under
the Securities Act of 1933, as amended (File No. 333-137774)
Prospectus
GRANT
LIFE SCIENCES, INC.
34,140,060
Shares
Common
Stock
This prospectus relates to the sale by the selling stockholders of up to
34,140,060 shares of our common stock, of which 27,866,242 shares are underlying
callable secured convertible notes in a principle amount of $700,000. The
callable secured convertible notes are convertible into our common stock at
the
lower of $0.40 or 43% of the average of the three lowest intraday trading prices
for the common stock on the Over-The-Counter Bulletin Board for the 20 trading
days before but not including the conversion date. The prices at which the
selling stockholders may sell shares will be determined by the prevailing market
price for the shares or in negotiated transactions. We will not receive
any proceeds from the sale of our shares by the selling stockholders. The
selling stockholders may be deemed underwriters of the shares of common stock,
which they are offering. We will pay the expenses of registering these
shares.
Our common stock is listed on the Over-the-Counter Bulletin Board under the
symbol “GLIF.OB.” On December 21, 2006, the last reported price of our
common stock was $0.105 per share.
INVESTING
IN OUR SECURITIES INVOLVES RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 2.
No
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This
summary does not contain all of the information that you should consider before
investing in our common stock. You should carefully read the entire
prospectus prior to making an investment decision.
About
Grant Life Science
We
are
developing protein-based screening tests to screen women for cervical cancer
and
pre-cancerous conditions that typically result in cervical cancer. We
believe our tests detect the presence of certain antibodies that appear only
when cervical cancer or certain pre-cancerous conditions are present in the
body. Our tests are performed by analyzing a small amount of blood taken
from the patient. In one version of our test, the blood sample is analyzed
in a clinical testing laboratory using standard laboratory equipment and
analytic software, which generally can produce test results in about 2
hours. Our rapid test is designed to be administered at the point of care
by a health professional in a doctor’s office, hospital, and clinic or even at
home, and provides easy-to-read results in approximately 15 minutes. Our planned
cervical cancer test uses proprietary technology to detect the presence of
antibodies. We believe that in the future we may be able to use that
technology to develop rapid tests for other diseases and cancers.
In
conjunction with the primary diagnostic cervical cancer blood tests that we
are
developing, we have also acquired the exclusive worldwide rights to diagnostic
devices for HIV-1, HIV-2 and dengue fever and a proprietary diagnostic reagent
a
key ingredient commonly used by leading manufacturers of rapid tests as a
detectable label. We acquired these rights from AccuDx Corporation in March
2005
for a period of ten years. Pursuant to the license agreement AccuDx will
assist us in arranging to use an FDA/GMP-compliant contract manufacturing
facility in Tijuana, Mexico to manufacture our diagnostic test devices.
We
have
not generated any significant revenues since inception in July 1998. We have
a
history of losses and we expect to continue to incur losses for the foreseeable
future. For the nine months ended September 30, 2006 and 2005, we had no
revenues and incurred net losses of $7,480,568 and $13,238,083, respectively.
Cumulative losses since inception total $15,496,242 as of September 30, 2006.
As
a result of recurring losses from operations, a working capital deficit and
accumulated deficit, our auditors, in their report dated February 28, 2006,
have
expressed substantial doubt about our ability to continue as a going concern.
History
of Grant Life Sciences
Grant
Life Sciences was 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 is a wholly
owned subsidiary of Grant Life Sciences. 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 1999 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
Diagnostics 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,
nominees of Impact Diagnostics were appointed to our board of directors and,
our
standing board of directors resigned.
For
accounting purposes, the acquisition of Impact Diagnostics through the Merger
is
treated and presented as a recapitalization of Impact Diagnostics. The reverse
merger is treated and presented as a recapitalization because we did not have
any operating activity prior to the acquisition of Impact Diagnostics, ownership
of Grant Life Sciences upon the reverse merger was controlled by the
stockholders of Impact Diagnostics and the management of Impact Diagnostics
controlled our operating activity post-merger. Therefore,
in this prospectus, unless otherwise indicated, all historical financial
information presented about us is historical financial information of Impact
Diagnostics only; the historical audited and unaudited interim financial
statements are the financial statements of Impact Diagnostics.
By
this
prospectus, the selling stockholders are offering up to 34,140,060 shares of
our
common stock, of which 27,866,242 shares are issuable upon the conversion of
notes held by the selling stockholders. The selling stockholders are not
required to sell their shares, and any sales of common stock by the selling
stockholders are entirely at the discretion of the selling stockholders. We
will
receive no proceeds from the sale of the shares of common stock in this
offering.
1
RISK
FACTORS
Investing in our securities involves a material degree of risk. Before
making an investment decision, you should carefully consider the risk factors
set forth in this prospectus and any accompanying prospectus supplement
delivered with this prospectus, as well as other information we include in
this
prospectus and any accompanying prospectus supplement.
Risks
Related to our Business
We
are a development stage company and we have no meaningful operating history
on
which to evaluate our business or prospects.
We
acquired Impact Diagnostics on July 30, 2004. For several years prior to
that acquisition, we did not engage in any business. Impact Diagnostics
was formed in 1998 and has been developing a cervical cancer screening
test. This is now 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 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
an
annual profit. We incurred net losses of $47,857 in fiscal 2002, $253,881
in fiscal 2003, $1,910,350 for the year ended December 31, 2004, 4,634,331
for
the year ended December 31, 2005, $7,480,568 for the nine months ended September30, 2006, and $15,496,242 from inception in 1998 through September 30, 2006.
Our
accumulated deficit at September 30, 2006 was $15,496,242.
Our
losses have resulted principally from:
·
expenses
associated with our research and development programs and development or our
cervical cancer tests;
·
expenses
associated with the Merger; and
·
administrative
and facilities costs.
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 a qualified 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.
2
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.
3
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 C
lass
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.
4
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 21, 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 38,366,408 shares of common stock at current market prices, and
outstanding warrants or an obligation to issue warrants to purchase 10,405,010
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.
5
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 $0.105.
%
Below
Market
Price
Per
Share
With
Discount
at
43%
Number
of
Shares
Issuable
%
of
Outstanding
Stock
25%
$.0788
$.0339
43,847,294
24.32%
50%
$.0525
$.0226
65,770,941
32.53%
75%
$.0263
$.0113
131,541,883
49.09%
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
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
June14, 2005, we entered into a financing arrangement involving the sale of an
aggregate of $2,000,000 principal amount of callable secured convertible notes
and stock purchase warrants to buy 7,692,308 shares of our common stock. The
callable secured convertible notes are due and payable, with 10% interest,
three
years from the date of issuance, unless sooner converted into shares of our
common stock.. Any event of default such as our failure to repay the principal
or interest when due, our failure to issue shares of common stock upon
conversion by the holder, our failure to timely file a registration statement
or
have such registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, the filing of a money judgment,
writ or similar process against us in excess of $50,000, the commencement of
a
bankruptcy, insolvency, reorganization or liquidation proceeding against us
and
the delisting of our common stock could require the early repayment of the
callable secured convertible notes, including a default interest rate of 15%
on
the outstanding principal balance of the notes if the default is not cured
within the specified grace period. 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.
6
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
December 21, 2006, we had outstanding 136,420,423 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 1,364,204 shares of common
stock) or (ii) the average weekly trading volume of our common shares
during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are public information
about us. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the three months preceding a sale, and who
has
owned the shares proposed to be sold for at least two years, is entitled to
sell
his shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
This
prospectus includes forward-looking statements. You can identify these
forward-looking statements when you see us using words such as “expect,”“anticipate,”“estimate,”“believe,”“intend,”“may,”“predict,” and other
similar expressions. These forward looking statements cover, among other
items:
·
our
future capital needs;
·
our
expectations about our ability to complete development of our cervical cancer
tests;
·
our
expectations about the FDA and other regulatory approval process that will
be
required for our cervical cancer tests;
·
our
expectations about reimbursement of our products by health insurance payors;
·
our
expectations about the future performance of the cervical cancer tests that
we
are developing;
·
our
expectations about acceptance in the market of the cervical cancer tests we
are
developing;
·
our
expectations about the ability of our planned cervical cancer tests to compete
in the market;
·
our
marketing and sales plans;
·
our
expectations about our financial performance;
·
our
intention to develop additional screening tests using our technology;
We
have
based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number
of risks and uncertainties, certain of which are beyond our control.
Actual results could differ materially from those anticipated as a result of
the
factors described under “Risk Factors” including, among others:
·
problems
that we may face in successfully completing our planned cervical cancer tests;
·
our
inability to raise additional capital when needed;
·
uncertainty
of acceptance of our cervical cancer tests in the market;
·
reluctance
or unwillingness of laboratories and physicians to accept our tests;
·
refusal
of insurance companies and other third-party payors to reimburse patients,
clinicians and laboratories for our tests;
·
problems
that we may face in marketing and selling our tests;
·
the
possibility that we may not be able to compete with established companies;
·
delays
in
obtaining, or our inability to obtain, approval by the FDA for our proposed
tests;
·
delays
in
obtaining, or our inability to obtain, approval by certain foreign regulatory
authorities for our proposed tests;
·
problems
in acquiring and protecting intellectual property important to our business
through patents, licenses and other agreements;
·
our
ability to successfully defend claims that our tests may infringe the
intellectual property rights of others;
·
problems
that we may face in obtaining product liability insurance or defending product
liability claims;
·
problems
that we may face in manufacturing and distributing our proposed tests;
·
the
risks
we face in potential international markets; and
·
the
limited market for our common stock and the adverse affect on liquidity that
we
may face because our common stock is considered a “penny stock”.
8
We
do not
undertake any obligation to publicly update or revise any forward-looking
statements contained in this prospectus or incorporated by reference, whether
as
a result of new information, future events or otherwise. Because of these
risks and uncertainties, the forward-looking statements and circumstances
discussed in this prospectus might not transpire.
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by selling stockholders. We will receive no proceeds
from the sale of shares of common stock in this offering.
Some
of
the information in this Form SB-2 contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as "may,""will,""expect,""anticipate,""believe,""estimate" and "continue," or similar words. You should read
statements that contain these words carefully because they:
·
discuss
our future expectations;
·
contain
projections of our future results of operations or of our financial
condition; and
·
state
other "forward-looking" information.
We
believe it is important to communicate our expectations. However, there may
be
events in the future that we are not able to accurately predict or over which
we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements
as
a result of certain factors, including those set forth under "Risk Factors,""Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
We
are
considered a development stage company engaged primarily in the development
of
protein-based screening tests that are used to screen women for cervical cancer
and pre-cancerous conditions that typically result in cervical cancer. We
believe our tests detect the presence of certain antibodies that appear only
when cervical cancer or certain pre-cancerous conditions are present in the
body. Our tests are performed by analyzing a small amount of blood taken
from the patient. In one version of our test, the blood sample is analyzed
in a clinical testing laboratory using standard laboratory equipment and
analytic software, which generally can produce test results in about two
hours. Our rapid test is designed to be administered at the point of care
by a health professional in a doctor’s office, hospital, and clinic or even at
home, and provides easy-to-read results in approximately 15 minutes. Our planned
cervical cancer test uses proprietary technology to detect the presence of
antibodies. We believe that in the future we may be able to use that
technology to develop rapid tests for other diseases and cancers.
In
conjunction with the primary diagnostic cervical cancer blood tests that we
are
developing, we have also acquired the exclusive worldwide rights to diagnostic
devices for HIV-1, HIV-2 and dengue fever and a proprietary diagnostic reagent
a
key ingredient commonly used by leading manufacturers of rapid tests as a
detectable label. We acquired these rights from AccuDx Corporation in March
2005
for a period of ten years. Pursuant to the license agreement AccuDx will
assist us in arranging to use an FDA/GMP-compliant contract manufacturing
facility in Tijuana, Mexico to manufacture our diagnostic test devices.
