
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13
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Item
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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13
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PART
II
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Item
5.
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MARKET
FOR COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER REPURCHASES OF EQUITY SECURITIES
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13
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Item
6.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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14
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Item
7.
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FINANCIAL
STATEMENTS
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27
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Item
8.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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27
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Item
8A.
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CONTROLS
AND PROCEDURES
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27
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Item
8B.
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OTHER
INFORMATION
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28
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PART
III
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Item
9.
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
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PERSONS;
COMPLIANCE WITH SECTION 16(b) OF THE EXCHANGE ACT
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28
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Item
10.
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EXECUTIVE
COMPENSATION
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29
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Item
11.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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31
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Item
12.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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32
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Item
13.
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EXHIBITS
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33
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Item
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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34
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SIGNATURES
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36
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STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
In
this
annual report, references to “Grant Life Sciences,” “GLIF,” “the Company,” “we,”
“us,” and “our” refer to Grant Life Sciences, Inc.
Except
for the historical information contained herein, some of the statements in
this
Report contain forward-looking statements that involve risks and uncertainties.
These statements are found in the sections entitled "Business," "Management's
Discussion and Analysis or Plan of Operation," and "Risk Factors." They include
statements concerning: our business strategy; expectations of market and
customer response; liquidity and capital expenditures; future sources of
revenues; expansion of our proposed product line; and trends in industry
activity generally. In some cases, you can identify forward-looking statements
by words such as "may," "will," "should," "expect," "plan," "could,"
"anticipate," "intend," "believe," "estimate," "predict," "potential," "goal,"
or "continue" or similar terminology. These statements are only predictions
and
involve known and unknown risks, uncertainties and other factors, including,
but
not limited to, the risks outlined under "Risk Factors," that may cause our
or
our industry's actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. For example, assumptions that could cause actual results to vary
materially from future results include, but are not limited to: our ability
to
successfully develop and market our products to customers; our ability to
generate customer demand for our products in our target markets; the development
of our target markets and market opportunities; our ability to manufacture
suitable products at competitive cost; market pricing for our products and
for
competing products; the extent of increasing competition; technological
developments in our target markets and the development of alternate, competing
technologies in them; and sales of shares by existing shareholders. Although
we
believe that the expectations reflected in the forward looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Unless we are required to do so under US federal securities
laws or other applicable laws, we do not intend to update or revise any
forward-looking statements
Item
1. Description of Business
Overview
of Our Business
We
are
developing antibody-based screening tests to screen woman for cervical cancer
and pre-cancerous conditions that 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 provides 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
January 2006 we announced the signing of a Memorandum of Understanding (MOU)
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 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.
Sveshnidov/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.
We
also
have the exclusive worldwide rights to diagnostic devices for HIV-1, HIV-2
and
dengue fever testing and a proprietary diagnostic reagent 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.
History
of Grant Life Sciences
We
were
incorporated in Idaho in 1983 as Grant Silver Inc. In 2000, we
reincorporated in Nevada. On July 30, 2004, we acquired Impact Diagnostics,
Inc,
a Utah corporation, through the merger of our wholly owned subsidiary into
Impact Diagnostics. We sometimes refer to that transaction as the
“Merger”. As a result of the Merger, Impact Diagnostics became our wholly
owned subsidiary. Impact Diagnostics was formed in 1998 and has been
developing a cervical cancer test. For several years prior to our
acquisition of Impact Diagnostics, we engaged in no business.
Impact
Diagnostics was formed in 1998 to license and develop certain technologies
as
owned by Dr. Yao Xiong Hu. Initial funding provided by the founders, and
supplemented by two additional rounds of private funding, was used to fund
the
collection of patient samples and validation study costs of the technology.
Once
the technology was verified, Dr. Mark Rosenfeld drafted and applied for patents.
In early 2004, Impact Diagnostics received its first patent.
Pursuant
to the merger, each issued and outstanding share of common stock of Impact
Diagnostic was converted into the right to receive one share of our common
stock. In addition, each option to purchase one (1) share of common stock
of Impact Diagnostics was converted into the right to receive an option to
purchase one (1) share of our common stock. Upon completion of the merger,
our
then standing board of directors resigned and the nominees of Impact Diagnostics
were appointed to our board of directors.
Cervical
Cancer
Invasive
cervical cancer affects over 500,000 women worldwide annually, and approximately
300,000 women die each year from this disease. Cervical cancer is the
second highest cause of cancer death among women. 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 China, India and many other countries, there is a much
higher incidence of invasive cervical cancer because of the lack of testing
and
limited or diagnostic testing infrastructure.
Pap Tests have been the most prevalent cervical cancer screening method for
more
than 50 years. In recent years, gene- or DNA-based HPV tests has been
introduced as an adjunct to the Pap Test. Today, 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, mainly in
Canada, Western Europe and Japan. Outside the United States, approximately
1.7 billion women do not undergo regular cervical cancer testing. 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.
Cervical
cancer is predominantly caused by human papillomavirus or 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 is increasing in incidence and often
is
undetectable by Pap Tests. Missing adenocarcinomas is largely caused by problems
in collecting the correct cervical cells.
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 as 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 professional to extract cells from the
cervix by inserting a colleting 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
or
other technical problems and to 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 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 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 getting 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 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 two days. 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 will indicate the presence of
“detector” antibodies that recognizing the 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.
·
non-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
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 may 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. We have
leased a facility in Los Angeles to conduct these studies. 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 Memorandum of Agreement (MOU) with Drs. Peter Sveshnikov and Vsevolod
Kiselev of the Russian Republic, for the in licensing of technologies highly
complimentary to Grants’ antibody-based test for detecting cervical cancer. The
Sveshnikov/Kiselev Technology comes to Grant 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, to convert former biowarfare scientists to productive peacetime
activities. .
Sveshnikov/Kiselev
have developed an Enzyme-linked Immunosorbent Assay (ELISA) to detect specific
cancer-causing proteins from the human papillomavirus (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 compliment 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.
Sveshnidov/Kiselev
have already looked at their technology with 1000 Russian samples to confirm
the
potential of this technology. Grant will be further validating with more
specimens from Russia and with the cervical specimens obtained in the United
States under Institutional Review Board approval in controlled clinical
settings.
Together,
when validated, Grant 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 are not tested by Pap smear cytology.
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 efficacy 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 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.
We
intend
to sell the ELISA version of our cervical cancer test to high complexity
laboratories for validation as an analyte specific reagent or for use by such
laboratories in their own homebrew (or 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 analyte specific
reagent.
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 oft 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 Test 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.
License
AccuDx Rapid Point-of-Care Diagnostic Tests
In
conjunction with our primary diagnostic cervical cancer blood test that we
are
developing, during the year we acquired exclusive worldwide rights to diagnostic
devices for HIV-1, HIV-2 and dengue fever and proprietary colloidal gold
reagent, a key ingredient commonly used by leading manufacturers of rapid tests
as a detectable label. We acquired these rights from AccuDx.
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 and 2 million
children. Just in year 2004 over 5 million new infections were reported.
Serological 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 sample addition pad containing HIV-antigen
gold conjugate, a capillary membrane with three capture lines with HIV-1, HIV-2
and a control line and a fluid absorption pad. When test strips are placed
in
the tube containing test serum or plasma, the liquid migrates upwardly by
capillary action. Colloidal gold conjugates of HIV antigen react with anti-HIV-1
and anti-HIV-2 antibodies in the sample 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 control is a negative, two lines corresponding to control
and
HIV-1 is an HIV-1 positive sample. In the cases where all two lines
corresponding to HIV-2 and control would be an HIV-2 infection. Recombinant
fusion proteins consisting of envelope proteins (gp120 and gp41), a recombinant
protein covering the antigenic epitopes of HIV-1 envelope gp36 and a recombinant
O-subtype are used for signal as well as capture Ligands in a “double antigen
immuno-chromatographic assay” format. The test is simple to use and performance
characteristics are comparable to Laboratory based assays. The Company believes
that extensive utilization of HIV antibody point-of-care tests should aid combat
the current HIV/AIDS pandemic world-wide.
