SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
Commission File No. 000-27237
Hand Brand Distribution, Inc.
(Name of Small Business Issuer in Its Charter)
Florida 66-0622463
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification Number)
3930 Youngfield Street, Wheat Ridge CO 80033
(Address of principal executive offices) (Zip Code)
(303)463-6371
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Exchange Act: NONE Securities registered pursuant to Section
12(g) of the Exchange Act: Common Stock, $.001 per share
Check whether the issuer: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes |_| No |X|
Check if there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B contained herein, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. |X|
State the issuer's revenues for its most recent fiscal year:
$82,516.
State the aggregate market value of the issuer's voting
stock held by non-affiliates of the issuer as of April 14,
2002 was $597,869.
State the number of shares outstanding as of the issuer's
common stock as of April 14, 2003 was 2,988,598.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format:
Yes |_| No |X|
FORWARD-LOOKING AND CAUTIONARY
STATEMENTS
Sections of this Form 10-KSB, including the Management's
Discussion and Analysis of Financial Condition and Results
of Operations, contain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), Section 21E of the
Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and the Private Securities Litigation
Reform Act of 1995, as amended. These forward-looking
statements are subject to risks and uncertainties and other
factors that may cause our actual results, performance or
achievements to be materially different from the results,
performance or achievements expressed or implied by the
forward-looking statements. You should not unduly rely on
these statements. Forward-looking statements involve
assumptions and describe our plans, strategies, and
expectations. You can generally identify a forward-looking
statement by words such as "may," "will," "should,"
"expect," "anticipate," "estimate," "believe," "intend," or
"project". This report contains forward-looking statements
that address, among other things,
* our financing plans,
* regulatory environments in which we operate or plan to
operate, and
* trends affecting our financial condition or results of
operations, the impact of competition, the start-up of
certain operations and acquisition opportunities.
Factors, risks, and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statements ("Cautionary Statements") include, among
others,
* our ability to raise capital,
* our ability to execute our business strategy in a very
competitive environment,
* our degree of financial leverage,
* risks associated with our acquiring and integrating
companies into our own,
* risks relating to rapidly developing technology,
* regulatory considerations;
* risks related to international economies,
* risks related to market acceptance and demand for our
products and services,
* the impact of competitive services and pricing, and
* other risks referenced from time to time in our SEC
filings.
All subsequent written and oral forward-looking statements
attributable to us, or anyone acting on our behalf, are
expressly qualified in their entirety by the cautionary
statements. We do not undertake any obligations to publicly
release any revisions to any forward-looking statements to
reflect events or circumstances after the date of this
report or to reflect unanticipated events that may occur.
PART I
Item 1. Description of Business
Hand Brand Distribution, Inc. (the "Company" or "Hand
Brand") is a Florida corporation organized in 1995. Our
Common Stock currently trades on the Over-the-Counter
Bulletin Board ("OTC") under the symbol GTHAE.OB, but is
anticipated to resume trading in the near future on the
Over-the-Counter Bulletin Board ("OTC") under the symbol
GTHA.OB. Our Executive offices are located at 3930
Youngfield Street, Wheat Ridge, Colorado 80033 and our
telephone number is 303-463-6371.
Through our subsidiary companies, Family Health News, Inc.
("FHNI") and GeneThera, Inc. ("GeneThera"), we are currently
involved in the agriculture, veterinary and health care
industries. FHNI publishes a quarterly international
magazine, Family Health News ("FHNews"), that contains
articles on health, nutrition, lifestyle and innovative
health products and therapies. FHNI also distributes a
select line of products related to these topics. GeneThera
develops molecular assays for the detection of food
contaminating pathogens, veterinary diseases, and
genetically modified organisms.
FAMILY HEALTH NEWS, INC.
In October 1996, we acquired FHNI (formerly known as The
Family News, Inc.), which publishes FHNews. FHNews is a
subscription-based newsletter and digest, published
quarterly since 1990, that focuses on health, nutrition, and
alternative medical therapies. FHNI also distributes a small
line of products, including dietary supplements and health
and nutrition related equipment, books and tapes. The
Company pays a nominal royalty to the author of the books.
The Company has entered into a Stock Purchase Agreement to
sell FHNI (the "FHNI Stock Sale") to John Taggart, a former
officer and director of the Company. The FHNI Stock Sale has
never been completed due to the matter not having been
submitted to the shareholders as required under the Stock
Purchase Agreement. The Company believes that the sale does
not currently constitute substantially all of the assets of
the Company and that shareholder approval is not required
under Florida law. The Company is now considering other
options before completing the FHNI Stock Sale such as
continuing the operations, redeveloping the business,
ceasing the FHNI operations by winding up FHNI affairs, or
licensing the FHNews name.
Product Selection and Supply
FHNI seeks to identify products that represent effective
science-based formulas and technologies. However, as with
most vitamins, herbals and nutritional supplements, such
products do not undergo the vigorous scientific validation
of safety and effectiveness and pre-market approval by the
United States Food and Drug Administration ("FDA") required
of pharmaceutical products. All products are manufactured by
established manufacturers, including Baywood
Pharmaceuticals, Enguard Health Products, Proper Nutrition,
Inc., Neutraceutics, Lentek and Martek. These products are
standard formulations and are generally sold under the brand
name of the manufacturer, but some are labeled under the
Company name.
FHNI does not have any long term supply contracts with the
manufacturers of our products. We believe that virtually all
of the products we offer are available from several sources
and have not experienced any inability to obtain products in
the past.
FHNI depends upon the manufacturers of our products to
conduct adequate quality control and compliance with
applicable manufacturing and labeling regulations. FHNI does
not undertake independent quality testing of our products
after they are received from the manufacturer. Each
manufacturer provides FHNI with certificates of insurance
evidencing their policies of general and product liability
coverage in amounts that conform to industry standards.
Distribution
FHNI distributes its products through a sales force
comprised of six to twelve independent distributors. The
sales force is recruited primarily though our catalog and
through FHNews' web site. The primary channels of
distribution for our products are: (i) mass market
retailers, which include drug stores, supermarkets, mass
merchandisers and discount stores; (ii) health food stores;
(iii) direct sales organizations; (iv) mail order; and (v)
the Internet. The Company does not rely on any one customer
or a few major customers.
Competition
Our market is highly competitive. We believe the narrow
focus of our product line and the information that we
provide to our customers through FHNews and our World Wide
Web site avoid the confusion of the typical retail location,
which carries a vast selection of products, but generally
offers little information on the products.
We compete against a variety of retail organizations
including supermarkets, drug stores, chain stores and
bookstores that carry competing products. There are also
competing mail order and Internet retailers that carry
competing products. These competitors compete on the basis
of selection, price, physical location and personal service
availability at some locations. Most of these competitors
have vastly greater resources than the Company.
Government Regulation
The manufacturing, processing, formulation, packaging,
labeling and advertising of certain of our products are
subject to regulation by one or more federal agencies,
including the FDA, the Federal Trade Commission ("FTC"), the
Consumer Product Safety Commission, the United States
Department of Agriculture, the United States Postal Service,
the United States Environmental Protection Agency and the
Occupational Safety and Health Administration. These
activities are also regulated by various agencies of the
states and localities, as well as of foreign countries, in
which the Company's products are sold. In particular, the
FDA regulates the safety, labeling and distribution of
dietary supplements, including vitamins, minerals, herbs,
food, non-prescription and prescription drugs and cosmetics.
The regulations that are promulgated by the FDA relating to
the manufacturing process are known as CGMPs, and are
different for drug and food products. In addition, the FTC
has overlapping jurisdiction with the FDA to regulate the
labeling, promotion and advertising of vitamins, non-
prescription drugs, cosmetics and foods.
The Dietary Supplement Health and Education Act of 1994 (the
"DSHEA") was enacted on October 25, 1994. The DSHEA amends
the Federal Food Drug and Cosmetic Act by defining dietary
supplements, which include vitamins, minerals, nutritional
supplements and herbs, as a new category of food, separate
from conventional food. The DSHEA provides a regulatory
framework to ensure safe, quality dietary supplements and
the dissemination of accurate information about such
products. Under the DSHEA, the FDA is generally prohibited
from regulating the active ingredients in dietary
supplements as drugs unless product claims, such as claims
that a product may heal, mitigate, cure or prevent an
illness, disease or malady, trigger drug status.
The DSHEA provides for specific nutritional labeling
requirements for dietary supplements and the FDA's final
regulations require that all dietary supplements be labeled
in compliance with the regulations. The DSHEA permits
substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling such as
statements describing general well-being resulting from
consumption of a dietary ingredient or the role of a
nutrient or dietary ingredient in affecting or maintaining a
structure or function of the body. The FDA issued a final
regulation, "Regulations on Statements Made For Dietary
Supplements Concerning the Effect of the Product on the
Structure or Function of the Body." The regulations
establish criteria for determining when a statement is a
claim to diagnose, came, mitigate, treat or prevent disease
thereby making the product an unapproved new drug.
Final labeling regulations may require expanded or different
labeling for the vitamin and nutritional supplement products
sold by the Company. Final manufacturing rules for dietary
supplements will require at least some of the quality
control provisions contained in the manufacturing rules for
drugs. We cannot determine what effect such regulations,
when fully implemented, will have on our business in the
future. We believe that the most likely effects of any such
regulations would be the recall, reformulation or
discontinuance of certain products, additional record
keeping, warnings, notification procedures and expanded
documentation of the properties and manufacturing processes
of certain products and scientific substantiation regarding
ingredients, product claims, safety or efficacy. Failure to
comply with applicable FDA requirements can result in
sanctions being imposed on the Company or the manufacturers
of its products, including, warning letters, fines, product
recalls and seizures.
On November 18, 1998, the FTC issued its "Dietary
Supplements: An Advertising Guide for Industry." Such guide
provides an application of FTC law to dietary supplement
advertising and includes examples of how principles of
advertisement interpretation and substantiation apply in the
context of dietary supplement advertising. Such Guide
provides additional explanation but does not substantively
change the FTC's existing policy that all supplement
marketers have an obligation to ensure that claims are
presented truthfully and to verify the adequacy of the
support behind such claims. The Company believes that its
current advertising is in compliance with the requirements
of such Guide, although no assurances can be given in this
regard
Product Liability Insurance
FHNI, like other distributors and retailers of products that
are ingested, faces an inherent risk of exposure to product
liability claims if, among other things, the use of its
products results in injury. Because FHNI does not
manufacture its ingestible products, FHNI does not currently
have product liability insurance for these products. FHNI
requires that each of our suppliers provide the Company with
certificates of insurance evidencing policies of product
liability insurance that are adequate in scope and amount
based upon industry standards. Nevertheless, such policies
of insurance do not extend such coverage to the Company and
the Company's agreements with such suppliers do not provide
indemnification by the suppliers of any losses incurred by
the Company arising out of any product liability claims.
GENETHERA, INC.
On February 25, 2002, the Company executed stock purchase
agreements for the acquisition of 92.9% of the issued and
outstanding shares of capital stock of GeneThera, which
resulted in GeneThera becoming a subsidiary of the Company.
The Company anticipated that it would acquire an additional
6.3% of the outstanding GeneThera common stock in the
future. Pursuant to the stock purchase agreements with the
former shareholders of GeneThera (the "Former GTI
Shareholders"), the Company agreed to issue an aggregate of
8,305,950 shares of its shares of Common Stock to these
shareholders. At the time of the closing of the acquisition
of GeneThera, the Company did not have sufficient authorized
shares of Common Stock to issue such shares. Consequently,
under Florida Law, the issuance of such authorized shares
would be void. In May 2002, the Former GTI Shareholders
holding approximately 94% of the 92.9% of shares of
GeneThera common stock acquired by the Company agreed to
accept shares of the Company's Common Stock promptly
following the effectiveness of the approval by the Company's
shareholders either to (i) increase the number of authorized
shares of Common Stock ("Proposal 1"); or (ii) reincorporate
in Delaware with a sufficient number of authorized shares
("Proposal 2") in complete satisfaction of the Company's
obligation to them to issue and deliver shares of its Common
Stock (the "May Amendments").
Pursuant to the May Amendments, the Company agreed with the
Former GTI Shareholders that if it does not receive approval
by December 31, 2002 to increase its authorized capital
pursuant to either Proposal 1 or, at the Company's option,
Proposal 2, then such Former GTI Shareholders may at any
time thereafter elect to forego their rights to receive
shares of the Common Stock of the Company and have their
shares of GeneThera returned to them. Upon election and
notice by the GTI Shareholders on March 14, 2003,the Company
entered into a Mutual Release and Rescission of Contract
("Mutual Release") with the GTI Shareholders. The partial
delivery of Company shares which were issued under this
Agreement were returned to the Company and the GeneThera
shares were returned by the Company. This Mutual Release
was entered into to correct and nullify several
contractually incomplete attempts to create a wholly owned
subsidiary and subsequent attempt to merge the Company with
GeneThera. The Board of Directors determined that the
Company's best interest would be served by the issuance of
1,000,000 shares for a partial ownership of GeneThera in which is
commonly referred to as a reverse acquisition. A Reverse
Acquisition Agreement was executed simultaneously with the
Mutual Release and Rescission of Contract on March 28, 2003.