We
had no
revenues and a net loss of $7,415,840 in the three months ended September 30,2006 compared with a net loss of $11,033,602 during the same three months in
2005. During the nine months ended September 30 we incurred a net loss of
$7,480,568 in 2006 compared to a net loss of $13,238,083 in the same period
in
2005. These losses are materially affected by non-cash changes in fair value
related to adjustment of derivative and warrant liability to fair value of
underlying securities, as follows.
Change
in fair value related to adjustment of derivative and warrant liability
to
fair value of underlying securities
$(6,948,491)
$(10,293,048)
$(5,931,257)
$(10,452,987)
Net
loss
$(7,415,840)
$
(11,033,602)
$
(7,480,568)
$
(13,238,083)
9
For
the
three months ended September 30, 2006 compared to the three months ended
September 30, 2005 the $260,000 reduction in operating expense results from:
$67,000 lower consulting expenses, $115,000 lower stock option expense and
$40,000 in lower salaries, $36,000 lower interest and $58,000 lower legal fees
partially offset by an increase of $35,000 in audit fees.
For
the
nine months ended September 30, 2006 compared to the nine months ended September30, 2005 the $1.3 million reduction in operating expense results from: $659,000
lower stock option expense and $157,000 in lower salaries, $281,000 lower
consulting, $47,000 lower royalties and licenses and $122,000 lower legal fees
partially offset by an increase of $69,000 in audit fees, and interest cost
which increased by $68,000. Since inception in July 1998, we have incurred
cumulative losses of $15,496,242.
In
June
and August, 2005 we sold $2,000,000 of convertible debt in a private placement
as part of an agreement to sell $2,000,000 of convertible debt. In order to
meet
the number of shares that may be required on conversion of the $2 million of
convertible notes, based on latest conversion rates, we requested and received
shareholder approval at our annual meeting held May 23, 2006 to increase our
authorized shares of common stock from 150 million shares to 750 million
shares.
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 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. The company incurred expense of $976,986 in 2005 and $426,081
in
2004 for the stock options granted under its 2004 Stock Incentive Plan. 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, 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. 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 recorded 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 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
10
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
will implement SFAS No. 154 in its fiscal year beginning January 1, 2006.
We are currently evaluating the impact of this new standard but believe
that it will not have a material impact on the Company’s 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
July
2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
48 clarifies the accounting and reporting for uncertainties in income tax
law. This interpretation prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of uncertain
tax
positions taken or expected to be taken in income tax returns. This
statement is effective for fiscal years beginning after December 15, 2006.
The Company is currently evaluating the impact FIN 48 may have on its financial
condition or results of operations.
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Issues No. 157, “Fair Value Measurements” (“SFAS 157”),
which defines the fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Early adoption
is encouraged, provided that the Company has not yet issued financial statements
for that fiscal year, including any financial statements for an interim period
within that fiscal year. The Company is currently evaluating the impact SFAS
157
may have on its financial condition or results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employer’s
accounting for Defined Benefit Pension and Other Post Retirement
Plans”.
SFAS No. 158 requires employers to recognize in its statement of financial
position an asset or liability based on the retirement plan’s over or under
funded status. SFAS No. 158 is effective for fiscal years ending after
December 15, 2006. The Company is currently evaluating the effect that the
application of SFAS No. 158 will have on its results of operations and financial
condition.
In
September 2006, the United States Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”). This SAB provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an approach
that requires quantification of financial statement errors based on the effects
on each of the company’s balance sheets, statements of operations and related
financial statement disclosures. The SAB permits existing public companies
to
record the cumulative effect of initially applying this approach in the first
year ending after November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting adjustment recorded to the opening balance
of
retained earnings. Additionally, the use of the cumulative effect transition
method requires detailed disclosure of the nature and amount of each individual
error being corrected through the cumulative adjustment and how and when it
arose. The Company is currently evaluating the impact SAB 108 may have on its
results of operations and financial condition.
11
In
October 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That is, Gross versus Net Presentation)”
to clarify diversity in practice on the presentation of different types of
taxes
in the financial statements. The Task Force concluded that, for taxes within
the
scope of the issue, a company may adopt a policy of presenting taxes either
gross within revenue or net. That is, it may include charges to customers for
taxes within revenues and the charge for the taxes from the taxing authority
within cost of sales, or, alternatively, it may net the charge to the customer
and the charge from the taxing authority. If taxes subject to EITF 06-3 are
significant, a company is required to disclose its accounting policy for
presenting taxes and the amounts of such taxes that are recognized on a gross
basis. The guidance in this consensus is effective for the first interim
reporting period beginning after December 15, 2006 (the first quarter of our
fiscal year 2007). We do not expect the adoption of EITF 06-3 will have a
material impact on our results of operations, financial position or cash
flow.
Plan
of Operations
Grant
Life Sciences, Inc. (GLIF.OB), a development stage company, engages in the
research, development, marketing, and sale of diagnostic kits for the screening,
monitoring, and diagnosis of diseases with emphasis on women’s health,
infectious diseases, and cancers.
During
the next year, we expect we may acquire laboratory assets to augment our
clinical research and development efforts, which are presently outsourced,
and
may continue to be outsourced. We have relocated our offices to California
where
our chairman, president and chief financial officer reside.
During
the next 12 months, we plan to expand on our broadened business strategy of
in- and out-licensing technologies and products. To this end, we have recently
established OEM agreements to manufacture and distribute more than two-dozen
immunoassay tests for the India and other South East Asia markets. These newly
added tests are additions to the AccuDx rapid test line (HIV1/2, Dengue fever
IgG and IgM), and include trimarkers (Toxoplasma, Rubella, and CMV IgG and
IgM
antibodies), HSV (IgG and IgM), HBVsAg, HCV, Troponin-I, TB rapid test,
hemoglobin A1c, cancer markers, thyroid hormone panel (T3, T4, TSH), and others.
In addition, we have signed a Letter of Intent (LOI) to exclusively represent
Response Biomedical Corp. of Burnaby, B.C. to distribute its RAMP cardiac
products in India.
We
plan
to take advantage of our established sales channel to provide important
diagnostic tests to the vast India market and we intend to continue adding
new
products in the area of infectious diseases, hormones, and cancer biomarkers,
for sales in the future. We are also actively expanding our sales channel to
other South East Asia countries. Starting in the third quarter of 2006 we plan
to increase revenue from the sales of immunoassay kits and RAMP cardiac products
significantly.
As
part
of our in- and out-licensing strategy, we signed a Memorandum of Understanding
(MOU) with Diagnostic Technology Ltd. (Haifa, Israel) in April 2006 related
to
Grant’s cervical cancer-diagnostic technology (U.S. Patent No. 6,743,593). The
MOU, initially for a 90 day due diligence period was extended an additional
60
days in order to complete the evaluation of human papillomavirus antibody test.
As
a
development stage company, we plan to acquiring new products through our
in-licensing activities, optimizing the technologies and products, and
out-licensing to our partners for further development or sales through our
own
marketing channels. In addition to the human papillomavirus antibody test,
we
are actively evaluating a human papillomavirus antigen test and other new
technologies.
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.
We
do not
anticipate investing in real estate or interests in real estate, real estate
mortgages, or securities of or interests in persons primarily engaged in real
estate activities during the next 12 months. We do not intend to undertake
investments in real estate as a part of our normal operations.
Liquidity
and Capital Resources
As
of
September 30, 2006, we had total current assets of $130,202 and total current
liabilities of $552,989.
Our
continuation as a going concern is dependent on our ability to generate
sufficient cash flows to meet our obligations on a timely basis and to obtain
additional financing as may be required.
Our
auditors have added an explanatory paragraph to their opinions 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.
Our
continuation as a going concern is dependent on our ability to generate
sufficient cash flows to meet our obligations on a timely basis and to obtain
additional financing as may be required.
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 2005, we sold 567,000 shares of our common
stock for a total consideration of $14,420 through the exercise of stock options
and warrants.
12
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
March7, 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, which were to be issued as follows: one-third on September 7, 2005,
one-third on March 7, 2006 and one-third on September 7, 2006. No shares have
yet been issued.
On
March15, 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 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.
·
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
callable secured convertible 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. Interest on the callable secured convertible notes can be paid, at
our option, in cash or common stock based on the conversion price. The full
principal amount of the callable secured convertible notes is due upon default
under the terms of secured convertible notes. The warrants are exercisable
until
five years from the date of issuance at a purchase price of $0.45 per share.
In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the callable secured convertible notes and
the exercise price of the warrants may be adjusted in certain circumstances
such
as if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.99% of the then issued
and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
As
of
December 21, 2006, 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 $.09 and, therefore, the conversion price
for the secured convertible notes was $.039. As of December 21, 2006 the
outstanding principal for the foregoing notes is $1,484,779, Therefore based
on
this conversion price, the callable secured convertible notes, excluding
interest, would be convertible into 38,366,408 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 conversion date.
13
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.
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.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements as of the September 30, 2006 or as
of
the date of this prospectus.
Our common stock is quoted on the OTC Bulletin Board under the symbol
“GLIF.OB.” The following table sets forth, for the calendar periods
indicated, the range of the high and low last reported bid prices of our common
stock from January 1, 2003 through September 30, 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 2004
$0.040
$0.040
Second
Quarter 2004
$0.040
$0.040
Third
Quarter 2004
$0.800
$0.040
Fourth
Quarter 2004
$1.400
$0.600
First
Quarter 2005
$0.900
$0.300
Second
Quarter 2005
$0.530
$0.130
Third
Quarter 2005
$0.170
$0.006
Fourth
Quarter 2005
$0.066
$0.0147
First
Quarter 2006
$0.235
$0.0181
Second
Quarter 2006
$0.032
$0.012
Third
Quarter 2006
$0.115
$0.013
On December 21, 2006, the last reported price of our common stock as reported
on
the OTC Bulletin Board was $0.105 per share. As of December 21, 2006,
we had approximately 165 shareholders of record. Certain of the shares of
common stock are held in “street” name and may be held by numerous beneficial
owners.
We
are
developing protein-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 that in the future we may be able to use that technology
to
develop rapid tests for other diseases and cancers.
14
In
January 2006 we announced the signing of a Memorandum of Understanding 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.
Drs.
Sveshnidov and Kiselev have already tested their technology in Russia and we
will be further validating their tests with more specimens from Russia and
the
United States in controlled clinical settings.
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.
Cervical
Cancer
Invasive
cervical cancer affects over 500,000 women worldwide annually, and approximately
300,000 women die each year from this disease (National Institutes of Health
Notices, Federal Press Release Library Assession Number A00295; Cleveland Clinic
Journal of Medicine, 70:641). Cervical cancer is second only to breast
cancer as the leading `cause of cancer death among women (Cancer Journal,
9:348). In the United States, Western Europe and other countries where
there is widespread screening and a well developed testing or diagnostic
infrastructure, invasive cervical cancer is less prevalent. In Latin
America, China, India and many other countries, there is a much higher incidence
of invasive cervical cancer because of the lack of testing and limited or
diagnostic testing infrastructure.
Pap Tests, a microscopic examination of cells scraped from the cervix, have
been
the most prevalent cervical cancer screening method for more than 50
years. In recent years, gene- or DNA-based HPV tests have been introduced
as an adjunct to the Pap Test. In the United States, more than 82% of
women 25 years or older have gotten Pap Tests over the last three years (Cancer,
97:1528), equated to a total of more than 50 million Pap Tests performed each
year (CDC Morbidity and Mortality Weekly Report, 49:1001). An equivalent number
of Pap Tests are performed annually across the rest of the world, mainly in
Canada, Western Europe and Japan. Outside the United States, approximately
1.7 billion women do not undergo regular cervical cancer testing (United States
Census Bureau International Data Base statistics). In many cases, this
scarcity of testing is the result of a lack of economic resources, as well
as
social, cultural and/or religious factors which may contribute to women not
undergoing cervical cancer screening. Under these circumstances, in some
nations, the mortality rate of cervical cancer is not unlike that for incidence
of cervical cancer (Journal of American Medical Association, 285:3107; Annals
of
Oncology, 16:489). In other words, the mortality rate for those with cervical
cancer may approach 100% in some places.