Another
global illness, dengue fever, which is transmitted by mosquitoes has increased
dramatically 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. The disease is endemic in Africa,
the
Americas, the Eastern Mediterranean, South-East Asia and the Western Pacific.
Although the major disease burden is in South-East 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. 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.
Dengue
is
a Flavivirus that is transmitted by mosquito, principally Aedes aegypti. There
are four known serotypes and serology is a useful aid in the diagnosis of dengue
infections. Rapid and reliable tests for primary and secondary infections of
dengue are essential for patient management. Primary Dengue infection is
associated with mild to high fever, headache, muscle pain and skin rash. Immune
response includes antibodies denoted as IgM which are produced by 5th day of
symptoms and persists for 30-60 days and antibodies denoted as IgG which appear
by the 14th day and persist for life. Secondary infections often result in
high
fever and in many cases with haemorrhagic events and circulatory failure.
Secondary infections induce IgM response after 20 days of infection and IgGs
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. The Immunochromatographic format provides an
excellent immune capture method for specific detection of anti-dengue IgG and
IgM. The presence of high titers of IgGs does not interfere with the IgM
detection in the AccuDx format. A mixture of highly purified recombinant
proteins corresponding to dengue virus e-proteins from type 2 and 3 and covering
antigenic epitopes of all 4 serotypes is conjugated to colloidal gold. The
Immunochromatographic device is sensitized with goat anti-human IgG
(corresponding to a band just below the mark “G”), goat anti-human IgM
(corresponding to a band just below the mark “M”) and anti-dengue E protein
monoclonal antibodies (corresponding to the band just below the mark
“C”).
The
AccuDx test utilizes a specimen sample consisting of serum or plasma which
is
added to a test tube with the buffer solution provided. IgGs and IgMs in the
specimen sample react with colloidal gold conjugates of recombinant dengue
envelope proteins that detect Dengue Types 1, 2, 3 and 4 as they travel up
the
test strip and are captured by the relevant IgG and or IgM test bands. If there
are anti-dengue IgGs or IgMs present within the specimen sample, signal
conjugates will bind to them and produce a pale or dark pink band at either
the
“G” for IgGs or “M” for IgMs. In all cases the conjugate in the specimen sample
conjugate mixture in the test tube will bind with the anti-dengue monoclonal
antibody band, and serves as a positive control. The intensity of the bands
will
vary depending upon the antibody titer (IgM and IgG). In the cases of very
high
titer IgG and IgM, the control band may appear fainter in its intensity.
Extensive utilization of point-of-care testing of Dengue IgM/IgG tests could
in
the Company’s view save many lives worldwide.
The
agreement with AccuDx grants Grant the right to manufacture the AccuDx Tests.
We
will seek recertification approval in Southeastern countries where the AccuDx
Tests had previously received certificates of resale and we will seek
governmental approval in other countries including China, Brazil and India.
We
have
also acquired exclusive rights to AccuDx’s proprietary colloidal gold reagent, a
key ingredient commonly used by leading manufacturers of rapid tests as a
detectable label. The need for uniform size colloidal conjugates in diagnosis
and nanotechnology cannot be over emphasized. AccuDx has developed and perfected
technologies to particles of colloidal manufacture large quantities of uniform
size colloidal gold. Colloidal gold conjugates are currently used in various
applications including in in vitro diagnostic devices, electron microscopy
and
various nanotechnology applications. Conjugates of various specific Ligands
will
be made available as research reagents and OEM products.
Grant
Life Sciences has shipped several orders of rapid diagnostic tests for
Malaria and Dengue Fever to India. While these initial orders were small due
to
the lack of funding to expand the purchase and sales, nonetheless it is evidence
that we are executing our strategy to revitalize AccuDx’s distributor networks
in overseas markets. While we expect revenues to continue to
increase, seasonal fluctuations due to the nature of specific diseases
will effect monthly sales. For example, Malaria and Dengue Fever are
highly seasonal diseases. However, to offset seasonal fluctuations,
we plan on broadening our family of diagnostic tests utilized at both the
point-of-care as well as in the laboratory
setting.
The
Company’s goal is to have a global distributorship network in place, along with
the requisite manufacturing capacity, so that we can begin selling our core
product, the immunological serum-based test for detecting Cervical Cancer and
its precursors, as soon as it is ready for commercialization .
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 two
United States patents that have been issued, and some of the technology is
covered by several United States patent application 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. We
entered into the license agreement with Dr. Hu on July 20, 2004. 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 on a monthly
basis
of $4,000 per month. 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 have the option to purchase the
licensed technology for $250,000 within two years from the date of the
agreement.
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.
On
March
7, 2005, we entered into an Exclusive License Agreement with AccuDx Corporation
for a period of ten years, pursuant to which AccuDx granted us the exclusive
right to its rapid tests for HIV-1, HIV-2 and dengue fever and its colloidal
gold reagent. The license agreement also granted us the ability to manufacture
these products at AccuDx’s FDA/GMP-compliant contract manufacturing maquiladora
facility in Tijuana, Mexico. In consideration for the license, we agreed to
pay
AccuDx $15,000 in cash and deliver a promissory note in the principal amount
of
$35,000 payable in equal quarterly installments for a two-year period and
bearing 6% interest on the unpaid principal. We also agreed to pay AccuDx a
3%
royalty on net sales of the products under the license.
On
January 9, 2006, we announced the signing of a memorandum of understanding
(MOU)
with Drs. Peter Sveshnikov and Vsevolod Kiselev of the Russian Republic, for
the
in licensing of technologies highly complimentary to Grants’ antibody-based test
for detecting cervical cancer. The Sveshnikov/Kiselev Technology comes to Grant
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, to convert former biowarfare scientists
to productive peacetime activities. Sveshnikov/Kiselev have developed an
Enzyme-linked Immunosorbent Assay (ELISA) to detect specific cancer-causing
proteins from the human papillomavirus (HPV), the obligate cause of cervical
cancer, in cervical mucous and cells.
On
April
10, 2006 we announced the signing of a memorandum of understanding (MOU) with
Diagnostic Technologies LTD. (“DTL”), a company incorporated under the laws of
the State of Israel whereby DTL would carry out a short-term assessment in
order
to evaluate the feasibility and viability of the results for DTL to enter in
a
new product development, and we would grant DTL an irrevocable, worldwide,
exclusive, royalty-bearing license to use our Licensed Properties to develop,
manufacture, and sell our product for the duration of the patent. In return,
we
would receive an up-front license fee and royalties on all sales. A definitive
agreement has not been entered and the Company continues to hold discussions
with DTL.
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 if adequate funding is available.
For the fiscal years ended December 31, 2006 and 2005, we spent
approximately $244,189 and $502,325
respectively,
on research and development.
Manufacturing
We outsource the manufacture of the products sold under license from AccuDx
and
plan to outsource the manufacturing and assembly of our planned cervical cancer
tests to third parties. We do not currently have arrangements in place
with any such third parties for the latter.
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 use to
manufacture our test may be readily obtained from multiple suppliers.
As
of
March 19, 2007, we had five employees and retained three consultants on a
part-time basis. Our employees consist of our three executive officers, a
director of international marketing and one administrative assistant.
During the next 12 months, we anticipate that we may add employees, including
scientists and other professionals in the research and development, product
development, business development, regulatory, manufacturing, marketing and
clinical studies areas.
Item
2. Properties
We
currently lease our principal executive offices in Los Angeles, California
and
office space in Murray, Utah. Part of our Utah office space is subleased
for $800 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
|
|
Principal
Executive Offices
|
|
Approximately
500 square feet
|
|
$979
per month
|
|
month
to month
|
|
Wilshire
Business Center, LLC
|
|
|
|
|
|
|
|
|
|
|
|
64
East Winchester Suite 205 Murray, Utah 84107
|
|
Offices
|
|
Approximately
1330 square feet
|
|
$1,663
per month
|
|
Month
to month
|
|
Plaza
6400, LLC
|
Item
3. Legal Proceedings
We
are
not currently a party to any litigation.
Item
4. Submission of Matters to a Vote of Security Holders
There
were no matters submitted to a vote of our security holders during the fourth
quarter of the year ended December 31, 2006.