Under the terms of the negotiations, one million (1,000,000)
common shares were issued from the authorized shares to
acquire 51% of the ownership of GeneThera from one shareholder of
GeneThera. There currently are no further discussions,
contracts, or negotiations contemplated at this time to
acquire the remaining 49% of GeneThera.
GeneThera is a molecular diagnostic company that has created
a technology platform to develop and commercialize genomic
assays with applications in the agriculture, veterinary, and
medical industries. "Assays" are testing methods that
diagnose particular diseases primarily from blood or feces
samples. Specifically these assays can be used to diagnose,
treat, and manage cancerous and infectious diseases,
primarily in animals; and detect and quantify food-borne
pathogens, and detect and quantify genetically modified
organisms in crops and processed food products.
GeneThera has completed the first phase of research on Real
Time Fluorogenic Polymerase Chain Reaction (F-PCR) platform
technology applied to Chronic Wasting Disease, a disease
affecting elk and deer in North America. F-PRC is a
combination of chemical processes and specialized equipment
that permit the analysis of genetic materials relating to
specific disease states. The addition of a specific enzyme
known as a polymerase to a genetic sample causes the
selected material to duplicate itself into sufficient volume
to allow rapid, accurate and actionable decisions. The
addition of flourogenic materials to the process produces
light from the subject material. It also allows specifically
designed laser guided computer programs to produce real time
data on both the presence and volume of targeted materials.
GeneThera is currently focusing on the agricultural and
veterinary applications of this technology.
This F-PCR platform is flexible. GeneThera designs assays
including proprietary chemical compounds and processes that
can provide the foundation for patentable market
applications. GeneThera intends to file patent applications
to protect its assay designs. There can be no assurances,
however, that such applications will result in the awarding
of patents.
Previous diagnostic technologies, such as antibody detection
and even standard polymerase chain reaction (PCR) methods,
have been limited to disease detection. GeneThera 's
application of F-PCR is expected to go beyond detection and
allow for the precise quantification of viral, bacterial,
and cancerous nucleic acids levels.
Development Process
The development process of such assays has six primary
phases. These are: (i) the identification of the disease
condition targeted and the valuation of the target market's
size, penetration requirements and profit potential; (ii)
the design of the assay by defining the indicators of the
presence of disease and establishing internal controls;
(iii) the establishment of baseline performance criteria;
(iv) the defining of the assay efficacy outcomes; (v) the
validation of the assay; and (vi) commercialization.
Assuming that an assay is validated in accordance with the
original assay design, the entire scientific process for the
development of such an assay through to its commercial
application is approximately one year. At present, the
Company has completed the process of establishing baseline
performance criteria (phase 3) for the assays for Chronic
Wasting Disease. For all other targeted diseases, the
Company is either in the market valuation stage or in the
process of designing the assay. It is estimated that the
Company will require outside capital of approximately
$1 million in 2003 to complete the commercialization of
GeneThera's integrated assays for Chronic Wasting
Disease. The revenue from CWD commercial operations
will be used to satisfy the capital requirements for assay
development for additional diseases.
Business Model
GeneThera's business model has four features:
1. Staged Market Penetration
We believe that our technology platform has many potential
commercially marketable applications. We have selected the
non-human testing market as our initial focus, specifically,
the elk/deer industry (hunting and breeding of domesticated
animals) and the beef industry. The non-human testing
markets do not require lengthy approval or certification
processes. Over the next year, the Company intends to
introduce a number of individual assays for commercial use.
These assays include:
* Chronic Wasting Disease in live animals (as well as
harvested animals during hunting season)
* the detection of Johne's Disease in all ruminants
* the detection of a certain type of E.coli in cattle
2. Standardization with Operational Flexibility
We intend to develop a modularized approach to each assay
such that each assay will be standardized around a specific
set of equipment using consistent laboratory procedures.
This will allow for placement of individual modularized
laboratories in any geographic location including existing
independent labs or on-site with the end-user. GeneThera
intends to own and operate the on-site laboratories.
GeneThera's personnel will be responsible for sample
collection and processing according to GeneThera's
specifications.
Additionally, GeneThera has developed a proprietary Field
Collection System (FCS) to satisfy two criteria. First, th
FCS standardizes the manner in which blood samples for the
diagnostic assay are collected, stabilized and categorized.
Second, this approach to standardized sample collection
is intended to serve as a major revenue base for the
Company.
3. High Throughput
We believe that our planned modularized laboratory approach
will provide high volume throughput necessary for effective
and cost-efficient commercial operations. High volume
testing is extremely important to the agriculture and food
processing industries due to their large volume of
production.
We have two distinct techniques for processing this large
quantity of assays. The first will be conducted using single
blood samples from live animals and/or recently harvested
animals, these samples gathered through GeneThera's Field
Collection System program. The second will be assays for the
detection of food contaminating organisms both in meat
products and in meat processing plants. An example of this
would be E.coli assay in ground beef at a meat processor's
facility.
4. Collection of Data
The hardware and software platform upon which GeneThera's
assays are built are anticipated to allow for the continual
collection, analysis and management of assay results over
time. With the data available from this system, animal
owners, feedlot managers, food producers, and veterinarians
will be able to build a comprehensive inventory of an
animal's health. Diagnostic assay test results will be
posted to a secured location within the GeneThera website
and accessible through confidential password.
Competition
Competition for GeneThera's assays varies according to the
individual disease being tested. There is no competitor for
GeneThera's diagnostic assay test of Chronic Wasting Disease
via the blood of elk and/or deer as GeneThera offers the
first such testing methodology available in the market.
Competition in the E.coli and/or processed food product area
comes primarily from small commercial veterinary diagnostic
labs and University or government based Microbiology
programs, such as the Colorado State or the USDA lab in
Ames, Iowa, that employ laboratory based neurological tissue
culture processes in the area of Mad Cow or Chronic Wasting
diseases. These processes take significantly longer than
the processes being developed by GeneThera and require
extraction of tissue or fluids not easily performed in the
field.
Distribution
The Company will utilize its website for consumer purchase
of its Field Collection system. Packaging, coding, assembly
and outgoing delivery of consumer-ordered Field Collection
systems will be managed through a contracted packager
located in Denver, Colorado. All blood samples collected
(either by hunters or breeders) will be returned through
common carrier to GeneThera's labs located in Wheat Ridge,
Colorado. Upon receipt, each blood sample, already coded via
an individual vial, will be entered into GeneThera's
database, thereby assuring complete control through the
diagnostic assay to the posting of the assay results on
GeneThera's website for password-secured access by the
sample submitter.
Primary Supplier
GeneThera's molecular assays are built on Applied
BioSystems, Inc.'s proprietary system of hardware, software
and disposable agents ("the System"). GeneThera has rights
as sublessee of the system, which is subject to a capital
lease. While there are other suppliers of equipment and
software that could support the GeneThera technology,
GeneThera believes that ABI's system is superior and that
ABI is a stable company capable of providing the resources
necessary to sustain GeneThera's business plan.
When a System is purchased from ABI, the purchaser receives
a perpetual license to use the equipment, software and
consumables. These licenses are specific to the individual
machine and are not currently transferable to a sub-licensor
of GeneThera's technology, but GeneThera's business model
(which contemplates the use of modular workstation units
operated by GeneThera) does not contemplate a sublicensing
of the technology.
Roche International also manufactures hardware and software
that is compatible with GeneThera's "System". This would
require additional testing of such hardware and software
before GeneThera would consider modifying its lab design.
Government Regulations
GeneThera's current set of assays for elk/deer and beef come
under the jurisdiction of the Food Safety and Inspection
Service of the United States Department of Agriculture (the
"USDA"). The USDA's mission is to enhance the quality of
life for the American people by supporting production of
agriculture and ensuring a safe, affordable, nutritious and
accessible food supply. The Food Safety and Inspection
Service (the "FSIS"), ensures that the nation's commercial
supply of meat, poultry and egg products is safe, wholesome
and correctly labeled and packaged. The FSIS sets standards
for food safety and inspects meat, poultry and egg products
produced domestically and imported. The Service inspects
animals and birds at slaughter and processed products at
various stages of the production process and analyzes
product for microbiological and chemical adulterants. FSIS
also informs the public about meat, poultry and egg product
safety issues.
FSIS works with the Research, Education and Economics
mission area of the USDA on food safety research issues and
the Animal and Plant Health Inspection Service on instances
where animal diseases impact the food safety. FSIS also
facilitates the management of US activities pertaining to
the Codex Alimentarius Commission, an international
organization created by the United Nations to promote the
health and economic interests of consumers while encouraging
fair international trade in food. FAS supports FSIS in food
discussions in the food export market.
FSIS was established by the Secretary of Agriculture in
1981, pursuant to legislative authority contained in 5
U.S.C. 301 which permits the Secretary to issue regulations
governing the USDA. Its work is carried out under the
authority of the Federal Meat Inspection Act, the Poultry
Products Act and the Egg Products Inspection Act.
(www.fsis.usda.gov).
As GeneThera enters the validation phase for each of the
assays under development, a simultaneous review of outcomes
and efficacy will be coordinated with the USDA and other
governmental agencies as appropriate to the individual
disease/vaccine being pursued. Importantly, GeneThera has
received already USDA endorsement of its primary lab
facility as well as authorization to proceed to
commercialization of its CWD diagnostic assay. GeneThera
will satisfy the USDA's Validation Study requirement by the
end of 2003 as a prerequisite to its planned development of
a CWD vaccine. This validation process generally takes
between 2 and 4 months, assuming the successful validation
of the original assay design. In the event that the Company
cannot validate the original assay design, then the process
would be delayed as the Company redesigns the assay until it
achieves a successful validation of such design.
EMPLOYEES
As of May 15, 2002, the Company had a total of three (3)
full-time employees and two (2) consultants who devote
substantial effort on the Company's behalf. None of the
employees of the Company are represented by a collective
bargaining unit.
RISK FACTORS
We encounter various risks related to our business and our
industry. These include the following risks.
Development Stage Company
We have a history of losses and may never become profitable.
Our primary subsidiary, GeneThera, Inc., is a development
stage company. As such, GeneThera, Inc. will continue to
incur high research and development expenses and may not
generate revenue with the Company's June, 2003, launch of
its CWD diagnostic assay. There can be no assurance that
the Company will become profitable.
The Loss of Key Personnel Could Adversely Affect The
Company
The Company depends to a large part on the efforts and
continued employment of Antonio Milici, M.D., Ph.D., our
President and Chief Executive Officer. The loss of the
services of Dr. Milici could adversely affect our business.
Currently, we are managed by the members of a single-
family, giving them influence and control over corporate
transactions and their interests may differ from those of
other shareholders. Our Board of Directors consists solely
of Dr. Milici, with Tannya L. Irizarry serving as income
Chief Financial Officer. Ms. Irizarry is Dr. Milici's wife.
Rapid Growth May Place Significant Demands on our
Resources
We expect significant expansion of our operations. Our
anticipated future growth will place a significant demand
on our managerial, operational and financial resources due
to:
* the need to manage relationships with various strategic
partners and other third parties;
* difficulties in hiring and retaining skilled personnel
necessary to support our business;
* the need to train and manage a growing employee
base; and
* pressures for the continued development of our
financial and information management systems.
If we have not made adequate allowances for the costs
and risks associated with this expansion or if our
systems, procedures or controls are not adequate to
support our operations, our business could be harmed.
Government Regulation
The Company is subject to or affected by laws and
regulations that govern, for example: (i) nutritional
supplements; and (ii) the testing of animals for the
presence of certain diseases. The failure to comply with
these laws and regulations, or to obtain applicable
governmental approvals, could result in the imposition of
penalties, cause delays in, or make impossible, the
marketing of our products and services.
Item 2. Description of Property
FHNI currently leases 1,200 square feet of office space on a
month-to-month basis in Miami Shores, Florida at $745.50.
Our total rent expense for the year ended December 31, 2001
was $17,256.
GeneThera 's executive offices are located in Wheatridge,
Colorado. They occupy this facility under a lease, which
terminates in December 31, 2005, with an option to extend
the lease for an additional five years. GeneThera considers
the current space adequate. Annual lease costs were $45,150
in 2001 and will rise to $63,337.00 in 2005.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Securities
Holders
On September 17, 2002, the majority of our shareholders, by
written consent, approved the addition of two new members to
our board, Ms. Loretta Zapp and Mr. John T. Koslosky. Both
Ms. Zapp and Mr. Koslosky are outside independent directors
and were to serve on the Company's audit committee and will
have full power, collectively, to implement any other
actions required by the Company to be in compliance with
Nasdaq's audit committee requirements and corporate
governance and or policies published or suggested by the
Securities Exchange Commission and the Company's independent
auditors. Further, Ms. Zapp, Mr. Koslosky and Dr. Milici
were to form and serve as the Compensation and Executive
Search Committee to govern compensation policy, including
but not limited to approval of grants and administration of
the Company's Stock Incentive Plan and all executive
staffing. This Committee shall operate and decisions shall
be implemented and approved on the basis of majority vote
between three members. As of April 14, 2003, neither Ms.