Virtually
all-cervical cancer is caused by humanpapilloma virus 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 are increasing in incidence (Canadian Medical Association
Journal, 164:1151) but often goes undetected by Pap Tests. The missing of
adenocarcinomas is largely due to problems in collecting and interpreting the
correct cervical cells (Cancer [Cancer Cytopathology], 99:324 and
102:280).
Traditional
Testing for Cervical Cancer
Pap
Tests
The
most
common means of screening for cervical cancer is the Pap Test, which has been
used as the primary screen for over 50 years. The Pap Test is performed by
swabbing the cervical surface to collect cells that are then placed on a
microscopic slide for examination. A specially- trained licensed
cytotechnologist, usually in a hospital or pathology laboratory, observes the
cells using a microscope and other specialized equipment to determine whether
abnormal cells are present. When a cytotechnologist identifies a potential
abnormality, a cytopathologist verifies the interpretation. A second
generation Pap Test, known as a “Liquid Pap Test”, involves 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).
15
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 and proteins that are produced only if
cancer-causing HPV is present in the body, and consequent oncogenic, or
cancer-promoting, changes have occurred. Cancer-causing HPV have unique
proteins that trigger the disease. Upon disease onset, the body makes
large numbers of antibodies to these unique proteins. By detecting
specific antibodies to cancer-causing HPVs, we believe that our tests will
be
able to more reliably determine whether a patient has cervical cancer or
pre-cancerous lesions than can Pap smear cytology or HPV testing.
16
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, readily completed steps:
·
The
sample is placed into a receptacle coated with proprietary detection proteins
of
a specific nature.
·
Only
certain antibodies to cancer-causing HPVs can adhere to these
proteins.
·
The
container is then rinsed, thus removing everything but antibodies that have
adhered to the proteins.
·
A
special
solution is added to the container. This solution includes “detector”
antibodies that attach to those specific antibodies to cancer-causing HPVs
adhered to the special detector proteins. The solution changes color with
attachment of the “detector” antibodies, an indicator of a positive result
(i.e., cervical cancer or a pre-cancerous condition present).
We
are
developing two tests. One, known as the Enzyme Linked Immunosorbent Assay
Test (ELISA), is designed to be run in a laboratory. The blood specimen is
sent to the laboratory, where a laboratory technician runs the test using
standard, readily available laboratory equipment. No unique analytic or
diagnostic software is required, while such software is essential for HPV
testing. While test results typically are available in about two hours, we
anticipate that the typical turnaround time from the laboratory to the doctor
will be approximately one day. We believe that a doctor will be able to
order this test as one of a battery of tests that is run on a patient’s blood
sample after a typical office visit.
Our
second generation rapid test is designed to be a point-of-care test that will
be
able to be administered in the hospital, physician’s office, clinic or even at
home or in outdoor settings. The test kit will contain the required
container and reagents, with a color change will indicate the presence of
cancer-causing proteins. We anticipate that the test will be able to
produce results within 10 to 15 minutes after administration of the test.
We
have
not yet completed the development of our cervical cancer tests. We are
continuing to refine the existing proteins and processes currently used in
our
tests and are testing other proteins and processes, which may be included in
our
tests in the future.
We
believe that, when completed, our tests will be a more accurate and efficient
way to diagnose cervical cancer for the following reasons:
·
greater
accuracy — Our cervical cancer tests will detect specific antibodies present
only if cancer-causing HPV is present and cancer-related cellular changes have
occurred. As a result, we believe our tests will be able to more
accurately diagnose cancer or pre-cancerous conditions than do Pap and HPV
tests, thus making for fewer false positive or false negative results.
·
ability
to detect adenocarcinomas - Our antibody detection approach is well suited
for
finding adenocarcinomas as well as squamous cell carcinomas since cell samples
are not required.
·
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 there will be greater willingness to allow blood sampling to
ascertain cervical disease.
·
reduced
costs — We believe that because our tests will be run by laboratory technicians
using standard, readily available equipment or by a healthcare professional
using a point-of-care test, overall costs for our screening tests will be less
than experienced with Pap or HPV tests. In addition, by providing more
accurate results, we believe that our tests may reduce the number of repeated
cervical cancer tests of any sort along with expensive colposcopies, biopsies
and related medical procedures.
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.
17
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 many 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 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, his 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.
18
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.
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.
19
Sales
and Marketing
When we have completed the development of our cervical cancer tests and received
any required regulatory approval, we plan to market and sell our ELISA test
to
laboratories in the United States, Canada, Western Europe, Japan and other
countries with established cervical cancer screening programs for use as a
screening test. Initially, we do not plan to sell our test in these
countries directly to primary healthcare providers.
In developing nations and other markets where cervical cancer screening is
not
widespread and where there are few laboratories or other testing facilities,
we
plan to market and sell our rapid test to primary healthcare providers as a
stand alone point-of-care test. In some of these countries, we plan to
sell our proposed test directly to the governments or to other national
healthcare distributors who distribute tests to national healthcare providers.
We do not currently have a marketing or sales force or a distribution
arrangement in place. We will need to expend resources to develop our own
marketing and sales force or enter into third party distribution arrangements.
HIV
and Dengue Fever Tests
In
conjunction with the primary diagnostic cervical cancer blood test that we
are
developing, we have also recently acquired the exclusive worldwide rights to
diagnostic devices for HIV-1, HIV-2 and dengue fever and proprietary diagnostic
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 (UNAIDS Report: The
Global Coalition on Women and AIDS, November 2004) and 2 million children (WHO,
Regional Offices for South-East Asia: HIV/AIDS Facts and Figures). In 2004
alone, over 5 million new infections were reported. (UNAIDS Report, Regional
HIV/AIDS Statistics and Features, end of 2004). Determination of the specific
anti-HIV antibodies still forms the primary screening/diagnostic procedure
for
HIV infection.
The
AccuDx AIDS test device consists of a blood sample pad containing HIV-antigen
gold conjugate, a capillary membrane with three capture lines for HIV-1, HIV-2
and a control line, and a fluid absorption pad. When test strips are placed
in
the tube containing the test serum or plasma, the liquid migrates upwardly
by
capillary action. Colloidal gold conjugates of the HIV antigen react with
anti-HIV-1 and anti-HIV-2 antibodies in the samples which then are captured
on
specific antigen lines as they migrate up the membrane and into the fluid
absorption pad. The results are visual and easy to interpret. For example,
a
single pink line corresponding to the control is a negative, two lines
corresponding to the 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. The test is simple to use and performance characteristics are
comparable to laboratory-based assays. We believe that extensive utilization
of
HIV antibody point-of-care tests should help to combat the current HIV/AIDS
pandemic worldwide.
Another
global illness, dengue fever, which is transmitted by mosquitoes, has had a
dramatic increase in incidence in recent decades. Dengue fever, dengue
haemorrhagic fever (DHF) and dengue shock syndrome (DDS) occur in over 100
countries and territories and threaten the health of more than 2.5 billion
people in urban, peri-urban and rural areas of the tropics and subtropics
(Dengue fever WHO Fact Sheet No. 117, April 2002). The disease is endemic in
Africa, the Americas, the Eastern Mediterranean, Southeast Asia and the Western
Pacific. Although the major disease burden is in Southeast Asia and the Western
Pacific, rising trends are also reflected in increased reporting of dengue
fever
and DHF cases in the Americas. In 1998, a total of 1.2 million cases of dengue
and DHF were reported to WHO including 15,000 deaths (USDA,
Agricultural Research Services, Center for Medical, Agricultural and Veterinary
Entomology, March 2003).
Globally,
the annual number of infections is much higher than is indicated by the number
of reported cases. Based on statistical modeling methods there are an estimated
51 million infections each year (USDA,
Agricultural Research Serivces, Center for Medical, Agricultural and Veterinary
Entomology, March 2003).
Rapid
and
reliable tests for primary and secondary infections of dengue fever are
essential for patient management. Primary dengue infection is associated with
mild to high fever, headache, muscle pain and skin rash. Secondary infections
often result in high fever and in many cases, with haemorrhagic events and
circulatory failure. Secondary infections induce Immunoglobuins of type M (IgM)
response after 20 days of infection and Immunoglobulins of G type (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.
Pursuant
to the agreement with AccuDx, AccuDx will assist us in arranging to use a
‘maquiladora’-modeled contract manufacturing facility in Tijuana, Mexico, that
is registered with the FDA and is ISO 9002-certified and has been used by AccuDx
in the past, to manufacture the AccuDx tests. A ‘maquiladora’-modeled contract
manufacturing facility is a production facility in Mexico that processes or
assembles components into finished products using competitively proced Mexican
labor We will seek recertification approval in 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 plan on
generating revenues from the sale of AccuDx tests in the last quarter of 2005,
provided that we receive such recertifications in a timely manner.
20
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 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. 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. As of the date of
this
report we have made $24,000 in license fee payments to Dr. Hu.
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
March7, 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
April10, 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 will 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.
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.
For the fiscal years ended December 31, 2005 and 2004, we spent
approximately $502,325 and $450,540, 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.
21
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 December 21, 2006, we had 5 employees and retained 4 consultants. 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.
Principal
Executive Offices
Our principal executive offices are located at 3550 Wilshire Blvd., Suite 1700,
Los Angeles, CA90010.
History
of Grant Life Sciences
We were incorporated in Idaho in 1983 as Grant Silver, Inc., for the purposes
of
acquiring and developing mineral resources. We engaged in preliminary
mining work on certain mining claims that were eventually abandoned in
1984. Thereafter, we conducted no business until 1995. In October, 1997,
we acquired BrewServ Corporation, an Ohio Corporation (“BrewServ Ohio”).
In anticipation of the acquisition of BrewServ Ohio, in 1997, we changed our
name to BrewServ Corporation. BrewServ Ohio and its subsidiaries produced
and distributed alcohol-based cider products, operated coffee retail stores,
and
developed theme restaurants. In 1999, the Brewserv Ohio acquisition was
rescinded, and in January 2000, we changed our name to Grant Ventures, Inc.
From
1999
to July 2004, we conducted no business. In 2000, we reincorporated in
Nevada through a merger with North Ridge Corporation. On July 30, 2004, we
acquired Impact Diagnostics, through a merger of our wholly owned subsidiary
into Impact Diagnostics. Impact Diagnostics was incorporated in Utah in
1998. Impact Diagnostics develops products to improve the efficiency of
diagnosing cervical cancer, including a sensitive, reliable, non-invasive,
point-of-care test which is expected to cost less than other tests currently
used.
Impact
Diagnostics was formed in 1999 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
Diagnostics 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,
nominees of Impact Diagnostic were appointed to our board of directors and,
our
then current directors resigned.
Our electronic filings with the United States Securities and Exchange Commission
(including our annual report on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and any amendments to these reports) are available
free of charge on the Securities and Exchange Commission’s website at
http://www.sec.gov.
Set forth below is certain information regarding our directors and executive
officers. Our Board of Directors is comprised of six directors.
There are no family relationships between any of our directors or executive
officers. Each of our directors is elected to serve until our next annual
meeting of our stockholders and until his successor is elected and qualified
or
until such director’s earlier death, removal or termination.
Stan
Yakatan.