Items
5. Market for Common Equity and Related Security Holder Matters and Small
Business Issuer Purchase of Equity Securities
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, 2005 through December 31, 2006, 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 2005
|
|
$
|
0.90
|
|
$
|
0.30
|
|
Second
Quarter 2005
|
|
$
|
0.53
|
|
$
|
0.13
|
|
Third
Quarter 2005
|
|
$
|
0.17
|
|
$
|
0.006
|
|
Fourth
Quarter 2005
|
|
$
|
0.039
|
|
$
|
0.005
|
|
First
Quarter 2006
|
|
$
|
0.042
|
|
$
|
0.018
|
|
Second
Quarter 2006
|
|
$
|
0.027
|
|
$
|
0.013
|
|
Third
Quarter 2006
|
|
$
|
0.103
|
|
$
|
0.014
|
|
Fourth
Quarter 2006
|
|
$
|
0.265
|
|
$
|
0.067
|
|
On March 29, 2007, the last reported bid price of our common stock as reported
on the OTC Bulletin Board was $.05 per share. As of March 29, 2007,
we had approximately 141 shareholders of record.
We
have
never declared nor paid cash dividends and do not expect to pay dividends in
the
foreseeable future.
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 Stock Incentive Plan as of December 31, 2006.
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
|
|
|
4,620,952
|
|
$
|
0.162
|
|
|
18,206,746
|
|
Equity
Compensation not approved by Security Holders (1)
|
|
|
250,000
|
|
$
|
0.18
|
|
|
N/A
|
|
TOTAL
|
|
|
4,870,952
|
|
$
|
0.163
|
|
|
|
|
|
(1)
|
Includes
250,000 warrants to purchase shares at $0.18 issued to a consultant
for
performing research services for performed on our behalf, prior to
the
Merger in July 2004.
|
Item
6. Management’s Discussion and Analysis or Plan of
Operation
Restatement
of Consolidated Financial Statements
The
Company has restated its 2006 and 2005 financial statements to correct errors
arising from the incomplete and/or incorrect application of derivative
accounting to the Company’s convertible notes and warrants, as more fully
explained in Note B to the restated, consolidated financial statements as
of and
for the years ended December 31, 2006 and 2005, included elsewhere herein.
The
data which follow reflect the results of such restatement.
Overview
On
July
30, 2004, we acquired Impact Diagnostics through the merger of our wholly owned
subsidiary, Impact Acquisition Corporation, into Impact Diagnostics. As a result
of the Merger, each issued and outstanding share of common stock of Impact
Diagnostics was converted into one share of our common stock, and Impact
Diagnostics became a wholly owned subsidiary of our company. We now own,
indirectly though Impact Diagnostics, all of the assets of Impact Diagnostics.
We
are
considered a development stage company. In 2003, 2004, and 2006, we had no
revenues and incurred net losses of $253,881, $1,910,350 and $3,384,933,
respectively. In 2005, we had revenues of $72,675 and incurred a net loss
of $7,644,857. Since inception in July 1998, we have incurred cumulative losses
of $14,411,130.
Application
of Critical Accounting Policies
Our
consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. We believe that understanding the basis
and
nature of the estimates and assumptions involved with the following aspects
of
our consolidated financial statements is critical to an understanding of our
financials.
Stock-Based
Compensation
On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
Statement No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS
No. 123R requires that compensation cost related to share-based payment
transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS No. 123R include stock options, restricted
stock plans, performance-based equity awards, stock appreciation rights, and
employee share purchase plans. The provisions of SFAS No. 123R are effective
as
of the first interim period that begins after December 15, 2005. The Company
adopted this Statement early, for the year 2004. During the years ended December
31, 2006 and 2005, the Company recognized $238,550 and $976,987 respectively
as
expense relating the stock options granted under its 2004 Stock Incentive Plan.
For the year ended December 31, 2006 $151,204 was recognized as R&D expense
and $87,345 as general and administrative expense, and or the year ended
December 31, 2005 $386,410 was recognized as R&D expense and $590,577 as
general and administrative expense. The Company anticipates continuing to incur
such costs in order to conserve its limited financial resources. The
determination of the volatility, expected term and other assumptions used to
determine the fair value of equity based compensation issued to non-employees
under SFAS No. 123 involves subjective judgment and the consideration of a
variety of factors, including our historical stock price, option exercise
activity to date and the review of assumptions used by comparable enterprises.
Accounting
for Derivatives
In
June
1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities.” The Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and
for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
In
June
2005, the Company obtained a commitment from accredited investors to purchase
convertible debt with warrants. The Company evaluated the transaction as a
derivative transaction in accordance with SFAS No. 133 and EITF 00-19. 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
Company accounts for warrants and embedded conversion features as described
in
SFAS 133, EITF 98-5, 00-19, and 00-27, and APB 14 as follows:
·
|
The
Company allocated the proceeds received between the 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, at each reporting date are
recorded as adjustments to the
liabilities.
|
·
|
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
is included as other income
(expense).
|
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.
Plan
of Operations
During
the next year, we will continue to augment our clinical research and
development efforts through outsourcing. During the next
12 months, we plan to continue the development of our cervical cancer
screening tests. We intend to continue to validate the
effectiveness of the processes that we currently use in the tests we are
developing through trials. In the near term, we plan to meet with
regulatory agencies in the United States and in other countries to determine
the
clinical trials and studies we will have to undertake and the data and other
information we will be required to submit to them to support our future
applications for authority to market and sell our planned cervical cancer tests
in those countries. We also plan to:
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· |
begin
studies and clinical trials in other countries that will be required
in
connection with our regulatory applications.
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· |
validate
the HPV antigen detection immunoassay. We intend to continue the
development of this project once the assay is verified in its current
format.
|
During the next 12 months, we anticipate that we may in-license more
technologies, add employees, including scientists and other professionals
in the research and development, product development, business development,
regulatory, manufacturing, marketing and clinical studies areas. We also intend
to explore alternate means of developing and marketing our cervical cancer
tests
by other means such as alliances, joint development, and
licensing.
Liquidity
and Capital Resources
We
do not
have sufficient capital to satisfy our cash requirements through the next twelve
months. As of December 31, 2006, we had total current assets of $295,580 and
total current liabilities of $845,797. Our cash flow used in operations was
$1,074,218 during the year ended December 31, 2006. Additionally we used $3,854
to acquire new property and equipment during the period. We met our cash
requirements during the year 2006 through the placement of $2,000,000 of
convertible notes payable during 2005 and an additional $400,000 in
2006.
Our
auditors have added an explanatory paragraph to their opinion to 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.
In
connection with the Merger, between July 30, 2004 and August 19, 2004, we sold
1,912,125 units in a private placement, at a purchase price of $0.9175 per
unit
($0.1835 per share), resulting in gross proceeds to our company of $1,754,375,
or $1,494,937 net after deduction of offering costs. Net proceeds after
legal, accounting, printing and other fees was approximately $1,437,000. Each
unit was comprised of five (5) shares (or 9,560,625 shares) of our common stock
and a warrant to purchase one (1) share of our common stock at an exercise
price
of $0.1835 per share. During the year 2006, we sold 150,000 shares of our common
stock for a total consideration of $27,000 through the exercise of stock
options.
We
plan
to raise additional capital in the next twelve months through the sale of equity
and/or debt securities to support our development plan in the medical
diagnostics industry. However, we currently do not have any committed
sources of financing. We may not be able to raise additional financing on
acceptable terms when we need to, or we may be unable to raise additional
financing as all.
On
March
7, 2005, we entered into an Exclusive License Agreement with AccuDx Corporation
(“Licensor”) for a period of ten years, pursuant to which we were granted the
exclusive right to Licensor’s rapid tests for HIV-1, HIV-2 and Dengue Fever and
its colloidal gold reagent. The Agreement also granted us the right to
manufacture these products at the Licensor’s FDA/GMP-compliant contract
manufacturing maquiladora facility in Tijuana, Mexico. In consideration for
the
License, we agreed to pay Licensor $15,000 in cash and deliver a promissory
note
in the principal amount of $35,000 payable in equal quarterly installments
for a
two-year period and bearing 6% interest on the unpaid principal. We also agreed
to pay the Licensor a 3% royalty on net sales of the products under the License.