Zapp nor Mr. Koslosky have accepted their positions with the
Company. Ms. Zapp has confirmed she will assume her
position once the Company has completed and filed the
Amendments to the Articles of Incorporation to change the
name of the Company to GeneThera, Inc and to provide for
100,000,000 authorized common shares and 10,000,000
preferred shares. Mr. Koslosky will no longer be involved
in the Company.
Loretta Zapp is the Chief Executive Officer for Applied Food
Sciences. She has a successful "hands on" track record in
the biochemical markets in business development, marketing,
scientific research, technical due diligence and capital
funding of early stage start-up companies to profitable
operating companies. Loretta served as President of
Industrial Laboratories Company, Inc., an independent
testing laboratory, where she led the company from a small
enterprise into a globally recognized analytical laboratory.
During her tenure at Industrial Labs, she founded the
Institute for Nutraceutical Advancement (INA) and designed a
program to support and promote the production of consistent,
high-quality herbal products. INA is funded by sponsorship
from companies involved in producing herbal products and
functional foods. International sponsors of INA include GNC,
Bayer, Amway, Nestle and Pfizer.
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and other Shareholder Matters.
The Company Common Stock currently trades on the Over
-the-Counter Bulletin Board ("OTC") under the symbol
GTHAE.OB, but is anticipated to resume trading in the near
future on the Over-the-Counter Bulletin Board ("OTC") under
the symbol GTHA.OB.. The following sets forth the range of
high and low bid quotations for the periods indicated as
reported by Bloomberg L.P. Such quotations reflect prices
between dealers, without retail mark-up, markdown or
commission, and may not represent actual transactions. The
following numbers have been adjusted to reflect an eight for
one reverse stock split in January 2002.
Quarter Ended High bid Low bid
------------------ ---------- ---------
March 31, 2000 46.00 9.00
June 30, 2000 22.00 4.50
September 30, 2000 22.00 5.25
December 31, 2000 18.00 5.25
March 31, 2001 5.25 1.75
June 30, 2001 5.68 1.52
September 30, 2001 3.52 1.60
December 31, 2001 3.2 1.12
March 31, 2002 3.40 2.50
June 30, 2002 1.73 1.73
September 30, 2002 3.15 3.02
December 31, 2002 1.50 1.25
There are no restrictions on the payment of dividends. We
have paid no dividends to date and none are anticipated. As
of April 14, 2002, there were approximately 425 holders of
record of the Company Common Stock.
At various times prior to December 31, 2001, the former
President of the Company, John Taggart, made loans to the
Company in the aggregate principal amount of $15,300, which
amount remained outstanding on December 31, 2001. The loans
were evidenced by convertible promissory notes which convert
into shares of Common Stock.
At various times prior to December 31, 2001, various third
parties made loans to the Company in the aggregate principal
amount of $69,500, which amount remained outstanding on
December 31, 2001. The loans were evidenced by convertible
promissory notes which convert into shares of Common Stock.
On January 10, 2002, 2,365,950 shares of common stock valued
at $0.105 per share were issued to an unrelated party for
$83,262 in cash.
On February 25, 2002, the Company executed stock purchase
agreements for the acquisition of 92.9% of the issued and
outstanding shares of capital stock of GeneThera, which
resulted in GeneThera becoming a subsidiary of the Company.
The Company anticipated that it would acquire an additional
6.3% of the outstanding GeneThera common stock in the
future. Pursuant to the stock purchase agreements with the
Former GTI Shareholders, the Company agreed to issue an
aggregate of 8,305,950 shares of its shares of Common Stock
to these shareholders. At the time of the closing of the
acquisition of GeneThera, the Company did not have
sufficient authorized shares of Common Stock to issue such
shares. Consequently, under Florida Law, the issuance of
such authorized shares would be void. In May 2002, the
Former GTI Shareholders holding approximately 94% of the
92.9% of shares of GeneThera common stock acquired by the
Company agreed to accept shares of the Company's Common
Stock promptly following the effectiveness of the approval
by the Company's shareholders either to (i) increase the
number of authorized shares of Common Stock ("Proposal 1");
or (ii) reincorporate in Delaware with a sufficient number
of authorized shares ("Proposal 2") in complete satisfaction
of the Company's obligation to them to issue and deliver
shares of its Common Stock.
Pursuant to the May Amendments, the Company agreed with the
Former GTI Shareholders that if it does not receive approval
by December 31, 2002 to increase its authorized capital
pursuant to either Proposal 1 or, at the Company's option,
Proposal 2, then such Former GTI Shareholders may at any
time thereafter elect to forego their rights to receive
shares of the Common Stock of the Company and have their
shares of GeneThera returned to them. Upon election and
notice by the GTI Shareholders on March 14, 2003,the Company
entered into a Mutual Release and Rescission of Contract
("Mutual Release") with the GTI Shareholders. The partial
delivery of Company shares which were issued under this
Agreement were returned to the Company and the GeneThera
shares were returned by the Company
This Mutual Release was entered into to correct and nullify
several contractually incomplete attempts to create a wholly
owned subsidiary and subsequent attempt to merge the Company
with GeneThera. The Board of Directors determined that the
Company's best interest would be served by the issuance of
1,000,000 shares for a partial ownership of GeneThera in
which is commonly referred to as a reverse acquisition. A
Reverse Acquisition Agreement was executed simultaneously
with the Mutual Release and Rescission of Contract on March
28, 2003. Under the terms of the negotiations, one million
(1,000,000) common shares were issued from the authorized
shares to acquire 51% of the ownership of GeneThera. There
currently are no further discussions, contracts, or
negotiations contemplated at this time to acquire the
remaining 49% of GTI.
In May 2002, certain holders exercised their option to
convert $315,700 in convertible notes payable into 315,700
shares of common stock at $1 per share.
On August 13, 2002, certain holders exercised their option
to convert $10,500 in convertible notes payable per
agreement dated August 12, 2002. After a 2:1 forward stock
split, 21,000 shares of common stock were issued.
On September 28, 2002, the Company issued 660,000 shares of
common stock in connection with the conversion of a line of
credit commitment fee plus legal expenses.
Since January 15, 2002, the Company issued convertible
promissory notes bearing an interest rate of 6% per annum in
the aggregate principal amount of Three Hundred Eighty Seven
Thousand Six Hundred Dollars ($387,600) to a limited number
of holders. In May, 2002, Three Hundred Fifteen Thousand
Seven Hundred Dollars ($315,700) of principal under the
notes converted to Common Stock at the rate of one share for
each dollar of outstanding principal and accrued but unpaid
interest. The Company has subscriptions for the issuance to
some of the original holders of additional notes in the
aggregate principal amount of One Hundred Thousand Dollars
($100,000) upon the satisfaction of certain conditions. The
notes bear interest at the rate of 6% per year through the
maturity date, which is January 15, 2005. The notes
automatically convert into Common Stock at any time the
price of the shares on an exchange close above Three Dollars
($3.00) per share for twenty (20) consecutive trading days.
In the absence of such event, each holder may elect to
convert all, or a portion of the principal outstanding on
his or her note. The conversion rate is one share for each
dollar of outstanding principal and accrued but unpaid
interest.
On December 12, 2002, the Company issued a convertible
promissory note bearing interest at the rate of 8% per annum
in the principle amount of Fifty Thousand Dollars ($50,000)
to Fidra Holdings Ltd. Under the terms of the convertible
promissory note, the holder of the note is entitled to
convert all sums due under the December12 Note for $.50 per
share. As of April 14, 2003, the December 12 Note has not
been converted.
On December 24, 2002, the Company issued a Convertible
Promissory Note bearing interest at the rate of 8% per annum
in the principle amount of One Thousand Dollars ($1,000).
Under the terms of the Convertible Promissory Note, the
holder of the Note is entitled to convert all sums due under
the December 24 Note for $0.50 per share. As of April 14,
2002, the December 24 Note has not been converted.
On December 27, 2002, the Company issued a Convertible
Promissory Note bearing interest at the rate of 8% per annum
in the principle amount of Ten Thousand Dollars ($10,000).
Under the terms of the Convertible Promissory Note, the
holder of the Note is entitled to convert all sums due under
the December 27 Note for $0.50 per share. As of April 14,
2002, the December 27 Note has not been converted.
Item 6. Management's Discussion and Analysis or Plan of
Operation
The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto
that appear elsewhere herein.
FHNI DISCUSSION AND ANALYSIS
FHNI has had a long history of losses and flat to negative
growth in revenues. In light of the Company's belief that
the GeneThera business holds greater promise for long-term
growth and value, the Company's Board of Directors are
considering submitting to the Company's shareholders for
approval a proposal to enter into the FHNI Stock Sale. The
FHNI Stock Sale, which is proposed on terms and conditions
based upon an arm's length transaction, would reduce the
Company's overall debt and permit the Company to focus its
resources on the GeneThera business. The Company is now
considering other options before completing the FHNI Stock
Sale such as continuing the operations, redeveloping the
business, ceasing the FHNI operations by winding up FHNI
affairs or licensing the FHNews business.
RESULTS OF OPERATIONS
Revenues for the three-month period ended December 31, 2002
were $17,915 compared to $31,345 for the same period last
year. The decrease is attributable to reduced research fees
at GeneThera and lower sales at FHNI. Sales for the year
ended December 31, 2002 were $82,516, a 34% decrease over
sales for the year ended December 31, 2001. The decrease was
due to Hand Brand focusing on the pre-launch development of
our direct selling program at the expense of our normal
sales and marketing.
Gross profit margin declined to $52,164.
General and administrative expenses more than doubled for
the current period as compared to the prior period. The
increase is primarily attributable to the consolidation of
GeneThera's expenses with those of FHNI and at the parent
level.
Personnel and professional expenses (consulting and
professional fees and salaries) increased from $195,000 for
the prior fiscal year ending December 31, 2001 to $549,447
for the year ending December 31, 2002. Comparing
the year ended December 31, 2001 to the year ended
December 31, 2002, expenses grew substantially from $629,976
to $1,013,650. Most of this increase relates to the
development of the Company's management team following the
acquisition, as well as professional and legal fees incurred
as part of such acquisition and preparation of the Company's
periodic and other filings with the Securities and Exchange
Commission.
The Company recorded a loss of $1,290,589 compared to
$453,664 for the year ended December 31,2001.
Total assets of the Company for the year ended December 31,
2002 were $324,518.
Total current liabilities at December 31, 2002 were
$777,637. Short term notes payable includes a $93,000 note
for the purchase of laboratory equipment. Approximately
$35,000 relates to notes that are in default.
Based upon the Company's planned divestiture or closure of
FHNI and the acquisition of GeneThera, the above discussion
of FHNI's operations is not anticipated to be indicative of
future operating results.
GENETHERA PLAN OF OPERATION
Background
GeneThera is a development stage company (as such term is
defined by the Securities and Exchange Commission ("SEC")
and Generally Accepted Accounting Principles) and has had
negligible revenues from operations in the last two years.
As a development stage company, its research and development
expenditures cannot be capitalized.
GeneThera plans to develop proprietary diagnostic assays for
use in the agricultural and veterinary markets. Specific
assays for Chronic Wasting Disease (among elk and deer),
E.coli (predominantly cattle) and Johne's Disease
(predominantly cattle and bison) are in development.
Development Process
The development process of such assays has six primary
phases. These are: (i) the identification of the disease
condition targeted and the valuation of the target market's
size, penetration requirements and profit potential; (ii)
the design of the assay by defining the indicators of the
presence of disease and establishing internal controls;
(iii) the establishment of baseline performance criteria;
(iv) the defining of the assay efficacy outcomes; (v) the
validation of the assay; and (vi) commercialization.
Assuming that an assay is validated in accordance with the
original assay design, the entire scientific process for the
development of such an assay through to its commercial
application is approximately one year. At present, the
Company is in the process of establishing baseline
performance criteria (phase 3) for the assays for Chronic
Wasting Disease and E.coli. For all other targeted diseases,
the Company is either in the market valuation stage or in
the process of designing the assay.