Mr. Yakatan has been the Chairman of the Board of Directors since July 2004,
and
was the Chief Executive Officer from July 2004 until August 2005. From September
1984 to the present, Mr. Yakatan has been the Chairman, President and Chief
Executive Officer of Katan Associates, a life sciences advisory business.
From 2000 to 2005 Mr. Yakatan was also a director of Lifepoint, Inc., a
manufacturer of drug and alcohol testing systems, and is a strategic advisor
to
the state government of Victoria, Australia. Between 1968 and 1989, Mr.
Yakatan held various senior executive positions with New England Nuclear
Corporation (a division of E.I. DuPont), ICN Pharmaceuticals, Inc., New
Brunswick Scientific Co., Inc. and Biosearch.
Dr.
Hun-Chi Lin.
Dr. Lin
has been the President, Chief Scientific Officer, and a Director since October
2005. Since 2003, Dr. Hun-Chi Lin has been co-founder and President of XepMed,
Inc., which develops medical devices used for separating blood components and
treating infectious diseases. From 1999 to present, Dr. Lin has been co-founder
and President of BioMedical Research Laboratories, Inc., which developed a
Web-based healthcare partner-connectivity system to be used by individual health
maintenance organizations, individuals, and in clinical trials. From 1996 to
1999, Dr. Lin was Director of Clinical Trials at Specialty Laboratories (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.
Don
Rutherford.
Mr.
Rutherford, is the Chief Financial Officer. He is a limited partner with Tatum
CFO Partners, LLP 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.
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.
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 SFBC International Inc., a clinical research organization. On
January 2006 Mr. Levine became Chairman of the Board of Directors. of SFBC
International Inc. Mr. Levine is also a director, Chairman of the Audit and
Asset Liability Committees and a member of the Executive Committee of Beach
Bank, a director and Chairman of the Audit Committee of The Prairie Fund, a
mutual fund, and a director of RealCast Corporation, an internet streaming
company. Mr. Levine is a certified public accountant licensed by the State
of Florida.
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.
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 $100,000 during fiscal
2005, 2004 and 2003.With the exception of the compensation paid to Pete Wells,
all compensation information for the year 2003 shown in the table was paid
by
Impact Diagnostics prior to the Merger.
Name
and Principal Position
Year
Salary
($)
Bonus
Other
Compensation
Long
term
compensation
awards -
#
of securities
underlying
Stock Options
Stan
Yakatan, Chairman and Former
Chief
Executive Officer (1)
2005
2004
2003
112,500
60,000
-
-
-
-
-
-
-
1,720,952
2,868,254
-
Michael
Ahlin, Vice Former President (2)
2005
2004
2003
110,488
144,000
58,050
-
-
-
-
-
-
-
-
-
Dr
Hun-Chi Lin, President and Director (2)
2005
2004
2003
15,000
-
-
-
-
-
-
-
-
-
-
-
Dr.
Mark Rosenfeld, former
Vice
President (4)
2005
2004
2003
-
111,429
58,050
-
$18,106
-
-
-
-
-
-
-
Donald
Rutherford
Chief
Financial Officer (6)
2005
2004
2003
78,093
-
-
-
-
-
-
-
-
750,000
-
-
Pete
Wells
Former
President (5)
2005
2004
2003
-
-
-
-
-
-
-
-
-
-
-
-
(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 July6, 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 the remaining 2/3 quarterly over 2 years,
however
those options have not been issued.
(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..
(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. Wells was President of the inactive public company prior to the
merger.
(6)
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 $0.18
vesting
1/3 immediately and the remainder over 3
years.
We
do not
have any benefit plans, except the Stock Incentive Plan which was approved
on
September 30, 2004 by a majority of the shareholders.
The
following table sets forth information concerning individual grants of stock
options made during the last fiscal year to the Company’s named executive
officers, under the Company’s Stock Incentive Plan. No stock appreciation rights
were issued during the fiscal year.
Options
Granted in the Last Fiscal Year
(Individual
Grants)
Name
Number
of shares of common stock underlying options granted
Percent
of Total Options granted to Employees in 2005
Exercise
Price ($ per share)
Expiration
Date
Donald
W. Rutherford, CFO (1)
750,000
100%
$0.18
July
2015
(1)
250,000 of the options vested immediately; the remainder vesting monthly over
two years
24
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
Name
Shares
acquired on
exercise
(#)
Value
Realized ($)
Number
of Unexercised Options at yr-end 2005
Exercisable/Unexercisable
Value
of Unexercised In-the-Money Options at yr-end 2005
Exercisable/Unexercisable ($) (1)
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.
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 grant of options for 2005 has not
yet
been made. Mr. Yakatan became a non-employee director after his resignation
as
CEO in 2005 and is paid $1,500 per month for his services as Chairman of the
board of directors.
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 have yet to be
granted.
Section
78.7502 of the Nevada Revised Statutes allows a corporation to indemnify any
officer, director, employee or agent who is a party or is threatened to be
made
a party to a litigation by reason of the fact that he or she is or was an
officer, director, employee or agent of the corporation, or is or was serving
at
the request of the corporation as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such director or officer
if:
·
there
was
no breach by the officer, director, employee or agent of his or her fiduciary
duties to the corporation involving intentional misconduct, fraud or knowing
violation of law; or
·
the
officer, director, employee or agent acted in good faith and in a manner which
he or she reasonably believed to be in or not opposed to the best interests
of
the corporation, and, with respect to any criminal action or proceeding, had
no
reasonable cause to believe his or her conduct was unlawful.
Our
Amended and Restated Articles of Incorporation provide for the indemnification
of our officers and directors to the maximum extent permitted by Nevada law,
and
also provide that:
·
the
indemnification right is a contract right that may be enforced in any manner
by
our officers and directors,
·
the
expenses of our officers and directors incurred in any proceeding for which
they
are to be indemnified are to be paid to them as they are incurred, with such
payments to be returned to us if it is determined that an officer or director
is
not entitled to be indemnified,
·
the
indemnification right is not be exclusive of any other rights that our officers
and directors have or may acquire and includes any other rights of
indemnification under any bylaw, agreement, vote of stockholders or provision
of
law,
25
·
our
Board
of Directors may adopt bylaws to provide for the fullest indemnification
permitted by Nevada law,
·
our
Board
of Directors may cause us to purchase and maintain insurance for our officers
and directors against any liability asserted against them while acting in their
capacity as our officers or directors, and
·
these
indemnification rights shall continue to apply after any officer or director
has
ceased being an officer or director and shall apply to their respective heirs,
executors and administrators.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of Grant Life Sciences
pursuant to the foregoing provisions, or otherwise, we have been advised that
in
the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
These
provisions of our Amended and Restated Articles of Incorporation become
effective Nov 12, 2004.
The
following table lists stock ownership of our common stock as of December 21,2006. 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.
(1)
Applicable percentage ownership is based on 136,420,423 shares of common
stock outstanding as of December 21, 2006, together with securities exercisable
or convertible into shares of common stock within 60 days of December 21, 2006
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 December 21, 2006 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 1,720,952 shares of our common stock beneficially
owned by Mr. Yakatan exercisable within 60 days.
(3)
Includes warrants and options to purchase 173,093 shares of our common stock
beneficially owned by Mr. Levine that are exercisable within 60 days. Does
not
include options to purchase 99,999 shares of our common stock that are not
exercisable within 60 days.
(4)
Includes
1,253,000 shares of our common stock held by Princess Investments. Mr. Ahlin
has
voting power over securities held by Princess Investments.
(5)
Represents options to purchase 458,333 shares of our common stock exercisable
within 60 days. Does not include options to purchase 291,667 shares of our
common stock that are not exercisable within 60 days.
(6)
Includes options to purchase 2,254,286 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 391,666 shares of our
common stock not exercisable within 60 days.
26
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, 2005.
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
4,170,952
$0.18
20,829,048
Equity
Compensation not approved by Security Holders (1)
250,000
$0.18
N/A
TOTAL
4,420,952
$0.18
(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.
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.
In
August
2004, we paid $100,000 and issued warrants to purchase 2,670,000 shares, at
an
exercise price of $0.01 per share, of our common stock to Duncan Capital Group
LLC as compensation for acting as our financial advisor in connection with
the
Merger. In August 2004, we paid $77,000 and issued warrants to purchase
411,104 shares of our common stock to Duncan Capital LLC as compensation for
acting as our placement agent in connection with the sale of our units in a
private financing. The warrants have an exercise price of $0.1835 per
share. Both Duncan Capital LLC and Duncan Capital Group LLC are affiliates
of
Bridges & Pipes LLC, which is one of our stockholders. Michael Crow,
the brother of Kevin Crow, one of our directors, is Chairman and Chief Executive
Officer of Duncan Capital Group LLC, which is our financial advisor, and a
manager of Bridges &Pipes LLC. In November 2004, 2,403,000 warrants were
exercised by Duncan Capital Group.
In
2003,
Impact Diagnostics advanced $3,000, to Michael Ahlin, a director and Vice
President of Grant Life Sciences, and $6,500, respectively, to Dr. Mark
Rosenfeld, a former director and Vice President. At year-end 2003, Mr.
Ahlin owed the Company $9,000 and Dr. Rosenfeld owed the Company $21,032. At
the
time of the advances, Mr. Ahlin was Chairman of the Board, President and
Chief Executive Officer of Impact Diagnostics, and Dr. Rosenfeld was
Secretary and Chief Technical Officer of Impact Diagnostics. The cumulative
total advances were repaid in full on June 30, 2004 by Mr. Ahlin and Dr.
Rosenfeld.
In
2003,
Impact Diagnostics advanced $6,229, respectively, to Seroctin Research &
Technology. Michael Ahlin, a director and Vice President, owns 20%, and
Dr. Mark Rosenfeld, a former director and former Vice President, owns 18.4%
of Seroctin Research & Technology. Seroctin advanced funds to Impact
Diagnostics during 2004, such that the receivable became a small payable. In
December 2004, Impact made a payment of $1,220 to Seroctin, so that at year-end
2004 neither company owed the other.
From
time
to time since 1999, Seroctin Research & Technology has leased office
facilities from Impact Diagnostics, pursuant to a verbal agreement.
Seroctin Research & Technology has made payments to Impact Diagnostics of
between $1,500 and $2,764 each month (approximately $55,000 in the aggregate
since 1999) it has leased such facilities. In September 2004, Impact Diagnostics
moved into its own office space.
In
2003,
Impact Diagnostics advanced $7,820 to WetCor, Inc. Michael Ahlin, a director
and
Vice President, is the President of WetCor, Inc The $7,820 of advances
receivable on the balance sheet as of December 31, 2003 was written off by
Impact Diagnostics in January 2004. After June 2004, there were no further
transactions between the two companies and neither company owed the other.
In
2003,
Impact Diagnostics received advances of $20,000 from Blaine Taylor, pursuant
to
a non-interest bearing demand note, which brought the totaled advanced by Mr.
Taylor to $21,500 at year-end 2003. Mr. Taylor beneficially currently owns
6.4% of our outstanding capital stock. As of July 30, 2004, the amount
outstanding under the note was approximately $16,500. Effective
July 30, 2004, this note was converted to 89,918 shares of our common
stock.
27
In
2001,
Mitchell Godfrey loaned Impact Diagnostics $50,000, pursuant to a 5% unsecured
promissory note. Mr. Godfrey beneficially owns 6.6% of our
outstanding capital stock. As of December 31, 2003, the amount
outstanding under the note was $29,279. Effective July 30, 2004, this
note, excluding accrued interest which was forgiven by Mr. Godfrey, was
converted into 159,557 shares of our common stock, such that the balance due
to
Mr. Godfrey was zero at year-end 2004.
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 which were
terminated December 31, 2005 and March 31, 2005 respectively. 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.
With
the
exception of the advances to officers, on which no interest was due, 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.