We also entered into a Consulting Agreement with Ravi Pottahil and Indira
Pottahil in support of the License in exchange for 310,000 shares of our common
stock, that were issued during 2006.
On
March
15, 2005, we issued an 8% Senior Secured Note due June 15, 2005, in the
aggregate principal amount of $200,000 (the “Note”) and a warrant to purchase up
to an aggregate of 250,000 shares of the our common stock (the “Warrant”) to
DCOFI Master LDC, for net proceeds of $165,000. The Note and Warrant were issued
in a private placement pursuant to Section 4(2) of the Exchange Act of 1933
and
Rule 506. Proceeds from the sale were used for working capital and general
corporate purposes. The Note bore interest at a rate of 8% per annum, and was
secured by the assets of the Company. Interest was payable in cash monthly.
The
Warrant was exercised during the fourth quarter of 2005 and the note was repaid
on June 15, 2005.
We
entered into a Securities Purchase Agreement with New Millennium Capital
Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW
Partners, LLC on June 14, 2005 for the sale of (i) $2,000,000 in callable
secured convertible notes and (ii) stock purchase warrants to buy 7,692,308
shares of our common stock.
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· |
On
June 15, 2005, the investors purchased $700,000 in callable secured
convertible notes and received warrants to purchase 2,692,307 shares
of
the Company’s common stock.
|
|
· |
On
August 18, 2005, the investors purchased $600,000 in callable secured
convertible notes and received warrants to purchase 2,307,692 shares
of
the Company’s common stock.
|
|
· |
On
August 30, 2005, the investors purchased $700,000 in callable secured
convertible notes and received warrants to purchase 2,692,307 shares
of
the Company’s common stock.
|
The
Notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at a conversion
price equal to the lower of (i) $0.40 or (ii) 43% of the average of the three
lowest intraday trading prices for our common stock during the 20 trading days
before, but not including, the conversion date. As of March 19, 2007, the
average of the three lowest intraday trading prices for our common stock during
the preceding 20 trading days as reported on the Over-The-Counter Bulletin
Board
was $.044 and, therefore, the conversion price for the secured convertible
notes
was $.019. As of March 19, 2007 the outstanding principal for the foregoing
notes was $905,939, Therefore based on this conversion price, the callable
secured convertible notes, excluding interest, would be convertible into
47,882,611 shares of our common stock.
In
January 2006, the Company was served with a default notice by the holders of
the
$2,000,000 convertible notes. The default was the result of the Company’s not
having maintained an effective registration statement for sufficient shares
to
permit the noteholders to continue conversion of the notes to common shares.
In
February 2006, the notice of default was withdrawn in exchange for an agreement
with the Company whereby the rate at which the notes could be converted was
reduced from 50% to 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 the conversion date.
We
may
prepay the callable secured convertible notes in the event that no event of
default exists, there are a sufficient number of shares available for conversion
of the callable secured convertible notes and the market price is at or below
$.40 per share. The full principal amount of the callable secured convertible
notes is due upon default under the terms of callable secured convertible notes.
In addition, the Company has granted the investors a security interest in
substantially all of its assets and intellectual property.
The
Warrants are exercisable until five years from the date of issuance at a
purchase price of $0.45 per share. In addition, the exercise price of the
warrants is adjusted in the event the Company issues common stock at a price
below market.
We
entered into a second Securities Purchase Agreement with New Millennium Capital
Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW
Partners, LLC on December 28, 2006 for the sale of (i) $400,000 in callable
secured convertible notes and (ii) stock purchase warrants to buy 4,000,000
shares of our common stock.
The
Notes
bear interest at 6%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at a conversion
price equal to the lower of (i) $0.15 or (ii) 60% of the average of the three
lowest intraday trading prices for our common stock during the 20 trading days
before, but not including, the conversion date. As of March 19, 2007, the
average of the three lowest intraday trading prices for our common stock during
the preceding 20 trading days as reported on the Over-The-Counter Bulletin
Board
was $.044 and, therefore, the conversion price for the secured convertible
notes
was $.026. As of March 19, 2007 the outstanding principal for the foregoing
notes is $400,000, Therefore based on this conversion price, the callable
secured convertible notes, excluding interest, would be convertible into
15,384,615 shares of our common stock.
We
may
prepay the callable secured convertible notes in the event that no event of
default exists, there are a sufficient number of shares available for conversion
of the callable secured convertible notes and the market price is at or below
$.40 per share. The full principal amount of the callable secured convertible
notes is due upon default under the terms of callable secured convertible notes.
In addition, the Company has granted the investors a security interest in
substantially all of its assets and intellectual property.
The
Warrants are exercisable until seven years from the date of issuance at a
purchase price of $0.14 per share. In addition, the exercise price of the
warrants is adjusted in the event the Company issues common stock at a price
below market.
The
investors have contractually agreed to restrict their ability to convert the
callable secured convertible notes and exercise the warrants and receive shares
of the Company’s common stock such that the number of shares of the Company
common stock held by them and their affiliates after such conversion or exercise
does not exceed 4.99% of the Company’s then issued and outstanding shares of
common stock.
We
plan
to raise additional capital in the next twelve months through the sale of equity
and/or debt securities to support our development plan in the medical
diagnostics industry. However, we currently do not have any committed
sources of financing. We may not be able to raise additional financing on
acceptable terms when we need to, or we may be unable to raise additional
financing as all.
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 and has been developing a cervical cancer screening
test. This in addition to the limited sale of the AccuDx products and
investigation of additional technology related to cervical cancer screening
is
our only business. Impact Diagnostics has only a limited operating history
and has generated no revenue. The limited operating history of Impact
Diagnostics 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 you may lose your entire investment in
us.
We
have not sold any significant amount of the products we are planning to
distribute. We may not successfully develop distribution for these or any other
products.
We
are in
the process of sourcing products for distribution in selected foreign markets
and developing distribution for these products If we are not successful we
may not generate sufficient revenues to become profitable and 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 $646,201 in fiscal 2002, $253,881 in fiscal
2003, $1,910,350 in fiscal 2004, $7,644,857 in fiscal 2005, $3,384,933 in
fiscal 2006, and $14,411,130 from inception in 1998 through December 31,
2006.
Our
losses have resulted principally from:
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·
|
expenses
associated with our research and development programs and development
or
our cervical cancer tests;
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·
|
expenses
associated with the Merger; and
|
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·
|
administrative
and facilities costs which include significant charges resulting
from the
required accounting for loans and stock options.
|
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 to 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 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 operation.
Our
planned cervical cancer tests rely on an approach that is different from the
underlying technology of the Pap Tests and the HPV Tests and of 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, we believe 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.
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.
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 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.
We
will need to obtain regulatory approval before we can market and sell our
planned 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 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 efficiency 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 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 US 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.
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 a United States patent that has been issued, and some
of the technology is covered by a United States patent application that has
been
filed and is 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
earnings and profitability.
Our
confidentiality agreements may not adequately protect our proprietary
information, the disclosure of which could decrease our competitive
edge.
Our
technology and tests may be 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 and although we have made arrangements
with a third party to use its manufacturing facility, the arrangement is subject
to a license agreement.
We
have
no capacity to manufacture our proposed tests. Although we have not
established any arrangements with third party manufacturers, we plan to make
arrangements pursuant to a licensing agreement to use a manufacturing facility
that our licensor has used in the past. If the licensing agreement expires
or is terminated, we cannot guarantee that we will be able to enter into any
such other arrangements on favorable terms, or at all.
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 seven employees and 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
December 31, 2006, we had 136,420,423 shares of common stock issued and
outstanding and callable secured convertible notes outstanding or an obligation
to issue callable secured convertible notes that may be converted into an
estimated 72 million shares of common stock at current market prices, and
outstanding options and warrants or an obligation to issue warrants to purchase
18,588,050 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,
including 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
Continuously Adjustable Conversion Price Feature of Our Callable Secured
Convertible Notes Could Require Us To Issue A Substantially Greater Number
Of
Shares, Which Will Cause Dilution To Our Existing
Stockholders.