Business Model
GeneThera's business model has four features. First, we
believe that our focus, the non-human testing market, has
great profit potential without a lengthy approval or
certification processes. Over the next year, the Company
intends to introduce a number of individual assays for the
detection of Chronic Wasting Disease in live animals as well
as recently harvested animals, the detection of Johne's
Disease in all ruminants, the detection of a certain type of
E-coli in beef. Second, we intend to develop a modularized
approach to each assay such that each assay will be
standardized around a specific set of equipment using
consistent laboratory procedures. This will allow for
placement of individual modularized laboratories in any
geographic location including existing independent labs or
on-site with the end-user. In addition to this modularized
approach to each assay, GeneThera has developed a
proprietary "Field Collection System" by which to
standardize the management of blood samples to insure
maximum test performance efficacy. Additionally, this Field
Collection System serves as a primary revenue resource for
the Company. Third, we believe that our planned modularized
laboratory approach will provide the high volume throughput
necessary for effective and cost-efficient commercial
operations. Finally, GeneThera's hardware and software
platform will allow for the continual collection, analysis
and management of assay results over time. With the data
available from this system, animal owners, feedlot managers,
food producers, and veterinarians will have a comprehensive
inventory of the animal's health.
Field Collection SystemTM (FCS)
On Sept. 23, 2002, GeneThera, Inc. announced that it is
making available to State Animal Health Agencies, a field
blood collection system to test for Chronic Wasting Disease
(CWD) in both live and harvested animals. This FCS serves
to standardize the process for blood sample collection, the
actual testing for the presence of CWD to be conducted at
the GeneThera labs. GeneThera will brand the system as
"Field Collection System". There are two types of FCS
available from GeneThera. One is for hunters; the second
for breeders of domesticated elk/deer. The FCS for hunters
retails at $10 each; the FCS for breeders retails at $7
each. The FCS design for CWD blood sample collection will
serve as the design for all subsequent diseases for which
GeneThera will pursue diagnostic assay testing.
Dr. Glen Zebarth, an industry expert, has agreed to oversee
a "Blind Study" with the State Animal Health Agencies to ensue
validation of GeneThera's CWD assay, the FCS being an
important component of securing the integrity of collected
blood samples.
GeneThera built the CWD test on its proprietary molecular
diagnosis platform to allow high sensitivity results and
volume testing. To date, we have received and tested a
limited number of normal and contaminated CWD blood samples
from Colorado, Minnesota, South Dakota and Wyoming.
The "Blind Study" will begin with various State and Federal
Agencies lab testing both CWD infected and non-infected
samples. The tested samples will then be compared to the
Agencies biology reports. Dr. Glen Zebarth will publish a
final report.
Fast track validation and acceptance from the State and
Federal Agencies is imperative in order for GeneThera to
begin mass volume. Large scale sequencing of the DNA field
tests will allow GeneThera to study the genomic make-up of
CWD and possibly lead to a therapy or a vaccine, this being
a part of GeneThera's 2004 business plan activity.
The GeneThera processing lab is highly automated using
Fluorogenic Real Time PCR (F-PCR) testing. The Company has
integrated robotics and data collection and analysis
databases with the F-PCR platform. This platform combined
with, GeneThera developed proprietary diagnostic software
for genetic expression allows high through-put testing.
GeneThera's processing capacity will allow for 19,200 tests
per month by June 2003. Further, this capacity should
increase to 61,440 tests per month by December 2003. Each
diagnostic assay will be $10.00; the results will be
available within 24 hours.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $9,144 as of December 31,
2002. With the acquisition of 51% of GeneThera, it is
estimated that it will require outside capital for the year
2003 for the commercialization of GeneThera's CWD assays.
The Company sought to address its capital needs in several
ways discussed below, including entering into a $1,000,000
Secured Convertible Line of Credit on August 14, 2002 (as
described below, the Convertible Line of Credit). Because
the conditions for use of the Convertible Line of Credit and
the PELC Facility (defined below) were never met by the
respective funder as a result of the funders' repeated
defaults and because we have been unable to obtain
significant additional financing for operations, we were
forced to curtail our operations. Nevertheless, at the
present time, and assuming continued forbearance by two
creditors of GeneThera on defaulted notes in the approximate
amount of $35,279, we believe we have adequate working
capital through June 30, 2003. However, our financial
statements for the year ended December 31, 2002 contain a
going concern qualification expressing doubt regarding our
ability to continue operating.
Convertible Notes
To relieve its cash flow crisis, since January 15, 2002, the
Company issued convertible promissory notes in the aggregate
principal amount of Three Hundred Eighty Seven Thousand Six
Hundred Dollars ($387,600) to a limited number of holders.
In May, 2002, Three Hundred Fifteen Thousand Seven Hundred
Dollars ($315,700) of principal under the notes converted to
Common Stock at the rate of one share for each dollar of
outstanding principal and accrued but unpaid interest. The
Company has subscriptions for the issuance to some of the
original holders of additional notes in the aggregate
principal amount of One Hundred Thousand Dollars ($100,000)
upon the satisfaction of certain conditions. The notes bear
interest at the rate of 6% per year through the maturity
date, which is January 15, 2005. The notes automatically
convert into Common Stock at any time the price of the
shares on an exchange close above Three Dollars ($3.00) per
share for twenty (20) consecutive trading days. In the
absence of such event, each holder may elect to convert all,
or a portion of the principal outstanding on his or her
note. The conversion rate is one share for each dollar of
outstanding principal and accrued but unpaid interest.
On December 12, 2002, the Company issued a convertible
promissory note bearing interest at the rate of 8% per annum
in the principle amount of Fifty Thousand Dollars ($50,000)
to Fidra Holdings Ltd. Under the terms of the convertible
promissory note, the holder of the note is entitled to
convert all sums due under the December12 Note for $.50 per
share. As of April 14, 2003, the December 12 Note has not
been converted.
On December 24, 2002, the Company issued a Convertible
Promissory Note bearing interest at the rate of 8% per annum
in the principle amount of Ten Thousand Dollars ($10,000).
Under the terms of the Convertible Promissory Note, the
holder of the Note is entitled to convert all sums due under
the December 24 Note for $0.50 per share. As of April 14,
2002, the December 24 Note has not been converted.
On December 27, 2002, the Company issued a Convertible
Promissory Note bearing interest at the rate of 8% per annum
in the principle amount of One Thousand Dollars ($1,000).
Under the terms of the Convertible Promissory Note, the
holder of the Note is entitled to convert all sums due under
the December 27 Note for $0.50 per share. As of April 14,
2003, the December 27 Note has not been converted.
Convertible Line of Credit
On August 14, 2002 the Company entered into an agreement for
a $1,000,000 Convertible Line of Credit. Under the
Convertible Line of Credit the Company was to drawdown the
funds in five monthly installments through November 15,
2002. The transaction was never completed due to the funder
and contracting party defaulting in its funding obligation.
The Company did not receive any proceeds and canceled the
agreement for the Convertible Line of Credit on March 28,
2003 by Board action.
Private Equity Line of Credit
On January 16, 2002, the Company and Prima Capital Growth
Fund LLC (the "Investor") entered into the Private Equity
Line of Credit Agreement (the "PELC Agreement"), a
Registration Rights Agreement and Warrants to purchase up to
600,000 shares of the Company's Common Stock at $1.00 per
share. Under the PELC Agreement, the Company was to issue
and sell, from time to time, shares of its Common Stock for
cash consideration up to an aggregate of $30 million (the
"PELC Facility"). The Company intended to use the PELC
Facility to make investments in GeneThera from time to time,
consistent with approved budgets and the attainment of
planned milestones, to fund continuing operations.
Pursuant to the PELC Agreement, the Company was required to
pay a commitment fee of $300,000 and to file a Registration
Statement relating to shares that may be sold under the PELC
Facility. On March 4, 2002, the Investor agreed to amend
the PELC Agreement to permit the payment of the commitment
fee upon the earlier to occur of (i) the Company receiving
$800,000 of equity financing prior to the filing of the
Registration Statement; or (ii) September 15, 2002. The
amendment also provided the Investor with the right, but not
the obligation, to convert all or any portion of the
commitment fee to shares of Common Stock based upon a value
of $1.00 per share. The Company recorded the commission fee
of $300,000 as deferred cost to be amortized over a period
of 36 months. On September 28, 2002, the option to convert
into shares of common stock was exercised. After a 2:1
forward stock split, 660,000 shares of common stock were
issued. After the 660,000 shares of common stock were
issued, the transaction was never completed due to the
funder and contracting party defaulting in its funding
obligation. The Company did not receive any proceeds and
canceled the agreement for the Private Equity Line of Credit
on March 28, 2003 by Board action. We fully paid the
remaining commitment fees.
Reverse Stock Split
In January 2002, the Board amended the Articles of Incorporation
to effect a reverse split of all outstanding shares of
common stock at an exchange ratio of one-for-eight. Under
Florida law, the authorized common shares was reduced to
1,562,500 shares although the par value remained unchanged
at $0.001 per share.
Forward Stock Split
In July 2002, the Board authorized a 2:1 forward stock
split, effective on September 2, 2002. Each of the presently
issued and outstanding shares of the common stock of the
Corporation (664,299 shares as of August 15, 2002) was
divided into two (2) shares, and the Corporation's
authorized shares of common stock was divided on the same
basis so that our authorized common stock is now 3,125,000
shares.
Item 7. Financial Statements
The following consolidated financial statements of the
Company and report of independent certified public
accountants required by this item are filed herewith in this
Form 10-KSB.
HAND BRAND DISTRIBUTION, INC.
AN SUBBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
TABLE OF CONTENTS
Page No.
Independent Auditors' Report 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) 6
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Hand Brand Distribution, Inc. and Subsidiaries
Wheat Ridge, CO
We have audited the accompanying consolidated balance sheets of
Hand Brand Distribution, Inc. and Subsidiaries (the "Company") as
of December 31, 2002 and 2001, and the related consolidated
statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Hand Brand Distribution, Inc. and
Subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of its operations, and its cash flows for
the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 17 to the consolidated financial statements,
the Company has no established source of revenue, recurring
losses from operations, cash used in operations and accumulated
deficit. This raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to
these matters is also described in Note 17. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Sewell and Companhy
SEWELL AND COMPANY, PA
Hollywood, Florida
May 6, 2003
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
Assets
2002 2001
Current assets
Cash $ 9,144 $ 1,148
Accounts receivable, net 5,517 -
Inventory 1,074 -
Total current assets 15,715 1,148
Property and equipment, net 238,874 75,786
Other assets
Deposits 5,929 -
Goodwill and trademark, net 32,020 -
Deferred cost 31,960 30,107
Other assets 69,909 30,107
$ 324,518 $ 107,041
See notes to financial statements.
3
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
Liabilities and Stockholders' (Deficit)
2002 2001
Current liabilities
Bank overdraft $ - $ 403
Accounts payable 180,020 33,032
Accrued expenses 342,667 -
Deferred income 5,900 -
Lease pyable 6,367 -
Loan payable 50,000 50,000
Notes payable 131,683 35,279
Convertible notes payable 61,000 -
Total current liabilities 777,637 118,714
Long term lease payable 26,534 -
Long term notes payable 25,200 -
Long term convertible notes
payable 235,600 -
Minority interest in consolidated
subsidiary 209,402 -
Stockholders' (deficit)
Common stock $.001 par value,
authorized 3,125,000 shares;
issued 18,621,476 shares; and
outstanding 2,009,576 shares 18,621 981,400
Additional paid in capital 2,433,240 2,000
Accumulated (deficit) (3,401,716) (995,073)
(949,855) (11,673)
$ 324,518 $ 107,041
See notes to financial statements
4
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
YEARS ENDED DECEMBER 31
2002 2001
Income
Sales net of returns $ 77,516 $ -
Research fees 5,000 125,382
82,516 125,382
Cost of sales (30,352) -
Gross profit 52,164 125,382
Expenses
Salaries 301,198 195,000
Professional fees 248,249 -
General and administrative
expenses 188,778 104,705
Lease expense 98,457 68,144
Lab expenses 51,606 42,259
Consulting 47,664 184,946
Depreciation and amortization 44,383 24,000
Sales expenses 18,823 -
Insurance 14,496 10,922
1,013,654 629,976
Loss from operations (961,489) (504,594)
Other income (expenses)
Other income 305 53,365
Other expenses (2,833) -
Litigation expense (75,475) -
Interest expense (314,094) (2,435)
Net loss from operations (1,353,587) (453,664)
Minority interest in loss of
consolidated subsidiary 62,998 -
Net loss $ (1,290,589) $ (453,664)
Loss per common share $ (0.07) $ (0.23)
See notes to financial statements.
