Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-QSB
 
(Mark One)
 
ý
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
 
 
For the quarterly period ended June 30, 2006
 
 
o
Transition report under Section 13 or 15(d) of the Exchange Act
 
 
 
For the transition period from _________ to ___________
 
 
 
Commission File Number: 000-50133
 
GRANT LIFE SCIENCES, INC.
(Exact Name of Small Business Issuer as Specified in Charter)
 
Nevada
 
82-0490737
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification
Number)
 
3550 Wilshire Blvd., Suite 1700, Los Angeles, CA 90010
(Address of Principal Executive Offices)
 
(213) 637-5692
(Issuer’s Telephone Number, Including Area Code)
 
(Former Address, if Changed Since Last Report)
 
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ý   No o
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the last practicable date:  As of August 7, 2006, there were 126,486,518 shares of Common Stock, par value $0.001 per share, issued and outstanding.
 
Transitional Small Business Disclosure Format (check one):      Yes o   No ý

 
GRANT LIFE SCIENCES, INC.
FORM 10-QSB
INDEX
 
PART I FINANCIAL INFORMATION
 
 
 
 
Item 1
Condensed Consolidated Financial Statements (unaudited)
 
 
 
 
 
Condensed Consolidated Balance Sheets -June 30, 2006 and December 31, 2005
3
 
 
 
 
Condensed Consolidated Statement of Losses - three months and six months ended June 30, 2006 and 2005, and July 9, 1998 (date of inception) through June 30, 2006
4
 
 
 
 
Condensed Consolidated Statement of Deficiency in Stockholder’s Equity- July 9, 1998 (date of inception) through June 30, 2006
5
 
 
 
 
Condensed Consolidated Statement of Cash Flows - six months ended June 30, 2006 and 2005 and July 9, 1998 (date of inception) through June 30, 2006
6
 
 
 
 
Notes to Condensed Consolidated Financial Statements
7
 
 
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
 
 
 
Item 3
Controls and Procedures
20
 
 
 
PART II OTHER INFORMATION
 
 
 
 
Item 1
Legal Proceedings
21
 
 
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
21
 
 
 
Item 3
Defaults upon Senior Securities
21
 
 
 
Item 4
Submission of Matters to a Vote of Security Holders
21
 
 
 
Item 5
Other Information
21
 
 
 
Item 6
Exhibits
21
 
 
 
Signatures
22

 

GRANT LIFE SCIENCES, INC.
(A development stage company)
CONSOLIDATED BALANCE SHEETS

 
  
June 30,
  
December 31,
  
   
2006
  
2005
  
 
  
 (unaudited)
  
(audited)
  
ASSETS
          
Current assets:
  
 
  
 
  
Cash and cash equivalents
  
$
221,806
  
$
800,472
  
Accounts receivable
    
39,675
    
72,675
  
Prepaid expenses
    
49,488
    
69,125
 
Deposits & other assets
    
38,105
    
45,209
 
Total current assets
    
349,074
    
987,481
 
 
          
Property and equipment, net of accumulated depreciation of
          
$16,220 and $12,519 at June 30, 2006 and December 31, 2005, respectively
    
14,473
    
14,321
 
Deferred financing fees, net of accumulated amortization of $26,042 and $13,542, at June 30, 2006 and December 31, 2005, respectively
    
48,958
    
61,458
  
 
          
Total assets
  
$
412,505
  
$
1,063,260
  
 
          
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
          
Current liabilities:
          
Accounts payable
  
$
135,720
  
$
124,847
  
Accrued liabilities
    
179,888
    
130,555
 
Accrued interest payable
    
140,963
    
106,637
 
Accrued payroll liabilities
    
53,900
    
94,680
 
Notes payable, current portion (Note C)
    
15,393
    
21,875
  
Total current liabilities
    
525,864
    
478,594
 
 
          
Long-term liabilities:
          
Notes payable - long term (Note C)
    
350,000
    
350,000
 
Convertible notes payable (Note C)
    
448,047
    
240,491
  
Derivative liability related to convertible notes
    
1,642,997
    
2,606,377
  
Warrant liability related to convertible notes
    
107,617
    
161,472
  
Total Liabilities
    
3,074,525
    
3,836,934
  
Commitments and contingencies
    
-
   
-
 
Deficiency in stockholders' equity:
          
Preferred stock, par value: $.001, authorized 20,000,000 shares; no shares issued and outstanding at June 30, 2006 and at December 31, 2005. (Note F)
    
-
   
-
 
Common stock, par value; $.001, authorized 750,000,000 shares at June 30, 2006 and 150,000,000 shares at December 31, 2005, 126,486,518 shares issued and outstanding at June 30, 2006 and at December 31, 2005. (Note F)
    
126,487
    
126,487
 
Additional paid in capital
    
5,291,895
    
5,400,819
 
Deferred compensation
    
-
    
(285,308
)
Deficit accumulated during development stage
    
(8,080,402
)
  
(8,015,672
)
Total deficiency in stockholders' equity:
    
(2,662,020
)
  
(2,773,674
)
Total liabilities and deficiency in stockholders' equity:
  