Our
obligation to issue shares upon conversion of our callable secured convertible
notes is essentially limitless. The following is an example of the amount of
shares of our common stock that are issuable, upon conversion of the callable
secured convertible notes (excluding accrued interest), based on market
prices 25%, 50% and 75% below a market price of $0.05 as of March 19, 2007
resulting in conversion prices of $0.022 for the $2,000,000 convertible notes
and $0.03 for the $400,000 convertible notes.
|
|
|
|
With
Discount
|
|
|
|
|
|
%
Below
|
|
Price
Per
|
|
$2,000,000
Notes
|
|
$400,000
Notes
|
|
Number
of shares
|
|
%
of outstanding
|
|
Market
|
|
Share
|
|
at
43%
|
|
at
60%
|
|
Issuable
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25%
|
|
$
|
0.038
|
|
$
|
0.016
|
|
$
|
0.023
|
|
|
141,808,786
|
|
|
48
|
%
|
50%
|
|
$
|
0.025
|
|
$
|
0.011
|
|
$
|
0.015
|
|
|
212,713,178
|
|
|
58
|
%
|
75%
|
|
$
|
0.013
|
|
$
|
0.005
|
|
$
|
0.008
|
|
|
425,426,357
|
|
|
73
|
%
|
As
illustrated, the number of shares of common stock issuable upon conversion
of
our secured convertible notes will increase if the market price of our stock
declines, which will cause dilution to our existing stockholders.
The
Continuously 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 57% discount to the trading price of the common stock prior to the
conversion. 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.
The
Issuance Of Shares Upon Conversion Of The Callable Secured Convertible Notes
And
Exercise Of Outstanding Warrants May Cause Immediate And Substantial Dilution
To
Our Existing Stockholders.
The
issuance of shares upon conversion of the callable secured convertible notes
and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the selling stockholders
may not convert their callable secured convertible notes and/or exercise their
warrants if such conversion or exercise would cause them to own more than 4.99%
of our outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have
the
effect of further diluting the proportionate equity interest and voting power
of
holders of our common stock, including investors in this offering.
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.
On
June
14, 2005 and on December 28, 2006, we entered into financing arrangements
involving the sale of an aggregate of $2,000,000 and of $400,000 principal
amount of callable secured convertible notes and stock purchase warrants to
buy
7,692,308 and 4,000,000 shares of our common stock respectively. The callable
secured convertible notes are due and payable, with 10% and 6% interest
respectively, three years from the date of issuance, unless sooner converted
into shares of our common stock. In addition, 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. We anticipate that
the
full amount of the callable secured convertible notes will be converted into
shares of our common stock, in accordance with the terms of the callable secured
convertible notes. 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.
Our
common stock has not actively traded during the past few years. 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 not 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
March 19, 2007, we had outstanding 154,515,423 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 1, 545,154 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.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements as of December 31, 2006 or as of the
date of this report.
Item
7. Financial Statements
The
reports of the independent auditors and financial statements are set forth
in
this report beginning on page F-1.
Item
8. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
On
January 24, 2005, the Audit Committee of Grant Life Sciences, Inc. (the
“Company”) engaged Russell Bedford Stefanou Mirchandani LLP (“RBSM”) as our
independent registered public accounting firm to audit its financial statements
for the year ending 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, Inc. dismissed Russell Bedford Stefanou
Mirchandani LLP as its principal independent accountant. Effective January
24,
2006, we engaged Singer Lewak Greenbaum & Goldstein LLP as our new principal
independent accountant. Our board of directors has approved the dismissal of
Russell Bedford Stefanou Mirchandani LLP and the appointment of Singer Lewak
Greenbaum & Goldstein LLP as our new principal independent
accountants.
From
the
date of Russell Bedford Stefanou Mirchandani LLP's appointment through the
date
of their dismissal on January 24, 2006, there were no disagreements between
our
company and Russell Bedford Stefanou Mirchandani LLP 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 Russell Bedford Stefanou
Mirchandani LLP would have caused Russell Bedford Stefanou Mirchandani LLP
to
make reference to the matter in its reports on our financial statements.. The
report on the financial statements prepared by Russell Bedford Stefanou
Mirchandani LLP for the fiscal period ending December 31, 2004 contained a
paragraph with respect to our ability to continue as a going
concern.
Prior
to
engaging Singer Lewak Greenbaum & Goldstein LLP, we did not consult Singer
Lewak Greenbaum & Goldstein LLP 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
our financial statements, and neither a written report was provided
to our
company nor oral advice was provided that PricewaterhouseCoopers
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 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 Singer Lewak Greenbaum & Goldstein LLP, Singer Lewak Greenbaum
& Goldstein LLP has not provided our company with either written or oral
advice that was an important factor considered by our company in reaching a
decision to change our company's new principal independent accountant from
Russell Bedford Stefanou Mirchandani LLP to Singer Lewak Greenbaum &
Goldstein LLP.
Item
8A. Controls and Procedures.
Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on such evaluation and in light of the restatement which gave rise to
filing this amended Annual Report, our principal executive officer and principal
financial officer have concluded, as of the end of such period, that our
disclosure controls and procedures were not effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by us in our reports that we file or submit under the Securities
Exchange Act of 1934.
During
the last quarter of 2006, there were no changes to our internal control over
financial reporting that have materially affected, or are reasonably likely
to
materially affect, our internal controls over financial reporting.
The
restatement contained in this Form 10-KSB/A arose because the Company’s current
chief financial officer, who joined the Company April 9, 2007, determined
that
the derivative liability related to the Company’s convertible notes and warrants
had not been accounted for in accordance with generally accepted accoutning
priniciples. This is explained more fully in Note B to the consolidated
financial statements. Upon further investigation, and after discussions with
its
prior and current independent registered public accounting firms, the Company
concluded that its Annual Report originally filed on Form 10-KSB should be
amended. The Company therefore believes that the material weakness arising
from
the Company’s inability to approprately interpret complex accounting
pronouncements, which existed as of December 31, 2006, has been at least
partially mitigated by the addition of the current chief financial
officer.
Item
8B. Other Information.
None
PART
III
Item
9. Directors and Executive Officers of the Registrant
Set
forth
below is certain information regarding our directors and executive
officers. 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.
|
|
Age
|
|
Position
|
Stan
Yakatan
|
|
64
|
|
Chairman
of the Board of Directors
|
Dr.
Hun-Chi Lin
|
|
54
|
|
President,
Chief Scientific Officer, Director
|
Don
Rutherford
|
|
67
|
|
Chief
Financial Officer
|
Michael
Ahlin
|
|
58
|
|
Vice
President, Director
|
Jack
Levine
|
|
56
|
|
Director
- Chairman of Audit Committee, member of Compensation
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.
Michael
Ahlin.
Mr. Ahlin has been a Vice President and a director since July 2004. From
May 2004 to the present, Mr. Ahlin has been the Vice President and a member
of
the Board of Directors of Impact Diagnostics. From July 1998 to May 2004,
Mr. Ahlin was the Chairman of the Board, President and Chief Executive Officer
of Impact Diagnostics. Mr. Ahlin has been President of WetCor, Inc., a
land development company, since 1983.
Don
Rutherford.
Mr.
Rutherford, is the Chief Financial Officer. He is a partner with Tatum LLC
in
Orange County, California, which he joined in January 2000. Tatum CFO Partners
provides supplemental, interim, project, or employed executives for clients
that
range from emerging growth to large multinational public companies. Pursuant
to
such employment, Mr. Rutherford has been contracted out as an executive officer
for various corporations. Since January 2004, he has been a board member and
chairman of the audit committee of Performance Capital Management LLC, a public
financial services company. Mr. Rutherford started his career with Coopers
and
Lybrand in its Toronto audit practice and is a Chartered Accountant. He also
holds a BASc in Industrial Engineering from the University of Toronto. Mr.
Rutherford resigned his position with the Company in April 2007. He was replaced
by Doyle Judd.
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.
Since 1999, Mr. Levine has served as a director and the chairman of the audit
committee of Pharmanet Development Group, Inc., a
global
drug development service company.