5
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2002 and 2001
Common Stock
Shares Amount
Issuance of common stock to
founders for consulting services
rendered at an aggregate of
$36,000 $2,520,000 $ 2,520
Issuance of common stock in
exchange for equipment
supplies and cash 600,000 600
Issuance of common stock
according to a contract for
computer services and
financing 360,000 360
Issuance of common stock
in exchange for cash 30,000 30
Issuance of common stock
in exchange for leased
equipment of which the
Company will retain
ownership at the end of
the lease 422,400 422
Balance December 31, 1999 3,932,400 3,932
Issuance of common stock in
exchange for consulting
services rendered 150,000 150
sub-total 4,082,400 $ 4,082
Paid in Accumulated
Capital Deficit
Issuance of common stock to
founders for consulting services
rendered at an aggregate of
$36,000 $ 33,480 $ -
Issuance of common stock in
exchange for equipment
supplies and cash 99,400
Issuance of common stock
according to a contract for
computer services and
financing 59,640
Issuance of common stock
in exchange for cash 4,970
Issuance of common stock
in exchange for leased
equipment of which the
Company will retain
ownership at the end of
the lease 69,978
Net loss 1999 (154,750)
Balance December 31, 1999 267,468 (154,750)
Issuance of common stock in
exchange for consulting
services rendered 24,850
sub-total $ 292,318 $(154,750)
Total
Issuance of common stock to
founders for consulting services
rendered at an aggregate of
$36,000 $ 36,000
Issuance of common stock in
exchange for equipment
supplies and cash 100,000
Issuance of common stock
according to a contract for
computer services and
financing 60,000
Issuance of common stock
in exchange for cash 5,000
Issuance of common stock
in exchange for leased
equipment of which the
Company will retain
ownership at the end of
the lease 70,400
Net loss 1999 (154,750)
Balance December 31, 1999 116,650
Issuance of common stock in
exchange for consulting
services rendered 25,000
sub-total $ 141,650
See notes to financial statements
6
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2002 and 2001
Common Stock
Shares Amount
sub-total $4,082,400 $ 4,082
Issuance of common stock in
exchange for an agreement
for management and financing
for $80,000 1,200,000 1,200
Issuance of common stock in
exchange for a consulting
agreement 60,000 60
Balance December 31, 2000 5,342,400 5,342
Issuance of common stock
to an officer in lieu of salary 6,750,000 6,750
Issuance of common stock
to an employee in lieu of
salary 360,000 360
Issuance of common stock to
and employee in lieu of salary 90,000 90
Issuance of common stock in
exchange for an agreement for
management and financing for
$25,000 360,000 360
Issuance of common stock in
exchange for consulting
services 600,000 600
Balance December 31,
2001 13,502,400 $ 13,502
Paid in Accumulated
Capital Deficit
sub-total $ 292,318 $ (154,750)
Issuance of common stock in
exchange for an agreement for
management and financing for
$80,000 198,800
Issuance of common stock in
exchange for a consulting
agreement 11,940
Balance December 31, 2000 503,058 (541,409)
Issuance of common stock
to an officer in lieu of salary 233,250
Issuance of common stock to
an employee in lieu of salary 59,640
Issuance of common stock to
an employee in lieu of salary 14,910
Issuance of common stock in
exchange for an agreement for
management and financing for
$25,000 59,640
Issuance of common stock in
exchange for consulting
services 99,400
Net loss, 2001 (453,664)
Balance December 31,
2001 $ 969,898 $ (995,073)
Total
sub-total $ 141,650
Issuance of common stock in
exchange for an agreement for
management and financing for
$80,000 200,000
Issuance of common stock in
exchange for a consulting
agreement 12,000
Net loss 2000 (386,659)
Balance December 31, 2000 (33,009)
Issuance of common stock to
an officer in lieu of salary 240,000
Issuance of common stock to
an employee in lieu of salary 60,000
Issuance of common stock to
an employee in lieu of salary 15,000
Issuance of common stock in
exchange for an agreement for
an agreement for management
and financing for $25,000 60,000
Issuance of common stock in
exchange for consulting services 100,000
Net loss, 2001 (453,664)
Balance December 31, 2001 (11,673)
See notes to financial statements
7
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2002 and 2001
Common Stock
Shares Amount
sub-total 13,502,400 $ 13,502
Issuance of common stock in
exchange for cash 4,731,900 4,732
Recapitalization on February 25,
2002 697,176 697
Minority interest (1,622,400) (1,622)
Issuance of shares of common stock
in connection with convertible
notes payable 631,400 631
Issuance of shares of common stock
in connection with convertible
notes payable 21,000 21
Issuance of shares of common stock
in connection with conversion of
commitment fee 660,000 660
Balance December 31, 2002 18,621,476 $ 18,621
Paid in Accumulated
Capital Deficit
sub-total $ 969,898 $ (995,073)
Issuance of common stock in
exchange for cash 78,530
Recapitalization on February 25,
2002 1,000,702 (1,116,054)
Minority interest (270,778)
Issuance of shares of common stock
in connection with convertible
notes payable 315,069
Issuance of shares of common stock
in connection with convertible
notes payable 10,479
Issuance of shares of common stock
in connection with conversion of
commitment fee 329,340
Net loss, 2002 (1,290,589)
Balance December 31, 2002 $ 2,433,240 $(3,401,716)
Total
sub-total $ (11,673)
Issuance of common stock in
exchange for cash 83,262
Recapitalization on February 25,
2002 (114,655)
Minority interest (272,400)
Issuance of shares of common stock
in connection with convertible
notes payable 315,700
Issuance of shares of common stock
in connection with convertible
notes payable 10,500
Issuance of shares of common stock
in connection with conversion of
commitment fee 330,000
Net loss, 2002 (1,290,589)
Balance December 31, 2002 (959,855)
See notes to financial statements
8
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31,
2002 2001
Cash flows from operating
activities:
Net loss $ (1,290,589) $(453,664)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 44,383 24,000
Compensation in exchange for
common stock - 330,000
Minority interest 62,998 -
Gain on transfer of asset - (12,594)
Loan fee amortization 300,000 -
(Increase) decrease in accounts
receivable (5,517) -
(Increase) decrease in inventory (1,074) -
(Increase) decrease in prepaid
expenses - -
(Increase) decrease in other
assets (72,362) -
(Increase) decrease in accounts
payable and accrued liabilities 515,826 28,839
Increase (decrease) in deferred
income 5,900 -
Total adjustments 850,154 370,245
Net cash used in operating
activities (440,435) (83,419)
Cash flows from investing activities:
Cash payments for the purchase of
lab equipment (11,534) (2,400)
Net cash used in investing
activities (11,534) (2,400)
Cash flows from financing activities:
Bank overdraft - 403
Payments on lease payable (11,407) -
Principal payment on long-term
debt - (4,383)
Principal payment on note
payable (27,000) -
Proceeds from issuance of
common stock 83,262 25,000
Proceeds from loans payable 415,110 65,000
Net cash provided by financing
activities 459,965 86,020
Net increase in cash and cash
equivalents 7,996 201
Cash and cash equivalents,
beginning of year 1,148 947
Cash and cash equivalents,
end of year $ 9,144 $ 1,148
See notes to financial statements.
9
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31,
2002 2001
Supplemental disclosures of cash
flow information:
a) Cash paid during the period for:
Interest expense $ 1,666 $ 1,616
b) Stockholders' equity (deficit)
note:
On January 10, 2002, 788,650 shares of common stock valued at
$0.105 per share were issued to an unrelated party for $83,262 in
cash.
On February 25, 2002, the Company acquired GeneThera, Inc.
The acquisition of GeneThera, Inc. by the Company has been
treated as an acquisition of the Company by GeneThera, Inc.,
and a recapitalization of GeneThera, Inc. A total of
16,611,900 (after forward stock split) shares of common stock
of the Company equivalent to 91% of GeneThera, Inc. will be
issued as a result of the transaction. The Company expects to
issue the remaining 811,200 shares of common stock.
On August 13, 2002, certain holders exercised their option to
convert $10,500 in convertible notes payable per agreement
dated August 12, 2002. After 2:1 forward stock split, 21,000
shares of common stock were issued.
In May, 2002, certain holders exercised their option to convert
$315,700 in convertible notes payable into 631,400 shares
(after a 2:1 forward stock split) of common stock at $1 per
share.
On September 28, 2002, the Company issued 660,000 shares
of common stock in connection with the conversion of a line
of credit commitment fee plus legal expenses.
See notes to financial statements.
10
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACOUNTING POLICIES
Business Description
Hand Brand Distribution, Inc. ("the Company") was incorporated
in November 1995, under the laws of the State of Florida. On
January 23, 2002, ten shareholders of the Company entered into a
stock purchase agreement with GeneThera, Inc. to acquire
approximately 91% of its stock in a transaction accounted for as a
recapitalization of GeneThera, Inc. (See Note 14). The Company is
a biotechnology company that develops molecular assays for the
detection of food contaminating pathogens, veterinary diseases and
genetically modified organisms.
GeneThera, Inc. was considered to be in the development stage for
the year ended December 31, 2001, and the accompanying comparative
financial statements represent those of a development stage company
for that year. Activity during the development stage included
organization of the Company, and implementation and revision of the
business plan. The Company has also provided research services to
unrelated parties.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, The
Family Health News, Inc. and GeneThera, Inc. All significant
inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method based on the estimated useful lives
of the assets, which is 5 years.
Revenue Recognition
Revenues are recognized when services are rendered.
Advertising
Advertising costs are charged to operations when incurred. There
were no advertising expenses for the years ended December 31, 2002
and 2001.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACOUNTING POLICIES - continued
Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements, which may apply to the Company.
Statement No.133 as amended by Statement No. 137 and 138, Accounting
for Derivative Instruments and Hedging Activities established
accounting and reporting standards for derivative instruments and
related contracts and hedging activities. This statement is
effective for all fiscal quarters and fiscal years beginning after
June 15, 2000. The adoption of this pronouncement did not have a
material effect on the Company's financial position, results of
operations or liquidity. Statement No. 141, Business Combinations
(SFAS 141) establishes revised standards for accounting for business
combinations. Specifically, the statement eliminates the pooling
method, provides new guidance for recognizing intangible assets
arising in a business combination, and calls for disclosure of
considerably more information about a business combination. This
statement is effective for business combinations initiated on or
after July 1, 2001. The adoption of this pronouncement on July 1,
2001 did not have a material effect on the Company's financial
position, results of operations or liquidity. Statement No. 142,
Goodwill and Other Intangible Assets (SFAS 142) provides new
guidance concerning the accounting for the acquisition of
intangibles, except those acquired in a business combination, which
is subject to SFAS 141, and the manner in which intangibles and
goodwill should be accounted for subsequent to their initial
recognition. Generally, intangible assets with indefinite lives, and
goodwill, are no longer amortized; they are carried at lower of cost
or market and subject to annual impairment evaluation, or interim
impairment evaluation if an interim triggering event occurs, using
a new fair market value method. Intangible assets with finite lives
are amortized over those lives, with no stipulated maximum, and an
impairment test is performed only when a triggering event occurs.
This statement is effective for all fiscal years beginning after
December 15, 2001. The Company believes that the implementation of
SFAS 142 on April 1, 2002 did not have a material effect on the
Company's financial position, results of operations, or liquidity.
Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets supercedes Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS 121). Though it retains the basic requirements
of SFAS 121 regarding when and how to measure an impairment loss,
SFAS 144 provides additional implementation guidance. SFAS 144
excludes goodwill and intangibles not being amortized among other
exclusions. SFAS 144 also supersedes the provisions of APB 30,
Reporting the Results of Operations, pertaining to discontinued
operations. Separate reporting of a discontinued operation is still
required, but SFAS 144 expands the presentation to include a
component of an entity, rather than strictly a business segment as
defined in SFAS 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS 144 also eliminates the current exemption
to consolidation when control over a subsidiary is likely to be
temporary. This statement is effective for all fiscal years
beginning after December 15, 2001. The Company believes that the
implementation of SFAS 144 on April 1, 2002 did not have a material
effect on the Company's financial position, results of operations
or liquidity.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 2 BASIC EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share for each year is computed by
dividing income (loss) for the year by the weighted average number
of common shares outstanding during the year. Diluted earnings
(loss) per share include the effects of common stock equivalents to
the extent they are dilutive.
Basic weighted average number of shares outstanding at December 31
is as follows:
2002 2001
Basic weighted and dilutive average
number of shares outstanding 17,620,689 1,979,058
The above calculation reflects the issuance of 16,611,900 shares
(after 2:1 forward stock split) of the Company's common stock as of
February 25, 2002 in connection with the acquisition of GeneThera,
Inc. (See Note14)
NOTE 3 CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
credit risk include cash on deposit with three financial
institutions amounting to $9,144 at December 31, 2002 and
$1,148 at December 31 2001. Financial institutions insure
depositors for up to $100,000 through the U.S. Federal
Deposit Insurance Corporation.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 and 2001 consisted of
the following:
Amortiza-
Period
2002 2001 in Years
Computer $ 12,372 $ 9,700 5
Equipment 5,414 0 10
Telephone system 3,400 0 5
Furniture & fixtures 76,743 0 7
Laboratory
equipment 277,194 114,086 5
375,123 123,786
Less accumulated
depreciation (136,249) (48,000)
$ 238,874 $75,786
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 4 PROPERTY AND EQUIPMENT - continued
Depreciation expense for the years ended December 31, 2002 and 2001
was $40,824 and $24,000, respectively.