$
412,505
  
$
1,063,260
  
 
The accompanying notes to consolidated financial statements

3

GRANT LIFE SCIENCES, INC.
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF LOSSES
(Unaudited)

   
For the three months ended June 30,
  
For the six months ended June 30,
  
For the period July 9, 1998 (date of inception) through
  
 
  
2006
  
2005
  
2006
  
2005
  
June 30, 2006
  
       
(Restated - Note E)
      
(Restated - Note E)
      
Sales
                          
$
72,675
  
Cost of Sales
                            
62,805
 
Gross Margin
                            
9,870
 
                                 
Operating Expenses:
                                
General and administrative
 
$
378,748
  
$
761,722
  
$
654,385
  
$
1,434,924
    
5,379,113
 
Depreciation
   
1,851
   
1,713
   
3,701
   
3,236
   
23,104
 
Acquisition cost
   
-
   
-
    
-
   
-
   
65,812
 
Research and development
   
41,295
   
196,883
   
127,610
   
390,129
   
1,596,115
 
     Total Operating Expenses
    
421,894
   
960,318
   
785,696
   
1,828,289
   
7,064,144
  
 
                                
Loss from Operations
    
(421,894
)
  
(960,318
)
  
(785,696
)
  
(1,828,289
)
  
(7,052,274
)
                                 
Other income (expenses):
                                
Gain on extinguishment of debt
   
-
    
-
    
-
   
-
   
510,104
 
Change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
    
736,145
   
(159,939
)
  
1,017,234
   
(159,939
)
  
130,117
 
Interest expense
   
(171,939
)
  
(193,651
)
  
(296,268
)
  
(216,253
)
  
(1,666,247
)
                                 
Income (loss) before income taxes
    
142,312
   
(1,313,908
)
  
(64,730
)
  
(2,204,481
)
  
(8,080,300
)
Income tax benefit (expense)
    
-
   
-
   
-
   
-
   
(100
)
Net Income (loss)
  
$
142,312
  
$
(1,313,908
)
$
(64,730
)
$
(2,204,481
)
$
(8,080,400
)
                                 
Net income (loss) per common share -
Basic
 
$
0.001
  
$
(0.02
)
$
(0.0005
)
$
(0.04
)
  
n/a
  
Fully diluted (Note A)
  
$
0.0004
    
-
    
-
    
-
    
n/a
  
Weighted average shares -
Basic
   
126,486,518
    
58,000,651
    
126,486,518
    
56,259,295
    
n/a
  
Fully diluted (Note A)
    
368,700,442
    
58,000,651
    
126,486,518
    
56,259,295
    
n/a
  

See accompanying notes to the unaudited condensed consolidated financial statements
 
4

GRANT LIFE SCIENCES, INC.
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD JULY 9, 1998 (Date of Inception) THROUGH
DECEMBER 31, 2005

   
Common
Shares
  
Common
Shares
Amount
  
Subscription
Receivable
  
Deferred
Compensation
  
Additional Paid
In Capital
  
Accumulated
Deficit
  
Total (Deficiency)
In
Stockholders
Equity
  
Balance, July 9, 1998 (date of inception)
    
9,272,200
  
$
9,272
  
$
-
  
$
-
  
$
(9,272
)
$
-
  
$
-
  
Issued stock for subscription receivable at $0.005 per share
    
18,795,000
   
18,795
   
(100,000
)
  
-
   
81,205
   
-
   
-
 
Balance, December 31, 1998
    
28,067,200
   
28,067
   
(100,000
)
  
-
   
71,933
   
-
   
-
 
Issued stock for cash at $0.004 per share
    
1,253,000
   
1,253
   
-
   
-
   
3,747
   
-
   
5,000
 
Net loss
    
-
    
-
   
-
   
-
   
-
   
(5,053
)
  
(5,053
)
Balance, December 31, 1999
    
29,320,200
   
29,320
   
(100,000
)
  
-
   
75,680
   
(5,053
)
  
(53
)
Payment of subscriptions receivable
    
-
    
-
   
100,000
   
-
   
-
   
-
   
100,000
 
Net loss
    
-
    
-
   
-
   
-
   
-
   
(43,641
)
  
(43,641
)
Balance, December 31, 2000
    
29,320,200
   
29,320
   
-
   
-
   
75,680
   
(48,694
)
  
56,306
 
Issued stock for cash at $0.004 per share
    
250,600
   
251
   
-
   
-
   
749
   
-
   
1,000
 
Net loss
    
-
    
-
   
-
   
-
   
-
   
(522,213
)
  
(522,213
)
Balance, December 31, 2001
    
29,570,800
   
29,571
   
-
   
-
   
76,429
   
(570,907
)
  
(464,907
)
Beneficial conversion feature on issuance of debt
    
-
   
-
   
-
   
-
   
98,507
   
-
   
98,507
 
Gain on extinguishment of debt
   
-
   
-
   
-
   
-
   
(98,507
)
  
-
   
(98,507
)
Issued stock for cash at $0.13 per share
   
689,150
   
689
   
-
    
-
   
91,811
   
-
    
92,500
 
Issued stock for services at $0.06 per share
   
1,591,310
   
1,591
   
-
   
-
   
101,659
   
-
   
103,250
 
Issued stock in satisfaction of debt at $0.14 per share
   
1,790,000
   
1,790
   
-
   
-
   
248,210
   
-
   
250,000
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(646,201
)
  