On
January 2006 Mr. Levine became Chairman of the Board of Directors of Pharmanet
Development Group, Inc. Mr. Levine is a member of The National Association
of
Corporate Directors, Washington D.C. and a member of The Association of Audit
Committee Members, Inc Mr. Levine is a certified public accountant licensed
by
the State of Florida.
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 (NYSE:
SP), where he built and managed a clinical trials division that had the broadest
esoteric-testing capabilities in the CRO (Contract Research Organization)
industry.
The
Board
of Directors has a standing Audit Committee and Compensation Committee. The
Board is composed of 2 independent directors and 2 directors, who are also
Officers of the Company. The Committees are made up of only independent
directors. The Chairman of the Audit Committee is Mr. Jack Levine. The Board
of
Directors has determined that Mr. Levine, an independent director, is an “audit
committee financial expert” as that term is defined by Item 401(e) of Regulation
S-B.
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.
Section
16 Beneficial Ownership Compliance
Section
16(a) of the Securities and Exchange Act of 1934, as amended, requires our
executive officers and directors, and persons who beneficially own more than
10%
of the company’s common stock, to file initial reports of ownership and reports
of changes in ownership of our common stock with the SEC.
Based
solely on the reports received by the company and on written representations
from certain reporting persons, the Company believes that the directors,
executive officers and greater than ten percent beneficial owners have complied
with all applicable filing requirements.
Item
10. Executive Compensation
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 with annual compensation exceeding $100,000 during fiscal
2006, 2005 and 2004.
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Other
Compensation
|
|
Long
term compensation awards - # of securities underlying Stock
Options
|
|
Stan
Yakatan, Chairman and
Former
Chief
Executive Officer (1)
|
|
|
2006
2005
2004
|
|
$
$
$
|
18,000
112,500
60,000
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
1,720,952
2,868,254
|
|
Michael
Ahlin, Vice President and Director
|
|
|
2006
2005
2004
|
|
$
$
$
|
40,000
110,488
144,000
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
Dr
Hun-Chi Lin, President and Director (2)
|
|
|
2006
2005
2004
|
|
$
$
|
60,000
15,000
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
600,000
-
-
|
|
Dr.
Mark Rosenfeld, former
Vice
President (4)
|
|
|
2006
2005
2004
|
|
$ |
-
-
111,429
|
|
|
-
-
$18,106
|
|
|
-
-
-
|
|
|
-
-
-
|
|
Donald
Rutherford
Chief
Financial Officer (5)
|
|
|
2006
2005
2003
|
|
$
$
$
|
116,625
78,093
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
750,000
-
|
|
|
(1)
|
Between
May and June 2004, Impact Diagnostics paid Mr. Yakatan $5,500 per
month
for consulting services to Impact Diagnostics in connection with
the
Merger. Beginning in July 2004, Mr. Yakatan received $10,000 per
month for acting as our Chief Executive Officer which position he
resigned
in August 2005 and continues to be paid $1,500 per month as Chairman
of
the Board of Directors. As of the end of 2004, $15,000 of his gross
salary
had not been paid to Mr. Yakatan. Mr. Yakatan does not have an employment
contract with the company. As an incentive to join the company, Mr.
Yakatan was granted 2,868,254 stock options, with an exercise price
of
$0.18, under the Company’s Stock Incentive Plan, 1,147,302 options of
which he forfeited upon his resignation. These options vested as
follows:
573,650 on July 6, 2004; 1,147,302 on July 6, 2005 and 1,147,302
on July
6, 2006, the latter being forfeited when Mr. Yakatan resigned as
CEO.
|
|
(2)
|
Dr.
Lin joined the Company as President, Chief Scientific Officer and
Director
in October 2005 with a monthly salary of $5,000. He is also entitled
to
500,000 share options at $0.05 per share 1/3 vesting effective the
date of
hiring and 100,000 options at $0.018 per share vesting effective
May 23,
2006 and the remaining 2/3 quarterly over 2 years,
|
|
(3)
|
Includes
$27,488 unpaid at the end of 2005. 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.
|
|
(4)
|
Dr.
Mark Rosenfeld resigned on Oct 11, 2004. He had an employment contract
with the company which set his monthly salary for 2004 at $12,000
per
month. After his resignation, he continued to work as a consultant
to the
company through December 31, 2005. He was paid $5,000 per month for
his
consulting work.
|
|
(5)
|
Mr.
Rutherford joined the Company as CFO on April 1, 2005 at an annual
salary
of $125,000. He was granted 750,000 share options at $0.18 vesting
1/3
immediately and the remainder over 3
years.
|
We
do not
have any benefit plans, except the Stock Incentive Plan which was approved
on
September 30, 2004 by a majority of the shareholders.
The
following table sets forth information concerning individual grants of stock
options made during the last fiscal year to the Company’s named executive
officers, under the Company’s Stock Incentive Plan. No stock appreciation rights
were issued during the fiscal year.
Options
Granted in the Last Fiscal Year
(Individual
Grants) Name
|
|
Number
of shares of common stock underlying options granted
|
|
Percent
of Total Options granted to Employees in 2006
|
|
Exercise
Price ($ per share)
|
|
Expiration
Date
|
|
Dr.
Hun-Chi Lin, President
|
|
|
500,000
|
|
|
100
|
%
|
$
|
0.05
|
|
|
May
2016
|
|
|
|
|
100,000
|
|
|
|
|
$
|
0.018
|
|
|
|
|
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
Name
|
|
Shares
acquired on exercise
(#)
|
|
Value
Realized
($)
|
|
Number
of Unexercised Options at yr-end 2006
Exercisable/Unexercisable
|
|
Value
of Unexercised In-the-Money Options at yr-end 2006
Exercisable/Unexercisable
($) (1)
|
|
Dr.
Hun-Chi Lin, President
|
|
|
0
|
|
|
0
|
|
|
366,667/233,333
|
|
$
|
19,400/
$13,780
|
|
(1)
the
closing price of the Company’s common stock as of December 31, 2006 was $0.10
per share.
Compensation
of Non-Employee Directors
We pay our directors who are not employees of Grant Life Sciences a director’s
fee of $4,000 per year. Each non-employee director also is paid $300 per
hour for attending any meeting of the Board of Director and each Board committee
meeting, up to a maximum of $1,200 per meeting. We have granted to each
non-employee director options to purchase 100,000 shares of our common stock
,
when they joined the board. Mr. Levine received these options when he joined
the
board, at an exercise price of $0.18, 50,000 of which were first
exercisable in July 2005. The remaining 50,000 will be exercisable in July
2006.
No Directors fees were paid during the year.
Non-employee directors will receive additional options to purchase 50,000 shares
of our common stock at the start of each year that they serve as
directors. These options will have an exercise price equal to the market
value at the time they are granted. One third of the options will become
exercisable on each of the first, second and third anniversaries of the date
of
their grant. Jack Levine is a non-employee director and received these
options at an $0.18 exercise price in July 2004 when he was appointed to the
Board effective after the Merger. The next grants of options for 2005 and 2006
have not yet been made. Mr. Yakatan became a non-employee director after his
resignation as CEO in 2005 and was paid $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.
In addition to the fees and options which they receive for serving as
non-employee directors, the chairmen of each of our Audit Committee and
Compensation Committees each receives an annual fee of $2,500 and $1,500,
respectively, for each year that he or she serves as chair of their respective
committees. The chairman of each of these committees also receives options
to purchase an additional 25,000 shares of our common stock for each year that
he or she serves as chairman of the committee. One third of these
options becomes exercisable on the first, second, and third anniversary of
the
date of the grant. Jack Levine is the chairman of the Audit Committee.
Initial options were granted in July 2004, at an exercise price of $0.18, when
the Chairman were appointed and options for 2005 and 2006 have yet to be
granted.
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 is to be paid an annual salary of $60,000 for
approximately 50% of his time and the Board of Directors of the Company has
the
discretion to grant an annual bonus. Dr. Lin is to be granted 500,000
share options at $0.05 per share vesting 1/3 immediately and 2/3 quarterly
over
2 years from date of hiring and 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.