On February 25, 2002, through the acquisition of GeneThera, the
Company acquired computers, laboratory equipment, furniture and
fixtures totaling $75,786. (See Note 14)
During the year ended December 31, 2002, the Company entered into
capital lease agreements to acquire laboratory equipment and a
computer. (See Note 5)
NOTE 5 LEASES
Capital Leases
The Company's property under capital leases is included in property
and equipment (See Note 4) and is summarized as follows:
2002 2001
Laboratory Equipment $ 31,574 $ 0
Computer 2,672 0
34,246 0
Less: Accumulated
depreciation (1,306) (0)
Net assets under capital
leases $ 32,940 $ 0
Operating Leases
The Company has a lease agreement for its Florida facility, with
monthly payments of $700 plus tax, renewable annually.
The Company leases office space and vehicles under non-cancelable
operating leases for its Colorado facility, which have initial terms
in excess of one year.
Total lease expense for the years ended December 31, 2002 and 2001 was
$98,457, and $68,144, respectively.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 5 LEASES - continued
At December 31, 2002, future minimum annual lease payments under
operating and capital leases are as follows:
Operating Capital
Lease Leases
2003 $ 78,031 $ 6,367
2004 63,337 6,655
2005 63,337 7,155
2006 63,337 7,374
2007 0 5,349
2008 and thereafter 0 0
$ 268,042 $ 32,900
Total interest expense under capital leases was $634 for the year
ended December 31, 2002. There was no interest expense under
capital leases for the year ended December 31, 2001.
NOTE 6 LOAN PAYABLE
The Company has an outstanding loan payable at December 31, 2002 and
2001 as follows:
2002 2001
Loan payable with no
interest, due on demand,
unsecured. $ 50,000 $ 50,000
Less current portion (50,000) (50,000)
Total long-term loan payable $ 0 $ 0
There was no interest expense for the years ended December 31, 2002
and 2001.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 7 NOTES PAYABLE
The Company has outstanding notes payable at December 31, 2002 and
2001 as follows:
2002 2001
Note payable with an interest rate of 7% per
annum, payable in 5 payments of $1,500 and
a lump sum balance on December 1, 2001,
guaranteed jointly by the Company and its
President. The note is in default as of the date
of this report. $ 23,474 $ 21,938
Note payable with an interest rate of 14% per
annum, payable principal and interest on
August 31, 2001, unsecured. The note is in
default as of the date of this report.
15,209 13,341
Note payable to stockholder with interest
at 6% due February 20, 2004; callable at the
borrower's option. 25,200 0
Note payable with no interest rate, payable
$9,000 per month beginning July 2, 2002,
due August 2, 2003; secured by equipment.
(See Note 4) 93,000 0
156,883 35,279
Less current portion: (131,683) (35,279)
Total long-term note
payable $ 25,200 $ 0
Total interest expense for the year ended December 31, 2002 and 2001
was $3,404 and $2,435, respectively.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 8 CONVERTIBLE NOTES PAYABLE
Unrelated Parties
On February 25, 2002, the following notes were renegotiated:
* Convertible notes amounting to $84,800, with conversion rights
into 1,375 shares of common stock
* Note payable in the amount of $14,605, due on demand, and
* Note payable in the amount of $58,900, due
on demand.
On April 22, 2002, the following notes were
renegotiated:
* Note payable in the amount of $14,000, due
on demand
On May 10, 2002, the following notes were renegotiated:
* Note payable in the amount of $200,000, due
on demand
2002 2001
These notes, plus accrued interest
totaling $18,995, were converted
into a new note payable not to
exceed $500,000, with interest at 6%
due January 5, 2005; convertible
into shares of common stock at a
price of $1.00 per share. Upon
conversion of the note, all
remaining interest shall be paid in
common stock at $1.00 per share. As
of the balance sheet date, the
option to convert $315,700 into
315,700 shares of common stock was
exercised. $ 75,600 $ 0
Note payable to an unrelated party
with interest at 6%; due January 5,
2005; convertible into shares of
common stock at a price of $1.00 per
share. Upon conversion of the note,
all remaining interest shall be paid
in common stock at $1.00 per share.
As of the balance sheet date, the
option to convert into shares of
common stock was not exercised. 10,000 0
Note payable - line of credit loan
not to exceed one million dollars.
For each draw, the borrower will
issue a convertible promissory note
bearing a 6% interest rate per year
through January 14, 2004, and 12%
interest rate from January 15, 2004;
convertible into shares of common
stock at $1.40 per share, subject to
adjustment. 150,000 0
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 8 CONVERTIBLE NOTES PAYABLE - continued
2002 2001
Series A convertible note payable to
a shareholder, with interest at 8%;
due May 12, 2003; convertible into
shares of common stock at a price of
$0.50 per share. As of the balance
sheet date, the option to convert
into shares of common stock was not
exercised. $ 50,000 $ 0
Series A convertible note payable to
an individual, with interest at 8%;
due May 24, 2003; convertible into
shares of common stock at a price of
$0.50 per share. As of the balance
sheet date, the option to convert
into shares of common stock was not
exercised. 10,000 0
Series A convertible note payable to
a shareholder, with interest at 8%;
due May 27, 2003; convertible into
shares of common stock at a price of
$0.50 per share. As of the balance
sheet date, the option to convert
into shares of common stock was not
exercised. 1,000 0
296,600 0
Less: current portion (61,000) ( 0)
Total long-term convertible notes
payable 235,600 $ 0
Interest expense for the year ended December 31, 2002 was $10,215.
There was no interest expense for the year ended December 31, 2001.
NOTE 9 EQUITY LINE OF CREDIT
On January 16, 2002, the Company entered into an agreement to obtain
a private equity line of credit for up to $30,000,000, in exchange
for common stock and warrants, for a period of 36 months, approved
by the board of directors and based upon the following terms:
* The purchase price for the common stock will be 87.5% of
the market price determined by the weighted average
market price computed for the 20 trading days following
the request for the sale of the shares of common stock.
* The Company shall register the resale of the common stock,
to acquired and the 600,000 warrants to be issued, and
the underlying shares of common stock pursuant to a
Registration Statement to be filed with the Securites and
Exchange Commisssion
* 600,000 warrants to purchase common stock with an
exercise price of $1.00 per share that will expire five
years from the issue date.
The Company agreed to pay a commission fee of $300,000, plus legal
fees totaling $30,000, with rights to convert into shares of common
stock at $1 per share on or before September 15, 2002, payable on
or before the earlier of:
i. Receipt of $800,000 in equity capital by the
company, or
ii. September 15, 2002
The Company recorded the commission fee of $300,000 as deferred cost
to be amortized over a period of 36 months. On September 28, 2002,
the option to convert into shares of common stock was exercised.
After a 2:1 forward stock split, 660,000 shares of common stock were
issued.
At December 31, 2002 the Company amortized the full amount of the
commission fee as interest expense.
NOTE 10 STOCKHOLDERS' DEFICIT
Common Stock
On March 5, 1999, the Company issued 1,260,000 shares (after
recapitalization See Note 14) of common stock valued at $36,000
according to an employment agreement, approved by the board of
directors, to a founder for services rendered during 1999.
Accordingly, consultant expense of $36,000 was charged to
operations.
On March 5, 1999, 300,000 shares (after recapitalization See Note
14) of common stock were issued in exchange for used equipment with
a fair market value of $34,586, supplies, and other items totaling
$25,414, and $40,000 in cash to an unrelated party. Accordingly,
lab equipment was recorded at $34,586, supplies at $21,414, and
glassware at $4,000 - the market value for these items.
On April 1, 1999, according to a contract agreement to provide
computer services, the Company issued 180,000 shares (after
recapitalization See Note 14) of common stock valued at $60,000,
in exchange for computer & consulting services in the amount of
$55,000, and $5,000 in cash. Accordingly, consultant expense of
$55,000 was charged to operations.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 10 STOCKHOLDERS' DEFICIT - continued
On April 1, 1999, 15,000 shares (after recapitalization See Note
14) of common stock valued at $1.00 per share were issued to an
unrelated party for $500 in cash.
On August 3, 1999, according to a contract agreement, the Company
issued 211,200 shares (after recapitalization See Note 14) of
common stock valued at $70,400, in exchange for leased equipment
with an estimated fair market value of $70,400, of which the Company
will retain ownership at the end of the lease. Accordingly, the
Company recorded the equipment at $70,400.
On January 1, 2000, 75,000 shares (after recapitalization See Note
14) of common stock valued at $1.00 per share were issued in
exchange for services rendered. Accordingly, consultant expense of
$25,000 was charged to operations.
On April 10, 2000, according to a contract agreement to provide
management services, the Company issued 600,000 shares (after
recapitalization See Note 14) of common stock valued at $200,000,
in exchange for management services in the amount of $120,000, and
$80,000 in cash. Accordingly, consultant expense of $120,000 was
charged to operations.
On May 15, 2000, according to a contract agreement to provide
consulting services, the Company issued 30,000 shares (after
recapitalization See Note 14) of common stock valued at $12,000.
Accordingly, consultant expense of $12,000 was charged to
operations.
On February 15, 2001, the Company issued 3,375,000 shares (after
recapitalization See Note 14) of common stock valued at $240,000
according to an employment agreement, approved by the board of
directors, to an officer in lieu of salary for services rendered
during 2000 & 2001. Accordingly, salary expense of $120,000 was
charged to operations at December 31, 2001 and $120,000 in 2000.
On February 15, 2001, the board of directors of the Company approved
the issuance of 180,000 shares (after recapitalization See Note
14) of common stock valued at $60,000 to an officer in lieu of
salary for services rendered. Accordingly, salary expense of
$60,000 was charged to operations.
On February 15, 2001, the board of directors of the Company approved
the issuance of 45,000 shares (after recapitalization See Note 14)
of common stock valued at $15,000 to an officer in lieu of salary
for services rendered. Accordingly, salary expense of $15,000 was
charged to operations.
On October 1, 2001, according to a contract agreement to provide
management services, the Company issued 180,000 shares (after
recapitalization See Note 14) of common stock valued at $60,000,
in exchange for management services in the amount of $35,000, and
$25,000 in cash. Accordingly, consultant expense of $35,000 was
charged to operations.
On October 1, 2001, according to a contract agreement to provide
consulting services, the Company issued 300,000 shares (after
recapitalization See Note 14) of common stock valued at $100,000.
Accordingly, consultant expense of $100,000 was charged to
operations.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 10 STOCKHOLDERS' DEFICIT - continued
On January 10, 2002, 2,365,950 shares (after recapitalization See
Note 14) of common stock valued at $0.105 per share were issued to
an unrelated party for $83,262 in cash.
On February 25, 2002, the Company acquired GeneThera, Inc. The
acquisition of GeneThera, Inc. has been treated as an acquisition
of the Company by GeneThera, Inc., and a recapitalization of
GeneThera, Inc. A total of 16,611,900 shares (after 2:1 forward
stock split) of common stock of the Company equivalent to 91% of
GeneThera, Inc. were issued as a result of the transaction, subject
to stockholders' approval on or before December 31, 2002. (See Note
14) The Company expects to acquire approximately 6% additional
outstanding shares of GeneThera common stock during the year.
At the time of the closing of the acquisition of GeneThera, Inc.,
the Company did not have sufficient authorized shares of common
stock to issue such shares. Consequently, under Florida law, the
issuance of such shares would be void. In May 2002, substantially
all of the former stockholders of GeneThera, Inc. agreed to accept
shares of the Company's common stock immediately upon stockholders'
approval to increase the number of authorized shares of common
stock. If approval is not received by December 31, 2002, former
GeneThera stockholders may elect to forego their rights to receive
shares of the Company's common stock, and have their shares of
GeneThera returned to them.
In May 2002, certain holders exercised their option to convert
$315,700 in convertible notes payable into 631,400 shares (after a
2:1 forward stock split) of common stock at $1 per share.
On August 13, 2002, certain holders exercised their option to
convert $10,500 in convertible notes payable per agreement dated
August 12, 2002. After a 2:1 forward stock split, 21,000 shares of
common stock were issued.
On September 28, 2002, the Company issued 660,000 shares of common
stock in connection with the conversion of a line of credit
commitment fee plus legal expenses.
NOTE 11 INCOME TAXES
At December 31, 2002, the Company had useable net operating loss
carryforwards of approximately $2,111,127 for income tax purposes,
available to offset future taxable income of the U.S. entity
expiring through 2021.
The valuation allowance was $419,000 at December 31, 2002. This
allowance was reserved at December 31, 2001, as management estimates
that it is more likely than not that the deferred tax assets will
not be realized due to uncertainty of the Company's ability to
generate future taxable income. The valuation allowance was
adjusted based on estimated use of net operating losses through
December 31, 2001 by $160,000.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 11 INCOME TAXES - continued
The Company has no current or deferred income tax due to its
operating losses.
The Company has a federal net operating loss carryforward at
December 31, 2002 and 2001 of approximately $2,280,000 and
$1,000,000, respectively, subject to annual limitations prescribed
by the Internal Revenue Code, which is available to offset future
taxable income through 2022. A 100% valuation allowance has been
recorded to offset the net deferred taxes due to uncertainty of the
Company's ability to generate future taxable income.