The
following table details the name of each selling stockholder, the number of
shares owned by that selling stockholder, and the number of shares that may
be
offered by each selling stockholder for resale under this prospectus. The
selling stockholders may sell up to 34,140,060 shares of our common stock
from time to time in one or more offerings under this
prospectus, 27,866,242 of which are issuable upon the conversion of notes
held by certain selling stockholders. Because each selling stockholder may
offer all, some or none of the shares it holds, and because, based upon
information provided to us, there are currently no agreements, arrangements,
or
understandings with respect to the sale of any of the shares, no definitive
estimate as to the number of shares that will be held by each selling
stockholder after the offering can be provided. The following table has been
prepared on the assumption that all shares offered under this prospectus will
be
sold to parties unaffiliated with the selling stockholders. Except as indicated
below, no selling stockholder nor any of their affiliates have held a position
or office, or had any other material relationship, with us.
**
This
column represents an estimated number based on a current conversion price of
$.039, divided into the principal amount.
***
These
columns represent the aggregate maximum number and percentage of shares that
the
selling stockholders can own at one time (and therefore, offer for resale at
any
one time) due to their 4.99% limitation.
****
Assumes that all securities registered will be sold.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, as amended, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power
and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the secured convertible notes is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
(1)
Some
of the selling stockholders are affiliates of each other because they are under
common control. AJW Partners, LLC is a private investment fund that is owned
by
its investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey
S. Ribotsky is the fund manager, has voting and investment control over the
shares listed below owned by AJW Partners, LLC. AJW Offshore, Ltd., formerly
known as AJW/New Millennium Offshore, Ltd., is a private investment fund that
is
owned by its investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC, of which Corey S. Ribotsky is the fund manager, has voting
and
investment control over the shares owned by AJW Offshore, Ltd. AJW Qualified
Partners, LLC, formerly known as Pegasus Capital Partners, LLC, is a private
investment fund that is owned by its investors and managed by AJW Manager,
LLC,
of which Corey S. Ribotsky and Lloyd A. Groveman are the fund managers, have
voting and investment control over the shares listed below owned by AJW
Qualified Partners, LLC. New Millennium Capital Partners II, LLC, is a private
investment fund that is owned by its investors and managed by First Street
Manager II, LLC. First Street Manager II, LLC, of which Corey S. Ribotsky is
the
fund manager, has voting and investment control over the shares owned by New
Millennium Capital Partners II, LLC.
(2)
The
actual number of shares of common stock offered in this prospectus, and included
in the registration statement of which this prospectus is a part, includes
such
additional number of shares of common stock as may be issued or issuable upon
conversion of the secured convertible notes, in accordance with Rule 416 under
the Securities Act of 1933, as amended. However the selling stockholders have
contractually agreed to restrict their ability to convert their secured
convertible notes and receive shares of our common stock such that the number
of
shares of common stock held by them in the aggregate and their affiliates after
such conversion does not exceed 4.99% of the then issued and outstanding shares
of common stock as determined in accordance with Section 13(d) of the Exchange
Act. Accordingly, the number of shares of common stock set forth in the table
for the selling stockholders exceeds the number of shares of common stock that
the selling stockholders could own beneficially at any given time through their
ownership of the secured convertible notes. In that regard, the beneficial
ownership of the common stock by the selling stockholder set forth in the table
is not determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended.
(3)
Represents $744,019.00 in callable secured convertible notes, currently
convertible at conversion price of $.039, and 3,853,846 warrants exercisable
at
$0.45 per share purchased in a Securities Purchase Agreement on June 14,2005.
(4)
AJW
Partners, LLC is a private investment fund that is owned by its investors and
managed by SMS Group, LLC. SMS Group, LLC, of which Corey S. Ribotsky is the
fund manager, has voting and investment control over the shares listed below
owned by AJW Partners, LLC. Represents $214,017.00 in callable secured
convertible notes, currently convertible at conversion price of $.039, and
1,107,691 warrants exercisable at $0.45 per share purchased in a Securities
Purchase Agreement on June 14, 2005.
(5)
AJW
Qualified Partners, LLC, formerly known as Pegasus Capital Partners, LLC, is
a
private investment fund that is owned by its investors and managed by AJW
Manager, LLC, of which Corey S. Ribotsky and Lloyd A. Groveman are the fund
managers, have voting and investment control over the shares listed below owned
by AJW Qualified Partners, LLC. Represents $501,833.00 in callable secured
convertible notes, currently convertible at conversion price of $.039, and
2,600,000 warrants exercisable at $0.45 per share purchased in a Securities
Purchase Agreement on June 14, 2005.
(6)
New
Millennium Capital Partners II, LLC is a private investment fund that is owned
by its investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC, of which Corey S. Ribotsky is the fund manager, has voting
and
investment control over the shares listed below owned by New Millennium Capital
Partners II, LLC. Represents $24,911.00 in callable secured convertible notes,
currently convertible at conversion price of $.039, and 130,769 warrants
exercisable at $0.45 per share purchased in a Securities Purchase Agreement
on
June 14, 2005.
(7)
Alan
Gelband has voting and dispositive rights over the shares held by Alan Gelband
Co. Defined Contribution and Pension Plan & Trust. Represents 86,505 shares
issued in connection with the settlement of a lawsuit in June 2006.
(8)
Michael Weprin has the voting and dispositive rights over the shares held by
Armadillo Partners. Represents 432,525 shares issued in connection with the
settlement of a lawsuit in June 2006.
29
(9)
Represents 432,525 shares issued in connection with the settlement of a lawsuit
in June 2006.
(11)
Bobby Stanley, Ike Lewis and Peter Coker hold the voting and dispositive rights
over the shares held by BIP Partners. Represents 77,855 shares issued in
connection with the settlement of a lawsuit in June 2006.
(12)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(13)
Represents 86,505 shares issued in connection with the settlement of a lawsuit
in June 2006.
(14)
Represents 86,505 shares issued in connection with the settlement of a lawsuit
in June 2006.
(15)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(16)
Represents 4,904 units, at a price of $0.9175 per unit, which consist of (i)
24,523 shares of common stock and (ii) 4,904 warrants exercisable at $0.1835
per
share purchased for cash in a private placement transaction with accredited
investors in July 2004 in connection with the Merger. Also includes 19,464
shares issued in connection with the settlement of a lawsuit in June
2006.
(17)
Represents 86,505 shares issued in connection with the settlement of a lawsuit
in June 2006.
(18)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(19)
Represents 86,505 shares issued in connection with the settlement of a lawsuit
in June 2006.
(20)
Represents 216,263 shares issued in connection with the settlement of a lawsuit
in June 2006.
(21)
Represents 216,263 shares issued in connection with the settlement of a lawsuit
in June 2006.
(22)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(23)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(24)
Represents 198,421 shares issued in connection with the settlement of a lawsuit
in June 2006.
(25)
Horace Ardinger holds the voting and dispositive rights over the shares held
by
HT Ardinger & Sons, Inc. Represents 216,263 shares issued in connection with
the settlement of a lawsuit in June 2006.
(26)
Represents 86,505 shares issued in connection with the settlement of a lawsuit
in June 2006.
(27)
Represents 64,879 shares issued in connection with the settlement of a lawsuit
in June 2006.
(28)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(29)
Represents 865,050 shares issued in connection with the settlement of a lawsuit
in June 2006.
(30)
Jack
Levine has served as a director of Grant Life Sciences and chairman of our
Audit
Committee since August 2004. Represents (i) 490,463 shares of common stock
and
(ii) 98,092 warrants exercisable at $0.1835 per share purchased for cash in
a
private placement in July 2004.
(31)
Represents 216,263 shares issued in connection with the settlement of a lawsuit
in June 2006.
(32)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(33)
Represents 43,253 shares issued in connection with the settlement of a lawsuit
in June 2006.
(34)
Represents 216,263 shares issued in connection with the settlement of a lawsuit
in June 2006.
(35)
Represents 324,394 shares issued in connection with the settlement of a lawsuit
in June 2006.
30
(36)
Represents 216,263 shares issued in connection with the settlement of a lawsuit
in June 2006.
(37)
Howard Jacobson holds the voting and dispositive rights over the shares held
by
SilverDeer LLC. Represents 43,253 shares issued in connection with the
settlement of a lawsuit in June 2006.
The common stock offered by this prospectus is being offered by the selling
stockholders. The common stock may be sold or distributed from time to
time by the selling stockholders directly to one or more purchasers or through
brokers, dealers or underwriters who may act solely as agents at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the common stock offered by this prospectus may be effected in
one
or more of the following methods:
•
ordinary brokers’ transactions,
•
through brokers, dealers, or underwriters who may act solely as agents,
•
“at the market” into an existing market for the common stock,
•
in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
•
in privately negotiated transactions, and
•
any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable,
the shares may be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the shares may not be sold unless they have
been
registered or qualified for sale in the state or an exemption from the
registration or qualification requirement is available and complied with.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholder defaults
on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares. Broker-dealers engaged by a selling stockholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act of 1933, as amended, in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933, as amended.
We will pay all of the expenses incident to the registration, offering, and
sale
of the shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify the selling
stockholders and related persons against specified liabilities, including
liabilities under the Securities Act.
While they are engaged in a distribution of the shares included in this
prospectus the selling stockholders are required to comply with Regulation
M
promulgated under the Securities Exchange Act of 1934, as amended. With certain
exceptions, Regulation M precludes the selling stockholders, any affiliated
purchasers, and any broker-dealer or other person who participates in the
distribution, from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any
bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the shares offered by this prospectus.
The
selling stockholders may also sell shares under Rule 144 promulgated under
the
Securities Act of 1933, as amended, rather than selling under this prospectus.
This offering will terminate on the date that all shares offered by this
prospectus have been sold by the selling stockholders or are eligible for sale
under Rule 144(k). In general, under Rule 144 as currently in effect, a
person (or persons whose shares are required to be aggregated) who has owned
shares for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
number of shares of our common stock then outstanding (which, after our increase
in authorized capital is effective, will equal approximately 583,891 shares
of
common stock) or (ii) the average weekly trading volume of our shares of common
stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Under Rule 144(k), a person who is not deemed to have
been
our affiliate at any time during the three months preceding a sale, and who
has
owned the shares proposed to be sold for at least two years, is entitled to
sell
his shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Our authorized capital stock currently consists of 750,000,000 shares of common
stock and 20,000,000 shares of preferred stock. Each share of common stock
is
entitled to one vote on all matters voted upon by our stockholders.
Holders of our common stock have no preemptive or other rights to subscribe
for
additional shares or other securities. There are no cumulative voting
rights.
Holders of our common stock are entitled to dividends in such amounts as may
be
declared by our board of directors from time to time from funds legally
available therefore. We have not declared or paid cash dividends or made
distributions in the past on our common stock, and we do not anticipate that
we
will pay cash dividends or make distributions in the foreseeable future.
We currently intend to retain and invest future earnings to finance operations.
Our
Amended and Restated Articles of Incorporation allow our Board of Directors
the
authorization, without further stockholder approval, to issue up to 20,000,000
shares of preferred stock from time to time in one or more series and to fix
the
number of shares and the relative dividend rights, conversion rights, voting
rights and other rights and qualifications of any such series. The Board
has not fixed any series of preferred stock and no shares of preferred stock
are
issued and outstanding.
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby.
EXPERTS
Our audited financial statements for the fiscal years ended December 31, 2005
and 2004 have been audited by Singer, Lewak, Greenbaum and Goldstein, LLP,
and
Russell Bedford Stefanou Mirchandani LLP, independent public accountants,
respectively. The reports of these registered public accounting firms,
which appear elsewhere herein, include an explanatory paragraph as to our
ability to continue as a going concern. Our financial statements are
included in reliance upon such reports and upon the authority of such firms
as
experts in auditing and accounting.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
January 24, 2005, the Audit Committee of Grant Life Sciences, 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 January24,2006, 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.