Donald
W
Rutherford has an employment agreement with the Company. Pursuant to this
employment agreement Mr. Rutherford is be paid an annual salary of $125,000
for
approximately 50% of his time. Mr. Rutherford was granted 750,000 share
options at $0.18 per share vesting 1/3 immediately and 2/3 quarterly over 2
years from date of hiring and 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. Rutherford may terminate upon 30 days written notice. Mr. Rutherford
resigned his position with the Company in April 2007.
The
Company has an employment agreement with Mr. Ahlin. Under the terms of the
agreement he is to receive as compensation a monthly salary of $12,000. The
Board of Directors has the discretion to grant an annual bonus to Mr. Ahlin.
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. Effective January 2006,
Mr. Ahlin agreed to reduce his monthly salary to $2,500.
Item
11. Security Ownership of Certain Beneficial Owners and Management
The following table lists stock ownership of our common stock as of February
28,
2007. 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.
Beneficial
Owner
|
|
Director/Officer
|
|
Amount
and Nature of
Beneficial
Ownership (1)
|
|
Percentage
of
Class (1)
|
|
|
|
|
|
|
|
|
|
Stan
Yakatan
17th
Floor
3550
Wilshire Blvd.
Los
Angeles, CA 90010
|
|
|
Chairman
of the Board of Directors
|
|
|
2,387,619
(2
|
)
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Jack
Levine
16855
N.E. 2nd
Avenue,
Suite 303
N.
Miami Beach, FL 33162
|
|
|
Director
|
|
|
1,792,693(3
|
)
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Hun-Chi Lin
17th
Floor
3550
Wilshire Blvd.
Los
Angeles, CA 90010
|
|
|
President
and Director
|
|
|
1,583,333
(7
|
)
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Ahlin
64
East Winchester, Suite 205
Murray,
UT 84107
|
|
|
Vice
President and Director
|
|
|
4,227,164
(4
|
)
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Don
Rutherford
17th
Floor
3550
Wilshire Blvd.
Los
Angeles, CA 90010
|
|
|
Chief
Financial Officer
|
|
|
1,583,333
(5
|
)
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group
|
|
|
|
|
|
11,574,142
(6
|
)
|
|
7.0
|
%
|
(1)
Applicable percentage ownership is based on 154,515,423 shares of common stock
outstanding as of March 19, 2007,
together
with securities exercisable or convertible into shares of common stock within
60
days of March
19,
2007 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 March 19, 2007
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 2,387,619 shares of our common stock beneficially
owned by Mr. Yakatan exercisable within 60 days. Does not include options to
purchase 1,333,333 shares of our common stock that are not exercisable within
60
days.
(3)
Includes warrants and options to purchase 816,668 shares of our common stock
beneficially owned by Mr. Levine that are exercisable within 60 days. Does
not
include options to purchase 1,358,332 shares of our common stock that are not
exercisable within 60 days.
(4)
Includes options to purchase 500,000 shares of our common stock exercisable
within 60 days and 953,000 shares of our common stock held by Princess
Investments. Mr. Ahlin has voting power over securities held by Princess
Investments. Does not include options to purchase 1,000,000 shares of our common
stock that are not exercisable within 60 days.
(5)
Represents options to purchase 1,583,333 shares of our common stock exercisable
within 60 days. Does not include options to purchase 1,666,667 shares of our
common stock that are not exercisable within 60 days.
(6)
Includes options to purchase 6,870,953 shares of our common stock and warrants
to purchase a total of 98,092 shares of our common stock exercisable within
60
days. Does not include options to purchase a total of 7,774,999 shares of our
common stock not exercisable within 60 days.
(7)
Represents options to purchase 1,583,333 shares of our common stock exercisable
within 60 days. Does not include options to purchase 2,416,667 shares of our
common stock that are not exercisable within 60 days.
Item
12. Certain Relationships and Related Transactions
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.
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 March 31, 2005. Mr. Yakatan is the son of Stan Yakatan,
our President, CEO and Board Chairman. Mr. Mintz is an affiliate of Katan
Associates, of which Stan Yakatan is the Chairman.
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, and who had access, at our expense, to our or
independent legal counsel.
Item
13. Exhibits
Exhibit
Number
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of July 6, 2004, by and among Grant
Ventures, Inc., Impact Acquisition Corporation and Impact Diagnostics,
Inc. (incorporated by reference to the Registration Statement on
Form SB-2
dated September 30, 2004).
|
|
|
|
3.1
|
|
Articles
of Incorporation of North Ridge Corporation, filed with the Secretary
of
State of Nevada on January 31, 2000. (incorporated by reference to
the
Registration Statement on Form SB-2 dated September 30,
2004).
|
|
|
|
3.2
|
|
Certificate
of Amendment to Articles of Incorporation of North Ridge Corporation,
changing its name to Grant Ventures, Inc. and changing its authorized
capital to 50,000,000 shares, par value $0.001 per share, filed with
the
Secretary of State of Nevada on May 30, 2001. (incorporated by reference
to the Registration Statement on Form SB-2 dated September 30,
2004).
|
|
|
|
3.3
|
|
Form
of Amended and Restated Articles of Incorporation of Grant Ventures,
Inc.
(incorporated by reference to the Registration Statement on Form
SB-2
dated September 30, 2004).
|
|
|
|
3.4
|
|
Articles
of Merger for the merger of Impact Diagnostics, Inc. (Utah) and Impact
Acquisitions Corporation (Utah), filed with the Secretary of State
of Utah
on July 30, 2004 (incorporated by reference to the Registration Statement
on Form SB-2 dated September 30, 2004).
|
|
|
|
3.5
|
|
Bylaws
of Grant Life Sciences, Inc. (incorporated by reference to the
Registration Statement on Form SB-2/A dated February 11,
2005).
|
|
|
|
4.1
|
|
Securities
Purchase Agreement between Grant Ventures, Inc. and the purchasers
party
thereto (incorporated by reference to the Registration Statement
on Form
SB-2 dated September 30, 2004).
|
|
|
|
4.2
|
|
Registration
Rights Agreement between Grant Ventures, Inc. and the purchasers
party
thereto. (incorporated by reference to the Registration Statement
on Form
SB-2 dated September 30, 2004).
|
|
|
|
4.3
|
|
Form
of Common Stock Purchase Warrant. (incorporated by reference to the
Registration Statement on Form SB-2 dated September 30,
2004).
|
|
|
|
10.1
|
|
6%
Convertible Promissory Note in the amount of $350,000, dated as of
July
23, 2004, between Impact Diagnostics, Inc. and James H. Donell, as
receiver of Citadel Capital Management, Inc. (incorporated by reference
to
the Registration Statement on Form SB-2 dated September 30,
2004).
|
|
|
|
10.2
|
|
Warrant,
dated July 23, 2004, of James H. Donell, as receiver of Citadel Capital
Management, Inc., to purchase 89,500 shares of common stock of Impact
Diagnostics, Inc. (incorporated by reference to the Registration
Statement
on Form SB-2 dated September 30, 2004).
|
|
|
|
10.3
|
|
Letter
Agreement, dated July 1, 2004, between Impact Diagnostics, Inc. and
Duncan
Capital LLC. (incorporated by reference to the Registration Statement
on
Form SB-2 dated September 30, 2004).
|
|
|
|
10.4
|
|
Letter
Agreement, dated July 1, 2004, between Impact Diagnostics, Inc. and
Michael Ahlin (incorporated by reference to the Registration Statement
on
Form SB-2 dated September 30, 2004).
|
|
|
|
10.5
|
|
Letter
Agreement, dated July 1, 2004, between Impact Diagnostics, Inc. and
Dr.
Mark Rosenfeld. (incorporated by reference to the Registration Statement
on Form SB-2 dated September 30, 2004).
|
|
|
|
10.6
|
|
2004
Stock Incentive Plan of Grant Ventures, Inc. (incorporated by reference
to
the Registration Statement on Form SB-2 dated September 30,
2004).
|
|
|
|
10.7
|
|
Incentive
Stock Option Agreement, dated as of July 6, 2004, between Impact
Diagnostics, Inc. and Stan Yakatan (incorporated by reference to
the
Registration Statement on Form SB-2 dated September 30,
2004)..
|
|
|
|
10.8
|
|
Incentive
Stock Option Agreement, dated as of July 6, 2004, between Impact
Diagnostics, Inc. and John C. Wilson.
|
10.9
|
|
Employment
Agreement between Michael L. Ahlin and Impact Diagnostics, Inc.,
dated
January 1, 2004, as amended by the Amendment of Employment Agreement,
dated July 1, 2004.
|
|
|
|
10.11
|
|
Exclusive
License Agreement between Impact Diagnostics Incorporation and Dr.