Deferred taxes consist of the following:
2002 2001
Current taxes $ 0 $ 0
Deferred tax assets:
Net operating loss carryforward 323,000 189,000
Less valuation allowance (323,000) (189,000)
Net deferred tax assets $ 0 $ 0
The Company's tax expense differs from the "expected" tax expense
for the years ended December 31, (computed by applying the Federal
Corporation tax rate of 15% to loss before taxes), as follows:
2002 2001
Statutory rate applied to loss before
income taxes $ 192,000 $ 58,000
State income taxes, net of federal
income tax effect 58,000 $ 15,300
Changes in valuation allowance (250,000) (73,000)
Net deferred taxes $ 0 $ 0
NOTE 12 COMMITMENTS
On January 14, 2002, the board of directors voted to sell the stock
of The Family Health News, Inc., subject to stockholder approval.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 14 EMPLOYMENT AGREEMENTS
On January 23, 2002, the president and CEO of GeneThera, Inc.
entered into an employment agreement with Hand Brand Distribution,
Inc. and its successors for a five-year period, to be effective
February 25, 2002 and expiring January 24, 2007, payable at $12,000
per month. The compensation committee of the board of directors
will determine salary increases at the end of each year. A bonus
of $18,000 was paid upon signing of the agreement. If the Company's
net income is $2,000,000 or more, a bonus of two times the monthly
salary will be paid to the president and CEO of GeneThera. A
covenant not to compete during the term of the agreement for a
period of 24 months thereafter is included.
On February 25, 2002, the Company entered into an employment
agreement with its president for one year for a total of $3,000 a
month, and an additional option to purchase 50,000 shares of the
Company at an option price of $3.50 per share with an exercise
period from January 31, 2002 to February 24, 2007. The option
becomes vested on December 31, 2002 and is subject to the terms and
conditions of the Stock Incentive Plan.
NOTE 15 ACQUISITION
On January 23, 2002, the Company entered into stock purchase
agreements with ten stockholders of GeneThera, Inc. to acquire
approximately 91% of its outstanding stock in exchange for the
Company's common stock. These agreements closed on February 25,
2002. For accounting purposes, the acquisition has been treated as
a capital transaction and as a recapitalization of GeneThera, Inc.
The financial statements became those of GeneThera, Inc., with
adjustments to reflect the changes in equity structure. The
operations are those of GeneThera, Inc. for all periods presented,
and those of Hand Brand Distribution, Inc. from the recapitalization
date.
The assets of Hand Brand Distribution, Inc. and GeneThera, Inc. are
at historical cost as of December 31, 2002. GeneThera, Inc. was
incorporated on October 5, 1998. The value of the net assets of
Hand Brand Distribution, Inc. at the time of the acquisition is the
same as the historical negative book value of ($114,654). For the
recapitalization, equity accounts of GeneThera, Inc. have been
restated, based on the ratio of exchange of 3 (three) shares of the
Company for 1 (one) share of GeneThera, Inc. The Company expects
to acquire approximately 6% additional outstanding shares of
GeneThera common stock during the year. Currently, the authorized
shares are 3,125,000 (after 2:1 forward stock split). The board of
directors has approved an increase in the number of authorized
shares of common stock from 3,125,000 shares (after 2:1 forward
stock split) to 100,000,000 shares, subject to stockholder approval.
GeneThera, Inc. is a biotechnology company that develops molecular
assays for the detection of food contaminating pathogens, veterinary
diseases and genetically modified organisms.
HAND BRAND DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 15 CONTINGENCIES & LITIGATIONS
As part of an agreement dated August 3, 1999, the Company issued
70,400 shares of common stock to an individual in exchange for
leased equipment valued at $70,400, which the Company would own at
the end of the lease. The individual ceased to pay the lease, and
in an effort to retain the equipment, the Company paid the monthly
payments. Accordingly, the Company accrued a contingency of
$34,540 for future lease payments, and $61,753 as litigation
expense. The balance due for this equipment at December 1, 2002 was
$16,112.
In the normal course of business, GeneThera, Inc. had a dispute with
a company for failing to perform services, and is pursuing damages
relating to the non-performance. The Company has reserved $10,000 to
resolve this matter.
The ultimate outcome of these and other matters is unknown at this
time, however, management has accrued an estimated liability in the
amount of $48,262. In the opinion of management, the outcome will
have no adverse effect on the financial statements.
NOTE 16 AMENDMENT TO ARTICLES OF INCORPORATION
Effective September 2, 2002, the Company amended its articles of
incorporation to authorize a 2:1 forward stock split, and decreased
the par value of the common stock to $0.001. Fractional shares will
be rounded to the next whole number. No fractional shares will be
issued upon the forward stock split, nor will cash be disbursed.
NOTE 17 GOING CONCERN UNCERTAINTY
These financial statements are presented assuming the Company will
continue as a going concern. For the years ended December 31, 2002
and 2001, the Company showed operating losses of $1,290,589 and
$453,664 respectively. The accompanying financial statements
indicate that current liabilities exceed current assets by $761,902
and $117,566 for the years ended December 31, 2002 and 2001
respectively.
In addition, the Company is in default for payments on notes payable
in the amount of $38,683, including accrued interest. These factors
raise substantial doubt about its ability to continue as a going
concern. Management's plan with regard to these matters includes
raising working capital to assure the Company's viability, through
private or public equity offering, and/or debt financing, and/or
through the acquisition of new business or private ventures.
Item 8. Changes in and Disagreements with Accountants on
Accounting's Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Exchange Act
DIRECTORS AND OFFICERS
Below are the names and biographies of our Executive
Officers, Directors and Nominees for Directors as of May 14,
2003:
Name Age Position
------------------------- ---- --------------------
Antonio Milici, M.D., PhD 48 Chairman of the Board
of Directors, Chief
Scientific Officer
Tannya L. Irizarry 44 Chief Financial
Officer (Interim)
ANTONIO MILICI, M.D., PHD. Dr. Milici has served as the
Company's Chairman and Chief Science Officer and as a
Director since January 2002. His term as a Director expires
at the next annual meeting. He also served as the Chief
Executive Officer and Chief Science Officer of GeneThera
since October 1998. From 1995 to August 1998, Dr. Milici was
President and Chief Executive Officer of Genetrans, Inc., a
molecular diagnostic company located in Atlanta, Georgia.
Dr. Milici received his M.D. degree in Medicine and Surgery
from the University of Rome, Italy in 1979. After graduating
from medical school, he moved to Stanford University where
he worked on his Ph.D. degree research. He received his
Ph.D. degree in Experimental Hematology from the University
of Rome, Italy in 1983. He was a post-doctoral fellow at
both The University of Texas and Stanford University. He has
published over 30 articles and abstracts.
TANNYA L. IRIZARRY serves as the Company's Chief
Financial Officer (Interim) and Chief Administrative Officer of
GeneThera, Inc. Ms. Irizarry has a Bachelor in Business
Administration from the University of Puerto Rico. She was
an Administrative Manager and Project Coordinator at
University of Texas M.D. Anderson Cancer Center. Ms.
Irizarry has over 15 years experience in the field of
biotechnology and medical administration.
It is the Board's intent to increase the size of the Board
of Directors in the near future and to create an Audit
Committee and a Compensation Committee comprised of certain
members of the Board. Each Director is elected at the
Company's Annual Meeting of Shareholders and holds office
until the next Annual Meeting of Shareholders, or until the
successors are elected and qualified. At present, the
Company's bylaws provide for not less than three or more
than seven Directors. Currently, we have three Director
positions. The bylaws permit the Board of Directors to fill
any vacancy and such director may serve until the next
Annual Meeting of Shareholders or until his successor is
elected and qualified. Officers are elected by the Board of
Directors and their terms of office are, except to the
extent governed by employment contracts, at the discretion
of the Board. The officers of the Company devote full time
to the business of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our Executive Officers, Directors and 10%
Shareholders to file reports regarding initial ownership and
changes in ownership with the SEC. Executive Officers,
Directors, and 10% shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a)
forms they file. Our information regarding compliance with
Section 16(a) is based solely on a review of the copies of
such reports furnished to us by our Executive Officers,
Directors and 10% shareholders. These forms include (i) Form
3, which is the Initial Statement of Beneficial Ownership of
Securities, (ii) Form 4, which is a Statement of Changes in
Beneficial Ownership, and (iii) Form 5, which is an Annual
Statement of Changes in Beneficial Ownership. Based upon
this information, all required forms have been filed for the
fiscal year ended December 31, 2001.
Item 10. Compensation of Directors and Executive Officers
The following table sets forth certain summary information
for the fiscal year ended December 31, 2002 concerning the
compensation awarded to, earned by, or paid to those persons
serving as executive officers during fiscal year 2002. John
Taggart, Nicolas Wollner, Henry J. Boucher, Jr., Antonio
Milici, M.D.Ph.D., and Tannya L. Irizarry were the only
executive officers during the fiscal year ended December 31,
2002.
SUMMARY COMPENSATION TABLE
Annual Compensation
Year Salary Bonus
John Taggart, Chairman, 2002 -0- -0-
President and Chief 2001 $28,000 -0-
Executive Officer(1) 2000 $28,000 -0-
Nicolas Wollner(2) 2002 $36,000 -0-
Officer and Director
Henry J. Boucher, Jr.(3) 2002 -0- -0-
Officer and Director
Antonio Milici, MD, PhD 2002 $162,000 -0-
Chairman, President and
Chief Executive Officer(4)
Tannya L. Irizarry 2002 $72,000 -0-
Interim Chief Financial
Officer(5)
Other Restricted
Annual Stock
Compensation Awards
($) ($)
John Taggart, Chairman, -0- -0-
President and Chief
Executive Officer(1)
Nicolas Wollner(2) -0- -0-
Officer and Director
Henry J. Boucher, Jr.(3) -0- -0-
Officer and Director
Antonio Milici, MD, PhD -0- -0-
Chairman, President and
Chief Executive Officer(4)
Tannya L. Irizarry -0- -0-
Interim Chief Financial
Officer(5)
Securities
Underlying LTIP
Options/SARs Payouts
(#) ($)
John Taggart, Chairman, -0- -0-
President and Chief
Executive Officer(1)
Nicolas Wollner(2) -0- -0-
Officer and Director
Henry J. Boucher, Jr.(3) -0- -0-
Officer and Director
Antonio Milici, MD, PhD -0- -0-
Chairman, President and
Chief Executive Officer(4)
Tannya L. Irizarry -0- -0-
Interim Chief Financial
Officer(5)
All
Other
Compensation
($)
John Taggart, Chairman, -0-
President and Chief
Executive Officer(1)
Nicolas Wollner(2) -0-
Officer and Director
Henry J. Boucher, Jr.(3) -0-
Officer and Director
Antonio Milici, MD, PhD -0-
Chairman, President and
Chief Executive Officer(4)
Tannya L. Irizarry -0-
Interim Chief Financial
Officer(5)
(1) Mr. Taggart served as our Chief Executive Officer for
the past three years. He resigned as an officer and
director on February 25, 2002.
(2) Mr. Wollner served as an officer and Director during
2002 until November 2, 2002. He was not paid any
compensation.
(3) Mr. Boucher served as an officer and Director during
2002 until November 2, 2002. He was not paid any
compensation.
(4) Mr. Milici was only paid $42,350 for the year 2002.
(5) Ms. Irizarry was only paid $19,500 for the year 2002.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
During the fiscal year ended December 31, 2002, no options
were granted to the Executive Officer.
OPTION EXERCISES AND YEAR END VALUES
No options were exercised in the fiscal year ended December
31, 2002 by the Executive Officer who owns no options.
COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS
The Company entered into an employment agreement with Tony
Milici, M.D., Ph.D, to serve as the Chief Executive Officer
of GeneThera and Chairman of the Board of Directors and
Chief Scientific Officer of the Company through January 7,
2007. In consideration for his services, Dr. Milici will
receive a base salary of $144,000 per annum plus bonuses as
may be determined by the Board of Directors in its sole
discretion. As part of his Employment Agreement, Dr. Milici
is subject to non-disclosure and non-competition obligations
and has transferred to the Company of all his interests in
any idea, concept, technique, invention or written work.
The Company entered into an Employment Agreement with Tannya
L. Irizarry to serve as Chief Administrative Officer of
GeneThera Inc. through January 1, 20076. Ms Irizarry's base
salary is $78,000 per annum.
Effective February 25, 2002, the Company entered into an
employment agreement with Nicolas Wollner to act as interim
President of the Company. Mr. Wollner will receive $3,000.00
per month as base salary and options to purchase 50,000
shares of the Company's Common Stock at $3.50 per share,
exercisable commencing on January 1, 2003, until February
24, 2007. The options do not vest until December 31, 2002
and are subject to the terms and conditions of the Stock
Incentive Plan of the Company. As part of his Employment
Agreement, Mr. Wollner is subject to non-disclosure and non-
competition obligations and has transferred to the Company
of all his interests in any idea, concept, technique,
invention or written work. Mr. Wollner resigned from
GeneThera in November, 2002; his compensation as noted
above remains a liability of the Company.