32
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.
We are subject to the reporting requirements of the Securities Exchange Act
of
1934, as amended, and file reports, proxy statements and other information
with
the Securities and Exchange Commission. These reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Securities and Exchange
Commission’s regional offices. You can obtain copies of these materials
from the Public Reference Section of the Securities an Exchange Commission
upon
payment of fees prescribed by the Securities and Exchange Commission. You
may obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission’s Web site contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
33
INDEX
TO FINANCIAL STATEMENTS
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
Page
Reports
of Independent Registered Public Accounting Firms
Notes
to Condensed Consolidated Financial Statements
F-30
34
SINGER
LEWAK GREENBAUM & GOLDSTEIN LLP
CERTIFIED
PUBLIC ACCOUNTANTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Grant
Life Sciences, Inc.
Los
Angeles, California
We
have
audited the consolidated balance sheet of Grant Life Sciences, Inc. and
subsidiary (a development stage company) as of December 31, 2005 and the related
consolidated statements of losses, deficiency in stockholders’ equity and cash
flows for the year 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 audit.
We
conducted our audit 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 audit provided a
reasonable basis for our opinion.
In
our
opinion, the 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, 2005, and the
results of their operations and their cash flows for the year 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 B 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 B. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
Board
of
Directors
Grant
Life Sciences, Inc.
Los
Angeles
We
have
audited the accompanying consolidated balance sheet of Grant Life Sciences,
Inc., (a development stage company) as of December 31, 2004 and the related
consolidated statements of losses, deficiency in stockholders equity, and cash
flows for the year ended December 31, 2004. These financial statements are
the
responsibility of the company’s management. Our responsibility is to express an
opinion on the financial statements based upon our audit.
We
have
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). 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
audit provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Grant Life Sciences,
Inc. (a development stage company) at December 31, 2004 and the results of
its
operations and its cash flows for the year ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying financial statements have been prepared assuming the company will
continue as a going concern. As discussed in the Note B to the accompanying
financial statements, the company is in the development stage and has not
established a source of revenues. This raises substantial doubt about the
company’s ability to continue as a going concern. Management’s plan in regard to
these matters is also described in Note B. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts
payable
$
124,847
$
95,841
Accrued
liabilities
130,555
37,000
Accrued
interest payable
106,637
7,005
Accrued
payroll liabilities
94,680
13,159
Notes
payable, current portion (Note F)
21,875
122,500
Total
current liabilities
478,594
275,505
Long-term
liabilities:
Notes
payable - long term (Note F)
350,000
350,000
Convertible
notes payable (Note F)
240,491
-
Derivative
liability related to convertible notes
2,606,377
-
Warrant
liability related to convertible notes
161,472
-
Total
Liabilities
3,836,934
625,505
Commitments
and contingencies (Note J)
-
-
-
Deficiency
in stockholders' equity:
Preferred
stock, par value: $.001, authorized 20,000,000 shares; no shares
issued
and outstanding at December 31, 2004 and 2003 (Note G)
-
-
Common
stock, par value; $.001, authorized 150,000,000 shares at December31,2005 and 2004, 126,486,518 and
56,243,791 shares issued and outstanding at
December 31, 2005 and 2004, respectively (Note G)
126,487
56,244
Additional
paid in capital
5,400,819
4,190,485
Deferred
compensation
(285,308
)
(1,097,886
)
Deficit
accumulated during development stage
(8,015,672
)
(3,381,340
)
Total
deficiency in stockholders' equity:
(2,773,674
)
(232,496
)
Total
liabilities and deficiency in stockholders' equity:
$
1,063,260
$
393,008
See accompanying
notes to consolidated financial statements
F-3
GRANT
LIFE SCIENCES, INC.
(A
development stage company)
CONSOLIDATED
STATEMENT OF LOSSES
For
the Period July 9, 1998 (date of inception) through December 31,
Common
stock issued in exchange for services rendered(G)
244,000
40,000
144,250
Warrants
issued in exchange for services rendered(1)
-
11,000
11,000
Gain
on extinguishment of debt
-
(411,597
)
(510,104
)
Write
off of accounts payable due to stockholders
(1,230
)
(878
)
(2,108
)
Merger
with Impact:
Common
stock retained
-
6,000
6,000
Liabilities
assumed in excess of assets acquired
-
59,812
59,812
Acquisition
cost recognized
-
65,812
65,812
(1)During
the year ended December 31, 2004, the Company issued 500,000 shares of stock
and
one 5-year warrant to purchase 250,000 shares of stock for services provided
by
consultants prior to the merger.
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
July30, 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.
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 $4,634,331 and $1,910,350 during the years ended December 31,2005
and 2004, 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.
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, 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. At year end December 31, 2004, there were
2,979,704 warrants, 613,650 vested stock options and 4,629,604 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 2005 a
total of 950,000 options and in 2004 a total of 5,243,254 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: 2005: dividend yield of 0%, expected volatility of 107%,
risk-free interest rate of 3.6% and an expected life of 3 years, and 2004:
dividend yield of 0%, expected volatility of 114%, risk-free interest rate
of
3.69% and an expected life of 3 years. The exercise price for all but 100,000
options was $0.18. 100,000 options granted in 2005 had an exercise price of
$0.40 The weighted average grant date fair value for the options granted in
2005
was $0.43 and the weighted average grant date fair value for the options granted
in 2004 was $0.29.
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
April
2003, the FASB issued SFAS No. 149, “Amendment Of Statement 133 On Derivative
Instruments And Hedging Activities” (“SFAS No. 149”). SFAS No. 149 amends SFAS
No. 133 to provide clarification on the financial accounting and reporting
of
derivative instruments and hedging activities and requires that contracts with
similar characteristics be accounted for on a comparable basis. The provisions
of SFAS No. 149 are effective for contracts entered into or modified after
June30, 2003, and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 will not have a material impact on the Company's
results of operations or financial position.
NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs” -- an amendment
of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . .
under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges. . . ." This Statement requires that those
items be recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be based
on
the normal capacity of the production facilities. This Statement is effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
The Company does not yet have any inventory.
In
December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions”--an amendment of FASB Statements No. 66 and 67("SFAS
No. 152”). This Statement amends FASB Statement No. 66, “Accounting for Sales of
Real Estate”, to reference the financial accounting and reporting guidance for
real estate time-sharing transactions that is provided in AICPA Statement of
Position No. 04-2, “Accounting for Real Estate Time-Sharing Transactions” (“SOP
No. 04-2”). This Statement also amends FASB Statement No.67, “Accounting for
Costs and Initial Rental Operations of Real Estate Projects”, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
No.
04-2. This Statement is effective for financial statements for fiscal years
beginning after June 15, 2005 with earlier application encouraged. The Company
does not anticipate that the implementation of this standard will have a
material impact on its financial position, results of operations or cash
flows.
On
December 16, 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets”, an amendment of APB Opinion No. 29, “Accounting for Nonmonetary
Transactions” (" SFAS No. 153"). This statement amends APB Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. Under SFAS No. 153, if a nonmonetary
exchange of similar productive assets meets a commercial-substance criterion
and
fair value is determinable, the transaction must be accounted for at fair value
resulting in recognition of any gain or loss. SFAS No. 153 is effective for
nonmonetary transactions in fiscal periods that begin after June 15, 2005.
The
Company does not anticipate that the implementation of this standard will have
a
material impact on its financial position, results of operations or cash
flows.
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
will implement SFAS No. 154 in its fiscal year beginning January 1, 2006.
We are currently evaluating the impact of this new standard but believe
that it will not have a material impact on the Company’s 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”.
NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)
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.
NOTE
B - 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, 2005 and 2004, the Company incurred losses
from operations of $4,634,331 and $1,910,350, respectively, and has a deficit
accumulated during the development stage of $8,015,671 as of December 31, 2005.
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
C - BUSINESS COMBINATION AND CORPORATE RESTRUCTURE
On
July30, 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.
NOTE
C - BUSINESS COMBINATION AND CORPORATE RESTRUCTURE
(Continued)
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:
In
accordance with SOP No. 98-5, the Company expensed $65,812 as organization
costs.
NOTE
D - PROPERTY AND EQUIPMENT
Major
classes of property and equipment at December 31, 2005 and 2004 consist of
the
followings:
2005
2004
Furniture
and fixtures
$
23,501
$
17,758
Equipment
3,339
3,339
26,840
21,097
Less:
Accumulated Depreciation
(12,519
)
(5,857
)
Net
Property and Equipment
$
14,321
$
15,240
Depreciation
expense was $6,662 and $4,555 for the years ended December 31, 2005 and 2004,
respectively.
During
the year ended December 31, 2004, furniture and fixtures costing $ 10,674 and
accumulated depreciation of $ 6,884 were abandoned, resulting in loss of
$3,790.
NOTE
E - RELATED PARTY TRANSACTIONS
In
August
2004, the Company paid $100,000 and issued warrants to purchase 2,670,000
shares, at an exercise price of $0.01 per share, of its common stock to Duncan
Capital Group LLC as compensation for acting as the Company’s financial advisor
in connection with the Merger. In August 2004, the Company paid $77,000
and issued warrants to purchase 411,104 shares of its common stock to Duncan
Capital LLC as compensation for acting as its placement agent in connection
with
the sale of its units in a private financing. The warrants have an
exercise price of $0.1835 per share. Both Duncan Capital LLC and Duncan Capital
Group LLC are affiliates of Bridges & Pipes LLC, which is one of the
Company’s stockholders. Michael Crow, the brother of Kevin Crow, who was
one of our directors, is Chairman and Chief Executive Officer of Duncan Capital
Group LLC, which is our financial advisor, and a manager of Bridges &Pipes
LLC. In November 2004, 2,403,000 warrants were exercised by Duncan Capital
Group.
F-15
In
2003,
Impact Diagnostics advanced $3,000, to Michael Ahlin, a director and Vice
President of Grant Life Sciences, and $6,500, respectively, to Dr. Mark
Rosenfeld, a former director and Vice President. At year-end 2003, Mr.
Ahlin owed the Company $9,000 and Dr. Rosenfeld owed the Company $21,032. At
the
time of the advances, Mr. Ahlin was Chairman of the Board, President and
Chief Executive Officer of Impact Diagnostics, and Dr. Rosenfeld was
Secretary and Chief Technical Officer of Impact Diagnostics. The cumulative
total advances were repaid in full on June 30, 2004 by Mr. Ahlin and Dr.
Rosenfeld.
In
2003,
Impact Diagnostics advanced $6,229, respectively, to Seroctin Research &
Technology. Michael Ahlin, a director and Vice President, owned 20%, and
Dr. Mark Rosenfeld, a former director and former Vice President, owned
18.4% of Seroctin Research & Technology. Seroctin advanced funds to Impact
Diagnostics during 2004, such that the receivable became a small payable. In
December 2004, Impact made a payment of $1,220 to Seroctin, so that at year-end
2004 neither company owed the other.
In
2003,
Impact Diagnostics advanced $7,820 to WetCor, Inc. Michael Ahlin, a director
and
Vice President, is the President of WetCor, Inc. The $7,820 of advances
receivable on the balance sheet as of December 31, 2003 was written off by
Impact Diagnostics in January 2004. After June 2004, there were no further
transactions between the two companies and neither company owed the other.
In
2003,
Impact Diagnostics received advances of $20,000 from Blaine Taylor, pursuant
to
a non-interest bearing demand note, which brought the totaled advanced by Mr.
Taylor to $21,500 at year-end 2003. Mr. Taylor beneficially currently owns
6.4% of our outstanding capital stock. As of July 30, 2004, the amount
outstanding under the note was approximately $16,500. Effective
July 30, 2004, this note was converted to 89,918 shares of our common
stock.