Yao
Xiong Hu, M.D., dated July 20, 2004 (incorporated by reference to
Form
10-QSB filed with SEC on November 19, 2004).
|
|
|
|
10.12
|
|
Exclusive
License Agreement dated March 7, 2005 by and between Grant Life Sciences,
Inc. and AccuDx Corporation (incorporated by reference herein to
the
Current Report on Form 8-K filed on March 11, 2005).
|
|
|
|
10.13
|
|
Consulting
Agreement dated March 7, 2005 by and between Grant Life Sciences,
Inc. and
Ravi and Dr. Indira Pottahil (incorporated by reference herein to
the
Current Report on Form 8-K filed on March 11, 2005).
|
|
|
|
10.14
|
|
Promissory
Note in the name of AccuDx Corporation dated March 7, 2005 (incorporated
by reference herein to the Current Report on Form 8-K filed on March
11,
2005).
|
|
|
|
10.15
|
|
Securities
Purchase Agreement dated as of March 15, 2005 among Grant Life Sciences,
Inc. and the purchasers signatory thereto (incorporated by reference
herein to the Current Report on Form 8-K filed on March 21,
2005).
|
|
|
|
10.16
|
|
Security
Agreement dated as of March 15, 2005 among Grant Life Sciences, Inc.
and
the holders of the Notes (incorporated by reference herein to the
Current
Report on Form 8-K filed on March 21, 2005).
|
|
|
|
10.17
|
|
Registration
Rights Agreement dated as of March 15, 2005 among Grant Life Sciences,
Inc. and the purchasers signatory thereto (incorporated by reference
herein to the Current Report on Form 8-K filed on March 21,
2005).
|
|
|
|
10.18
|
|
8%
Senior Secured Note dated March 15, 2005 in the name of DCOFI Master
LDC
(incorporated by reference herein to the Current Report on Form 8-K
filed
on March 21, 2005).
|
|
|
|
10.19
|
|
Common
Stock Purchase Warrant dated March 15, 2005 (incorporated by reference
herein to the Current Report on Form 8-K filed on March 21,
2005).
|
|
|
|
14.1
|
|
Code
of Ethics. (incorporated by reference herein to the Annual Report
on Form
10-KSB filed on March 31, 2005).
|
|
|
|
21.1
|
|
Subsidiaries
of the Registrant.
|
|
|
|
23.1
|
|
Consent
of Singer Lewak Greenbaum & Goldstein LLP
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section
302.
|
|
|
|
31.2
|
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section
302.
|
|
|
|
32.1
|
|
Certification
by Chief Executive Officer pursuant to 18 U.S. C. Section
1350.
|
|
|
|
32.2
|
|
Certification
by Chief Financial Officer pursuant to 18 U.S. C. Section
1350.
|
Item
14. Principal Accountant Fees and Services
Audit
Fees
Fees
billed for professional services rendered by Singer Lewak Greenbaum &
Goldstein LLP for the audit of the Company’s 2006 annual financial statements
were $50,000 and for reviews of the quarterly filings in 2006 were $62,000.
The
fees billed for professional services rendered by Singer Lewak Greenbaum &
Goldstein LLP for the audit of the Company’s 2005 annual financial statements
were $76,084. Fees billed for professional services rendered by Russell Bedford
Stefanou Mirchandani LLP for reviews of the quarterly filings in 2005 were
$28,244.
Audit-Related
Fees
Approximately
$32,000 of fees were billed for reviews of registration statements during 2006,
and approximately $30,200 of fees were billed for reviews of registration
statements during 2005.
Tax
Fees
Singer
Lewak Greenbaum & Goldstein LLP performed tax services for the 2006 and 2005
tax returns at a cost of $5,000.
All
Other Fees
We
did
not incur any fees for other professional services rendered by our independent
auditors during the years ended December 31, 2006 and December 31,
2005.
The
charter of the Company’s Audit Committee, which was established by the Board of
Directors in July 2004, includes a written policy regarding the pre-approval
of
audit and permitted non-audit services to be performed by our independent
auditors, Singer Lewak Greenbaum & Goldstein LLP. All services provided by
Singer Lewak Greenbaum & Goldstein LLP, both audit and non-audit must be
pre-approved by the Audit Committee. The Audit Committee’s charter specifies
that the Committee is directly responsible for the appointment, compensation
and
oversight of the work of the independent auditor (including resolution of
disagreements between management and the independent auditor regarding financial
reporting) for the purpose of preparing its audit report or any related work.
The charter specifies that the Committee meet at least quarterly with the
independent auditor in separate executive sessions. All services provided by
our
principal accountant since July 2004 have been pre-authorized by the Audit
Committee. The Directors and Officers of Impact Diagnostics, Inc. were
responsible for engaging auditors for the audit of the 2003 Impact financial
statements, as this entity was a private company prior to the merger on July
30,
2004.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
GRANT
LIFE SCIENCES, INC.
|
|
|
|
|
By: |
/s/
Hun-Chi Lin
|
|
Hun-Chi
Lin
|
|
President
and Director
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
Name
|
|
Title
|
|
Date
|
/s/
Stan Yakatan
|
|
Chairman
of the Board of Directors
|
|
June
21, 2007
|
Stan
Yakatan
|
|
|
|
|
/s/
Hun-Chi Lin
|
|
President
and Director
|
|
June
21, 2007
|
Hun-Chi
Lin
|
|
|
|
|
/s/
Doyle Judd
|
|
Chief
Financial Officer
|
|
June
21, 2007
|
Doyle
Judd
|
|
|
|
|
/s/
Michael Ahlin
|
|
Vice
President and Director
|
|
June
21, 2007
|
Michael
Ahlin
|
|
|
|
|
/s/
Jack Levine
|
|
Director
|
|
June
21, 2007
|
Jack
Levine
|
|
|
|
|
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FINANCIAL
STATEMENTS
DECEMBER
31, 2006 AND 2005
FORMING
A PART OF ANNUAL REPORT
PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
Index
to Financial Statements
|
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
|
F-3
|
Consolidated
Balance Sheets (Restated) as of December 31, 2006 and
2005
|
|
F-4
|
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-5
|
Consolidated
Statement of Deficiency in Stockholders’ Equity (Restated) for the
period July 9, 1998 (date of inception) through December 31,
2006
|
|
F-6
|
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-7
|
Notes
to Restated Consolidated Financial Statements
|
|
F-9
|
SINGER
LEWAK GREENBAUM & GOLDSTEIN LLP
CERTIFIED
PUBLIC ACCOUNTANTS
REPORT
OF
INDEPENDEPT REGISTERED PUBLC 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
GRANT
LIFE SCIENCES, INC.
|
(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
|
|
The
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
|
|
|
|
)
|
|
(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
|
|
|
|
Subscription
|
|
Deferred
|
|
Additional
Paid
|
|
Accumulated
|
|
Total
(Deficiency) In Stockholders
|
|
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Compensation
|
|
In
Capital
|
|
Deficit
|
|
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
|
|
|
-
|
|
|
|
|
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
|
|
See
accompanying notes to consolidated financial statements
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
|
|
GRANT
LIFE SCIENCES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006 and 2005
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.
GRANT
LIFE SCIENCES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006 and 2005
NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)
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.
GRANT
LIFE SCIENCES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006 and 2005
NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)
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 FINACIAL 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 derivatie
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 14th
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 14th
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
(Restated)
|
|
2005
|
|
|
|
|
|
|
|
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
|
|
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:
Calculation
of rate of taxes on income
|
|
2006
|
|
2005
|
|
Tax
@ statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
|
|
|
|
|
|
|
|
Permanent
differences:
|
|
|
|
|
|
|
|
R&D
credit
|
|
|
|
|
|
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.