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
The following table shows, as of May 24, 2002, the Common
Stock owned beneficially by (i) each of our Executive
Officers, (ii) each of our current Directors, (iii) all
Executive Officers and Directors as a group, and (iv) each
person known by us to be the beneficial owner of more than
five percent of our Common Stock.
Beneficial ownership is a technical term broadly defined by
the SEC to mean more than ownership in the usual sense. For
example, you beneficially own Common Stock not only if you
hold it directly, but also if you indirectly (through a
relationship, a position as a director or trustee, or a
contract or understanding), have the right to acquire it
within 60 days (or share the power to vote the stock, or
sell it). Except as disclosed in the footnotes below, each
of the Executive Officers and Directors listed have sole
voting and investment power over his shares. As of May 14,
2003, there were 2,988,598 shares of Common Stock issued and
outstanding and approximately 425 holders of record.
Shares
Name Current Title Beneficially Owned
Nicolas Wollner(1) President/Director 0
Antonio Milici, M.D. Chairman/President 1,000,000
Director/Chief
Scientific Officer
Henry J. Boucher,
Jr.(2) Director 0
John M. Taggart(3) 107,000
Fidra Holdings
Ltd.(4) 660,000
All Current Officers, 1,000,000
Directors as a Group
(three persons)
1 Mr. Wollner resigned as an Officer and Director of the
Company on November 2, 2002.
2 Mr. Henry Boucher, Jr., resigned as a Director of the
Company on November 2, 2002.
3 Mr. Taggart resigned as an officer and director of the
Company on February 25, 2002. Mr. Taggart's address is
6293 S.W. 32nd St., Miami, Florida 33130.
4 The address for Fidra Holdings Ltd. is One Cable Beach
Ct.., Nassau Bahamas.
Item 12. Certain Relationships and Related Party
Transactions
At various times prior to December 31, 2002, the former
President of the Company, John Taggart, made loans to the
Company in the aggregate principal amount of $15,300, which
amount remained outstanding on December 31, 2002. The loans
were evidenced by convertible promissory notes which convert
into shares of Common Stock.
Our Board of Directors recommends and considered it to be in
our best interest to enter into the FHNI Stock Sale with
John Taggart, our former President and a former Director.
FHNI has had a long history of losses, flat to negative
growth in revenues. Our Board believes that the terms and
conditions of the sale of FHNI are favorable and have been
negotiated on terms based on an arm's length transaction.
The Board also believes that there are no potential
purchasers for FHNI other than Mr. Taggart. The sale will
allow the Company's management to focus on the biotech
business of GeneThera, while reducing our overall debt. The
Board believes the GeneThera business holds more promise for
long-term growth and value than FHNI and wishes to devote
the Company's resources to the development of GeneThera's
business.
Under the terms of the Stock Purchase Agreement with FHNI
and Mr. Taggart, FHNI would be acquiring the stock of FHNI
without any representations as to its underlying assets and
business (which is on an "AS IS, WHERE IS" basis). In
exchange, Mr. Taggart and FHNI would assume all of the
liabilities of FHNI and the Company (approximately $150,000
as of January 23, 2002), with the exception of convertible
notes issued by the Company in the aggregate principal
amount of $100,000 and liabilities of our subsidiary
GeneThera, which will remain with the Company. The Company
would also contribute $50,000 towards the liabilities
assumed by FHNI and Mr. Taggart.
The FHNI Stock Sale was unanimously approved by our Board of
Directors on January 25, 2002. Mr. Taggart did not
participate in the discussions or voting by the Board as to
the sale of FHNI. Currently, the Board is evaluating
whether or not to proceed with the sale and is considering
other options.
On March 28, 2003, Hand Brand Distribution, Inc. entered
into a Mutual Release and Rescission of Contract with six of
the shareholders of GeneThera.. Tony Milici was President
and sole Director of Hand Brand and one of the six
shareholders. The partial delivery of Company shares which
were issued under this Agreement have been returned to Hand
Brand. This Mutual Release was entered into to correct and
nullify several contractually incomplete attempts to create
a wholly owned subsidiary and subsequent attempt to merge
the Company with GeneThera. Commencing in January, 2002,
the Company and GeneThera, along with Tony Milici and five
shareholders of GeneThera entered into Stock Purchase
Agreements in an effort to acquire GeneThera as a subsidiary
of the Company. Tony Milici was not an officer or Director
at that time. An aggregate of 8,305,950 shares were to be
issued to the GeneThera shareholders.
Of the 8,305,950 common shares to be issued under the Stock
Purchase Agreement none could be lawfully issued under
Florida law as the Articles and Amendments did provide for a
sufficient number of authorized common shares. Currently,
the Company has authorized common shares of 3,125,000.
Until the Mutual Release was executed, the GeneThera
shareholders agreed to accept shares of the Company's Common
Stock following the effectiveness of the approval by the
Company's shareholders to increase the number of authorized
shares of Common Stock.
On May 20, 2002, all the members of the Board of Directors
recommended an increase in the authorized shares,
reincorporation within the State of Delaware, adoption of a
Stock Incentive Plan, approval of the FHNI stock sale, and
approval of a $30,000,000 Private Credit Line Facility
Agreement. Because the actions adopted required shareholder
approval, the Company filed a 14-C but never conducted a
special meeting of the shareholders as described in the
Schedule 14-C information. Simultaneous with the execution
of the Mutual Release and Rescission Contract dated March
28, 2003, the current Board, which consisted of Tony Milici
as sole Director, did rescind the action of the previous
Board to change the corporate name from Hand Brand
Distribution, Inc., to GeneThera, Inc., to increase the
authorized capital stock from 100,000,000 shares of Common
Stock, 0.001 par value per share, and authorizing 20,000,000
shares of "blank check" preferred stock, rescinding the
reincorporation from Florida to Delaware, rescinding the
adoption of the 2002 Hand Brand Stock Incentive Plan,
rescinding the approval of the sale of FHNI, and rescinding
the 30,000,000 Private Equity Line of Credit Facility
Agreement.
Because the entity, GeneThera, had been operated and
accounted for as a subsidiary in both the 10-K and Quarterly
Reports, the sole Director Tony Milici determined that it is
in the best interest of the Company to obtain an interest in
GeneThera by the issuance of Hand Brand shares for a partial
ownership of GeneThera in which is commonly referred to as a
reverse acquisition. A Reverse Acquisition Agreement was
executed simultaneously with the Mutual Release and
Rescission of Contract on March 28, 2003. One million
(1,000,000) common shares were issued from the authorized
shares to acquire 51% of the ownership of GeneThera from
Tony Milici.
Item 13. Exhibits and Reports on Form 8-K
(A) Financial Statements
Reference is made to the financial statements listed on
the Index to Financial Statements set forth in this
Form 10-KSB.
(B) Exhibits
3.1.1 Articles of Incorporation filed November 8,
1995.
3.1.2 Amendment to the Articles of Incorporation
filed on February 4, 1999, to effectuate a 1
for 2 reverse stock split
3.1.3 Amendment to the Articles of Incorporation
filed January 15, 2002, to effectuate a 1 for
8 reverse stock split (1)
3.2 Bylaws
4.1.1 Private Equity Line of Credit Agreement
between the Company and the Investor dated
January 16, 2002 (2)
4.1.2 Registration Rights Agreement between the
Company and the Investor dated January 16,
2002 (2)
4.1.3 Warrant Agreement with respect to the shares
underlying the Private Equity Line of Credit
Agreement (2)
4.1.4 Amendment to Private Equity Line of Credit
Agreement between the Company and the
Investor dated March 4, 2002 (3)
4.2 Registration Rights Agreement between the
Company and Vantage dated January 23, 2002
(2)
4.3 Form of Convertible Notes bearing interest at
the rate of 6% and maturing on January 15,
2005 (4)
4.4 Amendment #2 to Private Equity Line of Credit
Agreement between the Company and the
Investor dated Jaune 1, 2002 (5)
10.1 FHNI Stock Sale Agreement between the
Company, FHNI and John Taggart, as amended
(3)
10.2.1 Form of Common Stock Purchase Agreement among
the Company and various original holders of
the common stock of GeneThera, Inc. (2)
10.2.2 Form of Letter Agreement between the Company
and various original holders of the common
stock of GeneThera, Inc. (4)
10.4 Employment Agreement between Antonio Milici,
M.D., and the Company dated January 23, 2002
(4)
10.5 Employment Agreement between Nicolas Wollner
and the Company dated February 25, 2002 (2)
21 List of Subsidiaries
99.1 Certification of the President and Chief Executive
Officer
99.2 Certification of the Interim Chief Financial Officer
(1) Incorporated by reference from an Exhibit to the
Current Report on Form 8-K, as filed with the SEC on
January 17, 2002.
(2) Incorporated by reference from an Exhibit to the
Company's Current Report on Form 8-K, as filed with the
SEC on March 4, 2002.
(3) Incorporated by reference from an Exhibit to the
Company's Schedule 14-C Preliminary Information
Statement, as filed with the SEC on May 23, 2002.
(4) Incorporated by reference from an Exhibit to the
Company's Current Report on Form 10KSB, as filed with
SEC on June 4, 2002.
(5) Incorporated by reference from an Exhibit to the
Company's Report on Form 10QSB as filed with the SEC on
June 14, 2002.
(C) Reports on Form 8-K
1. Form 8-K filed on January 17, 2002, and dated
January 14, 2002, relating to an amendment to the
Company's Articles of Incorporation to effectuate
an eight for one reverse stock split.
2. Form 8-K filed May 5, 2002, and dated January 14,
2002, relating to the acquisition of GeneThera.
On June 14, 2002, the Company filed an 8-K/A to
such 8-K attaching the audited financial
statements of GeneThera for the fiscal year ended
December 31, 2001, and pro forma consolidated
financial information.
Item 14. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act
of 1934 (the "Exchange Act"), we carried out an evaluation
of the effectiveness of the design and operation of our
disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was
carried out under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer.
Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting
management to material information relating to us that is
required to be included in our periodic SEC filings. There
have been no significant changes in our internal controls or
in other factors that could significantly affect internal
controls subsequent to the date we carried out our
evaluation.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information
required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed
under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding
required disclosure.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
HAND BRAND DISTRIBUTION, INC.
Date: May 16, 2003 By: /s/ Antonio Milici
Antonio Milici, M.D., Ph.D.
President
By: /s/ Tannya L. Irizarry
Tannya L. Irizarry
Interim Chief Financial Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Antonio Milici
Antonio Milici, M.D., Ph.D. President May 16, 2003
/s/ Tannya L. Irizarry
Tannya L. Irizarry Interim Chief May 16, 2003
Financial Officer
/s/ Antonio Milici
Antonio Milici, M.D., Ph.D. Director May 16, 2003
EXHIBIT 21
HAND BRAND DISTRIBUTION, INC.
SUBSIDIARIES
1. Family Health News, Inc., a Florida Corproation
2. GeneThera, Inc., A Colorado Corporation
CERTIFICATIONS
I, Antonio Milici, certify that:
1. I have reviewed this annual report on Form 10-KSB of
Hand Brand Distribution, Inc.
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual
report, fairly present in all material respects the
financial condition results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and
procedures to ensure that material information
relating to the registrant, including its
consolidated subsidiaries, is made known to us
by others within those entities, particularly
during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report (the
Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report
financial data and have identified for the
registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have
indicated in this annual report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: May 16, 2003
By: /s/ Antonio Milici
Antonio Milici, M.D., Ph.D., President
CERTIFICATIONS
I, Tannya L. Irizarry, certify that:
1. I have reviewed this annual report on Form 10-KSB of
Hand Brand Distribution, Inc.
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual
report, fairly present in all material respects the
financial condition results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and
procedures to ensure that material information
relating to the registrant, including its
consolidated subsidiaries, is made known to us
by others within those entities, particularly
during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report (the
Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report
financial data and have identified for the
registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have
indicated in this annual report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: May 16, 2003
By: /s/ Tannya L. Irizarry
Tannya L. Irizarry
Interim Chief Financial Officer
EXHIBIT 99.1
CERTIFICATION OF THE PRESIDENT
AND THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hand Brand
Distribution, Inc. (the "Company"), I, Antonio Milici, M.D.,
Ph.D., President and Chief Executive Officer (the "Registrant"),
do hereby certify in accordance with 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the
Registrant.
Date: May 16, 2003
By: /s/ Antonio Milici
Antonio Milici, M.D., Ph.D., President
EXHIBIT 99.2
CERTIFICATION OF THE
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hand Brand
Distribution, Inc. (the "Company"), I, Tanny L. Irizarry,
Chief Financial Officer (the "Registrant"),
do hereby certify in accordance with 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the
Registrant.
Date: May 16, 2003
By: /s/ Tannya L. Irizarray
Tannya L. Irizarry
Chief Financial Officer