In
2001,
Mitchell Godfrey loaned Impact Diagnostics $50,000, pursuant to a 5% unsecured
promissory note. Mr. Godfrey beneficially owned 6.6% of our
outstanding capital stock. As of December 31, 2003, the amount
outstanding under the note was $29,279. Effective July 30, 2004, this
note, excluding accrued interest which was forgiven by Mr. Godfrey, was
converted into 159,557 shares of our common stock, such that the balance due
to
Mr. Godfrey was zero at year-end 2004.
During
the year ended December 31, 2004, the Company shared office space with a related
entity. Reimbursement of overhead from the related party totaled $12,000. The
Company moved into separate space in
September 2004. Prior to July 31, 2004, the Company and the related entities
would, on occasion, pay invoices on behalf of the other and track the net
receivable/payable in the related party receivable account.
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 which were
terminated December 31, 2005 and March 31, 2005 respectively. 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.
6%
convertible note payable, unsecured, due on 1/2/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of $0.092178
$
-
$
10,000
6%
convertible note payable, unsecured, due on 1/5/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,000
6%
convertible note payable, unsecured, due on 1/5/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,000
6%
convertible note payable, unsecured, due on 1/5/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
5,000
6%
convertible note payable, unsecured, due on 1/5/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
8,000
6%
convertible note payable, unsecured, due on 1/5/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
5,000
6%
convertible note payable, unsecured, due on 1/9/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
14,000
6%
convertible note payable, unsecured, due on 1/13/2005, principal
and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,000
6%
convertible note payable, unsecured, due on 1/13/2005, principal
and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
5,000
6%
convertible note payable, unsecured, due on 1/21/2005, principal
and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
5,000
6%
convertible note payable, unsecured, due on 1/21/2005, principal
and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,500
6%
convertible note payable, unsecured, due on 2/4/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,000
6%
convertible note payable, unsecured, due on 2/5/2005, principal and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,000
6%
convertible note payable, unsecured, due on 2/25/2005, principal
and
interest is convertible at any time before maturity into common shares
of
the company at the price per share of 0.092178
-
10,000
F-17
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 December31,2003 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
10%
convertible debenture with interest due quarterly subject to certain
conditions, due three years from the date of the note. The holder
has the
option to convert unpaid principal to the Company's common stock
at the
lower of (i) $0.40 or (ii) 50% 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 2005 $470,313 of note principal
was
converted into 67,580,405 shares at an average conversion rate of
$0.007
per share.
240,491
-
6%
note payable, unsecured, interest and principal to be paid in eight
equal
quarterly payments beginning 6/07/05. Final payment is due
3/7/2007.
21,875
-
Total
notes payable
612,366
472,500
Less:
current portion
(21,875
)
(122,500
)
Balance
notes payable (long term portion)
$
590,491
$
350,000
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
March15, 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 June15,2005 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 for the issuance of an aggregate of $2,000,000 of
convertible notes ("Convertible Notes"), and attached to the Convertible Notes
were warrants to purchase 7,692,308 shares of the Company's common stock. The
Convertible Notes accrue interest at 10% 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 to the Company's common stock at a rate of
the
lower of (i) $0.45 or (ii) 50% 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, 2005, the Company issued to the investors Convertible Notes in
a
total amount of $2,000,000 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").
F-18
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 recorded 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 are recorded as adjustments
to the
liabilities at December 31, 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).
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, 2005:
Convertible
notes:
$
240,491
Warrant
Liability
161,472
Derivative
liability
2,606,377
3,008,340
Change
in fair value of convertible notes
(887,117
)
Accretion
of interest related to convertible debenture
(591,534
)
Converted
to common shares
470,311
Total
convertible notes:
$
2,000,000
NOTE
G - COMMON STOCK
The
Company is authorized to issue 150,000,000 shares of common stock with $0.001
par value per share. As of December 31, 2005, the Company has issued and
outstanding 126,486,518 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.
F-19
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
August19, 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.
F-20
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.
NOTE
H - 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 $4,833,000 which expire through 2025, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carryforward is approximately $2,832,000. 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.
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, 2005 and December 31, 2004:
Provision
for income tax
Federal
Utah
Other
Total
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 year ended December 31, 2005,
as follows:
Calculation
of rate of taxes on income
Tax
@ statutory rate
34
%
Permanent
differences:
1
%
R&D
credit
State
tax (net of fed benefit)
3
%
Change
in valuation allowance- federal
-33
%
Change
in valuation allowance - state
-5
%
Total
0
%
R&D
credit for the year 2005 is $21,054
NOTE
I - 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 2005, 950,000 options were granted, 850,000 with an exercise
price of $0.18 and $100,000 with an exercise price of $0.40. In 2004, 5,243,254
options were granted under the plan. All of the options granted in 2004 have
an
exercise price of $0.18, but differing vesting terms. 50,000 of these options
were exercised in June 2005. Stockholders approved the plan effective November12, 2004.
F-22
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, 2005:
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). The options outstanding and exercisable
at December 31, 2005 had an intrinsic value of $0.
As
at
December 31, 2005, the total compensation cost not yet recognized related to
nonvested option awards is $285,308 which is expected to be realized over a
weighted average period of 0.9 years.
F-23
The
weighted-average fair value of stock options vested during the years ended
December 31, 2005 and 2004 and the weighted-average significant assumptions
used
to determine those fair values, using a Black-Scholes option pricing model
are
as follows:
2005
2004
Significant
assumptions (weighted-average):
Risk-free
interest rate at grant date
3.6
%
3.7
%
Expected
stock price volatility
107
%
114
%
Expected
dividend payout
0
%
0
%
Expected
option life-years based on management’s estimate
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, 2005
and 2004, the Company recognized $976,986 and $426,081 respectively as expense
relating to vested stock options.
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, 2005:
Warrants
Outstanding & Exercisable
Exercise
Prices
Number
Outstanding
Weighted
Average Remaining Contractual Life
(Years)
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 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 Company
recognized $11,000 as R&D expense relating to this warrant for the year
ended December 31, 2004. The Black-Scholes option pricing model was used to
value the 89,500 warrants with an exercise price of $0.01 which were issued
in
connection with a restructure of a note payable immediately prior to the merger.
The $3,382 value of these warrants was recorded as additional paid-in capital.
The following assumptions were used.
2005
2004
Significant
assumptions (weighted-average):
Risk-free
interest rate at grant date
3.6
%
3.7
%
Expected
stock price volatility
107
%
114
%
Expected
dividend payout
0
%
0
%
Expected
option life-years based on management’s estimate
3yrs
3yrs
(a)The
expected option life is based on management’s estimate.
NOTE
J - COMMITMENTS
On
July20, 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
2006
$
48,000
2007
48,000
2008
48,000
2009
48,000
2010
48,000
2011
and after
552,000
$
792,000
On
March7, 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 will
receive 310,000 shares of common stock of the Company, to be issued as follows:
one-third on September 7, 2005, one-third on March 7, 2006 and one-third on
September 7, 2006. The September 7, 2005 shares had not yet been issued as
of
December 31, 2005.
On
March1, 2005, the Company signed a 1-yr financial advisory agreement which obligates
the company to payments of $5,000/month for each month effective January 2005
thru December 2005. No payments have yet been made. This commitment is included
in accrued liabilities on the balance sheet.
NOTE
K- SUBSEQUENT EVENTS
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 conversion date.
In
April
2006, the Company announced that it had entered into a Memo of Understanding
(MOU) with Israel-based Diagnostic Technologies Ltd. (DTL) related to Grant’s
cervical cancer-diagnostic technology. Under the MOU, Grant would receive an
upfront licensing fee of $250,000. In addition, the MOU calls for DTL to
conduct all development at its own cost, including clinical trials, associated
with the commercialization of the products developed from Grant’s cervical
cancer-diagnostic technology. Upon commercialization, DTL will pay Grant
an ongoing royalty on sales of the products developed, according to the MOU.
A
definitive licensing agreement would be signed following appropriate due
diligence and a feasibility test. Upon signing, DTL would immediately
assume all of the costs associated with turning Grant’s core technology related
to cervical-cancer diagnostics into a commercially viable product.
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts
payable
$
154,968
$
124,847
Accrued
liabilities
189,888
130,555
Accrued
interest payable
111,148
106,637
Accrued
payroll liabilities
81,305
94,680
Notes
payable, current portion (Note C)
15,680
21,875
Total
current liabilities
552,989
478,594
Long-term
liabilities:
Notes
payable - long term (Note C)
350,000
350,000
Convertible
notes payable (Note C)
565,104
240,491
Derivative
liability related to convertible notes
8,137,682
2,606,377
Warrant
liability related to convertible notes
561,423
161,472
Total
Liabilities
10,167,198
3,836,934
Commitments
and contingencies
-
-
Deficiency
in stockholders' equity:
Preferred
stock, par value: $.001, authorized 20,000,000 shares; no shares
issued
and outstanding at September 30, 2006 and at December 31, 2005.
(Note
F)
Adjustments
to reconcile net (loss) to cash (used in) operations:
Depreciation
5,552
4,949
24,955
Amortization
25,852
137,671
52,519
Change
in fair value related to adjustment of derivative and warrant liability
to
fair value of underlying securities
5,931,257
10,452,987
6,818,374
Loss
on abandonment of assets
-
-
3,790
Vesting
of stock options (Note F)
212,305
871,475
1,615,372
Common
stock issued in exchange for services rendered
-
194,000
388,250
Cancellation
of stock options
-
-
193,275
Interest
on convertible notes payable
332,619
112,732
989,693
Warrants
issued in exchange for services rendered
-
-
11,000
Beneficial
conversion feature discount
-
-
298,507
Gain
on extinguishment of debt
-
-
(510,104
)
Write
off of accounts payable due to stockholders
-
(1,230
)
(2,108
)
Acquisition
cost
-
-
65,812
Decrease
(increase) in:
Accounts
receivable
51,337
-
(21,338
)
Employee
receivables
-
334
-
Prepaid
expense
36,000
(129,418
)
(33,125
)
Deposits
& other
3,822
3,000
(52,513
)
(Decrease)
increase in:
Accounts
payable
30,122
114,577
152,442
Notes
payable & long-term debt
(6,195
)
35,000-
15,680
Accounts
payable - assumed liabilities
-
-
(17,506
)
Accounts
payable - stockholders
-
-
(38,900
)
Accrued
expenses
59,333
63,889
187,889
Accrued
payroll liabilities
(13,375
)
80,916
81,305
Accrued
interest payable
56,777
106,582
353,876
Net
cash (used in) operating activities
(755,162
)
(1,190,620
)
(4,919,097
)
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
-
9,000
1,770,887
Net
proceeds from notes payable
-
1,925,000
3,105,255
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
-
1,934,000
5,001,921
Net
increase (decrease) in cash and cash equivalents
(759,016
)
737,639
41,456
Cash
and cash equivalents at beginning of the period
800,472
365,958
-
Cash
and cash equivalents at end of the period
$
41,456
$
1,103,597
$
41,456
Supplementary
disclosure for non-cash investing and financing activities:
During
the three months ended September 30,2006 the Company issued 1,264,865 shares
of
its Common Stock upon conversion of $8,007 of secured convertible notes payable,
and 5,226,534 shares of its common stock in satisfaction of $52,268 of
indebtedness.
See
accompanying notes to the condensed consolidated financial
statements
F-29
GRANT
LIFE SCIENCES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
interim financial information as of September 30, 2006 and for the three
and
nine months ended September 30, 2006 is unaudited. The accompanying financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
accompanying condensed consolidated financial statements and notes should
be
read in conjunction with the consolidated financial statements and notes
included in the Company's Form 10-KSB for the year ended December 31,2005.
In
the
opinion of management, all adjustments that are necessary for a fair
presentation of the financial information for the interim periods reported
have
been made. The results of operations for the three and nine month period
ended
September 30, 2006 is not necessarily indicative of the results that can
be
expected for the entire year ending December 31, 2006.
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
July30, 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 Statement of Financial Accounting Standards No. 7
“Accounting and Reporting by Development Stage Companies”, 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 not yet
established a significant source of revenue.
Going
Concern
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern. Continuing as a going concern is dependent upon
successfully obtaining additional working capital through debt and equity
financing.
Income
Taxes
The
Company follows Statement of Financial Accounting Standard No. 109 “Accounting
for Income Taxes”, which requires the recognition of deferred tax assets and
liabilities for expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the 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.
F-30
Net
Income (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, and the conversion of notes payable
outstanding using the treasury stock method and the average market price
per
share during the period. The following table sets forth potential shares
of
common stock that are not included in the diluted net loss per share because
to
do so would be antidilutive:
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS123R). 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.
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
will implement SFAS No. 154 in its fiscal year beginning January 1, 2006.
We are currently evaluating the impact of this new standard but believe
that it will not have a material impact on the Company’s 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.
F-31
In
July
2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
48 clarifies the accounting and reporting for uncertainties in income tax
law. This interpretation prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of uncertain
tax
positions taken or expected to be taken in income tax returns. This
statement is effective for fiscal years beginning after December 15, 2006.
The Company is currently evaluating the impact FIN 48 may have on its financial
condition or results of operations.
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Issues No. 157, “Fair Value Measurements” (“SFAS 157”),
which defines the fair value, establishes a framework for measuring fair
value
and expands disclosures about fair value measurements. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Early adoption
is encouraged, provided that the Company has not yet issued financial statements
for that fiscal year, including any financial statements for an interim period
within that fiscal year. The Company is currently evaluating the impact SFAS
157
may have on its financial condition or results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employer’s
accounting for Defined Benefit Pension and Other Post Retirement
Plans”.
SFAS No. 158 requires employers to recognize in its statement of financial
position an asset or liability based on the retirement plan’s over or under
funded status. SFAS No. 158 is effective for fiscal years ending after
December 15, 2006. The Company is currently evaluating the effect that the
application of SFAS No. 158 will have on its results of operations and financial
condition.
In
September 2006, the United States Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”). This SAB provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an approach
that requires quantification of financial statement errors based on the effects
on each of the company’s balance sheets, statements of operations and related
financial statement disclosures. The SAB permits existing public companies
to
record the cumulative effect of initially applying this approach in the first
year ending after November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting adjustment recorded to the opening balance
of
retained earnings. Additionally, the use of the cumulative effect transition
method requires detailed disclosure of the nature and amount of each individual
error being corrected through the cumulative adjustment and how and when
it
arose. The Company is currently evaluating the impact SAB 108 may have on
its
results of operations and financial condition.
In
October 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That is, Gross versus Net Presentation)”
to clarify diversity in practice on the presentation of different types of
taxes
in the financial statements. The Task Force concluded that, for taxes within
the
scope of the issue, a company may adopt a policy of presenting taxes either
gross within revenue or net. That is, it may include charges to customers
for
taxes within revenues and the charge for the taxes from the taxing authority
within cost of sales, or, alternatively, it may net the charge to the customer
and the charge from the taxing authority. If taxes subject to EITF 06-3 are
significant, a company is required to disclose its accounting policy for
presenting taxes and the amounts of such taxes that are recognized on a gross
basis. The guidance in this consensus is effective for the first interim
reporting period beginning after December 15, 2006 (the first quarter of
our
fiscal year 2007). We do not expect the adoption of EITF 06-3 will have a
material impact on our results of operations, financial position or cash
flow.
NOTE
B - BUSINESS COMBINATION AND CORPORATE RESTRUCTURE
On
July30, 2004, the Company entered into a merger transaction with Impact Diagnostics,
Inc. ("Impact”). 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.
F-32
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.
The
total
consideration was $65,812 and the significant components of the transaction
are
as follows:
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
accordance with SOP 98-5, the Company expensed $65,812 as organization costs
in
2004.
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 December31,2003 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 a value of $0.0378 per share. The conversion
resulted
in a $411,597 gain on extinguishment of debt in 2004.
350,000
350,000
10%
convertible notes with interest due quarterly subject to certain
conditions, due three years from the date of the notes, June 14,2008,
August 18, 2008, and August 29, 2008. The holder has the option
to convert
unpaid principal 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. 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 2005 $470,313 of note principal
was
converted into 67,580,405 shares at an average conversion rate
of $0.007
per share. In 2006, $8,007 of note principal was converted into
1,264,865
shares at an average conversion rate of $0.0063 per share.
565,104
240,491
6%
note payable, unsecured, interest and principal to be paid in eight
equal
quarterly payments beginning 6/07/05. Final payment is due
3/7/2007.
15,680
21,875
Total
notes payable
930,784
612,366
Less:
current portion
(15,680)
(21,875)
Balance
notes payable (long term portion)
$
915,104
$
590,491
F-33
NOTE
D -
CONVERTIBLE NOTES PAYABLE
During
2005, the Company issued to qualified investors Convertible Notes in a total
amount of $2,000,000 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,
EITF 00-19, EITF 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 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 are recorded as adjustments
to the
liabilities at September 30, 2006.
·
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 $322,619 during the nine months ended September 30,2006 and
$10,228 during the same peiod in
2005.
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. As at September 30, 2006,
$8,007 of the June 14th
convertible note was converted into 1,264,865 shares at an average conversion
rate of $0.006 according to the terms of the note.
The
following table summarizes the various components of the convertible notes
as of
September 30, 2006:
Convertible
notes:
$
565,104
Warrant
liability .
561,423
Derivative
liability .
8,137,682
9,264,209
Adjustment
of note and warrant liability to fair value
(6,691,100
)
Accretion
of interest related to convertible debenture .
(573,109
)
Converted
to common shares .
(478,320
)
Total
convertible notes:
$
1,521,680
NOTE
E - RESTATEMENT
During
the year ended December 31, 2005, it was determined the correct application
of
accounting principles had not been applied in the 2005 accounting for
convertible debentures and detachable warrants (see Note C).
In
its
original accounting for the debentures and detachable warrants, the Company
recognized an embedded beneficial conversion feature present in the convertible
note and allocated a portion of the proceeds equal to the intrinsic value
of
that feature to additional paid in capital. The Company has determined that
the
embedded conversion feature should have been accounted for in accordance
with
FAS 133, EITF 98-5, EITF 00-19, EITF 00-27, and APB 14. Accordingly, the
proceeds attributed to the common stock, convertible debt and warrants have
been
restated to reflect the relative fair value method.
F-34
In
accordance with SFAS 154 the necessary corrections to apply the accounting
principles on the aforementioned transactions are currently reflected in
the
reported Consolidated Statements of Losses for the three and nine months
ended
September 30, 2005 and the Consolidated Statement of Cash Flows for the nine
months ended September 30, 2005. The impact on the previously issued September30, 2005 financial statements is as follows:
Change
in fair value related to adjustment of derivative and warrant
liability to
fair value of underlying securities
-
$10,452,987
$10,452,987
Beneficial
conversion feature discount
$135,106
$
-
$(135,106)
Interest
on convertible notes payable
$
-
$(112,732)
$112,732
Net
cash used in operating activities
$(1,190,619)
$(1,190,619)
$
-
Net
cash used in by investing activities
$(5,743)
$(5,743)
$
-
Net
cash provided by financing activities
$1,934,000
$1,934,000
$
-
NOTE
F - COMMON STOCK
At
the
2006 Annual Meeting of Stockholders of Grant Life Sciences, Inc. the
stockholders of the Company, by an affirmative vote of 64% of its outstanding
shares of common stock, agreed to the filing of a Certificate of Amendment
to
the Articles of Incorporation of the Company pursuant to which the Company’s
authorized shares of common stock would be increased from 150,000,000 shares
to
750,000,000 shares of common stock with $0.001 par value per share. As of
September 30, 2006the Company had 132,977,917 shares of common stock issued
and
outstanding. As of December 31, 2005, the Company had 126,486,518 shares
of
common stock issued and outstanding. 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.
F-36
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
August19, 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.
In
August
2006 $8,007 of principal of the senior 10% convertible notes converted into
1,264,865 shares.
The average conversion price per share was $0.0063
In
September 2006, 5,226,534 shares were issued in satisfaction of indebtedness
for
liquidated damages at $0.01 per share for a total of $52,265. The liquidated
damages arose from a 2004 Agreement from a sale of unregistered shares and
warrants of the Company in July and August 2004.
F-37
NOTE
G - STOCK OPTIONS AND WARRANTS
The
Company 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. During the nine months ended September, 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. No options were exercised, or terminated. In 2005,
950,000 options were granted, 850,000 with an exercise price of $0.18 and
100,000 with an exercise price of $0.40. In 2004, 5,243,254 options were
granted
under the plan. All of the options granted in 2004 have an exercise price
of
$0.18, but differing vesting terms. 50,000 of these options were exercised
in
June 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. 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 Incenctive Plan
and as of September 30, 2006 :
Options
Outstanding
Options
Exercisable
Exercise
Prices
Number
Outstanding
Weighted
Average Remaining Contractual Life
(Years)
As
at
September 30, 2006, the total compensation cost not yet recognized related
to
nonvested option awards is $83,739 which is expected to be realized over
a
weighted average period of 0.45 years.
The
weighted-average fair value of stock options granted during the current year
and
the years ended December 31, 2005 and 2004 and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follows:
2006
2005
2004
Significant
assumptions (weighted-average):
Risk-free
interest rate at grant date
4.9
%
3.6
%
3.7
%
Expected
stock price volatility
373
%
107
%
114
%
Expected
dividend payout
0
%
0
%
0
%
Expected
option life-years based on management’s estimate
3
yrs
3
yrs
3
yrs
In
December 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS123R). 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. During the
three
and nine months ended September 30, 2006, the Company recognized $35,921
($48,521 in general and administrative and $(12,800) in research and development
expenses) and $212,305 ($115,702 in general and administrative and $ 96,603
in
research and development expenses) respectively as expense relating to vested
stock options. During the nine months ended September 30, 2005, the Company
recognized $871,475 ($539,667 in general and administrative and $331,808
in
research and development expenses) as expenses relating to vested stock
options.
Warrants
The
following tables summarize changes in warrants outstanding and the related
exercise prices for the shares of the Company’s common stock issued by the
Company as of September 30, 2006:
Warrants
Outstanding & Exercisable
Exercise
Prices
Number
Outstanding
Weighted
Average Remaining Contractual Life
(Years)
All
warrants outstanding were exercisable at the date of grant. All of the warrants,
except 250,000 warrants issued in 2004 for R&D services, were issued in
connection with financings. The exercise price of the warrants issued in
2005
can be adjusted downward if stock is issued below the market price.
NOTE
H - SUBSEQUENT EVENT
On
November 3, 2006the Company issued387,500
shares of common stock of the Corporation at $0.03 per share to the Chairman
of
the Audit Committee in consideration for board fees owing at September 2,2005,
453,127 shares of common stock of the Corporation to a vendor at $0.015 per
share in consideration for services provided during 2005, and 310,000 shares
of
common stock of the Corporation valued at $40,000 to a consultant in accordance
with a March 5, 2005 Consulting Agreement.
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that which
is
set forth in this prospectus. We are offering to sell shares of our common
stock
and seeking offers to buy shares of our common stock only in jurisdictions
where
offers and sales are permitted. The information contained in this prospectus
is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of these securities. Our business,
financial condition, results of operation and prospects may have changed after
the date of this prospectus.
Dates Referenced Herein and Documents Incorporated by Reference