(646,201
)
Balance, December 31, 2002
   
33,641,260
   
33,641
   
-
   
-
   
518,109
   
(1,217,108
)
  
(665,358
)
Issued stock for cash at $0.13 per share
   
930,800
   
931
   
-
   
-
   
119,069
   
-
   
120,000
 
Net loss
    
-
   
-
   
-
   
-
   
-
   
(253,881
)
  
(253,881
)
Balance, December 31, 2003
    
34,572,060
   
34,572
   
-
   
-
   
637,178
   
(1,470,989
)
  
(799,239
)
Issued stock for cash at $0.0838 per share
   
238,660
   
239
   
-
   
-
   
19,761
   
-
   
20,000
 
Issued stock for services at $0.08 per share
   
500,000
   
500
   
-
   
-
   
39,500
   
-
   
40,000
 
Issued stock for cash at $0.1835 per share
   
9,560,596
   
9,561
   
-
   
-
   
1,485,376
   
-
   
1,494,937
 
Reverse merger with Grant Ventures, Inc.
   
6,000,000
   
6,000
   
-
   
-
   
-
    
-
    
6,000
  
Warrants issued as part of restructuring of debt (89,500 valued at $0.03779)
   
-
   
-
   
-
   
-
   
3,382
   
-
   
3,382
 
Recognition of beneficial conversion feature on issuance of note payable
   
-
   
-
   
-
   
-
   
200,000
   
-
   
200,000
 
Conversion of note payable and accrued interest at $0.07569 per share
   
2,720,000
   
2,720
   
-
   
-
   
203,165
   
-
   
205,885
 
Issued stock in satisfaction of debt at $0.1835 per share
   
249,475
   
249
   
-
   
-
   
45,530
   
-
   
45,779
 
Exercise of $0.01 warrants
    
2,403,000
   
2,403
   
-
    
-
    
21,627
   
-
    
24,030
 
Issued 250,000 warrants for services
    
-
    
-
    
-
    
-
    
11,000
   
-
    
11,000
 
Stock options issued to employees, directors, consultants
    
-
    
-
    
-
    
(1,523,966
)
  
1,523,966
    
-
    
-
  
Vesting of deferred compensation
    
-
   
-
   
-
   
426,081
   
-
   
-
   
426,081
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(1,910,350
)
  
(1,910,350
)
Balance, December 31, 2004
    
56,243,791
   
56,244
   
-
   
(1,097,886
)
  
4,190,485
   
(3,381,340
)
  
(232,496
)
Conversion of notes payable and accrued interest at $0.092178 per share on 3/31/05
    
1,395,322
    
1,395
    
-
    
-
    
127,225
    
-
    
128,620
  
Stock options issued to new director on 2/21/05
    
-
    
-
    
-
    
(26,725
)
  
26,725
    
-
    
-
  
Value of 250,000warrants issued as part of bridge loan on 3/15/05
    
-
    
-
    
-
    
-
    
65,540
    
-
    
65,540
  
Shares issued 4/28/05 for services at $0.40
    
500,000
    
500
    
-
    
-
    
199,500
          
200,000
  
Stock options granted to employee 4/1/05
    
-
    
-
    
-
    
(327,197
)
  
327,197
    
-
    
-
  
Stock options exercised 6/2/05
    
50,000
    
50
    
-
    
-
    
8,950
    
-
    
9,000
  
Shares issued 9/28 for legal services at $0.22
    
200,000
    
200
    
-
    
-
    
43,800
          
44,000
  
Partial conversion of Senior note payable at $0.0105 per share on 9/8
   
2,800,000
    
2,800
    
-
    
-
    
26,600
    
-
    
29,400
  
Partial conversion of Senior note payable at $0.0068 per share on 9/23
    
2,980,000
    
2,980
    
-
    
-
    
17,284
    
-
    
20,264
  
Partial conversion of Senior note payable at $0.00423 per share on 9/28
   
2,980,000
    
2,980
    
-
    
-
    
9,625
    
-
    
12,605
  
Stock options issued to interim CEO 9/28
    
-
    
-
    
-
    
(3,762
)
  
3,762
    
-
    
-
  
Partial conversion of Senior note payable at $0.00423 per share on 10/3/05
    
2,980,000
   
2,980
   
-
    
-
    
9,625
   
-
    
12,605
 
shares issued on exercise of warrant CAMFO II
    
250,000
   
250
   
-
    
-
    
2,500
   
-
    
2,750
 
Partial conversion of Senior note payable at $0.00423/share per share on 10/6/05
    
2,400,000
   
2,400
   
-
    
-
    
7,752
   
-
    
10,152
 
Partial conversion of Senior note payable at $0.00423 per share on 10/7/05
    
500,000
   
500
   
-
    
-
    
1,615
   
-
    
2,115
 
Partial conversion of Senior note payable at $0.00423 per share on 10/12/05
    
2,980,000
   
2,980
   
-
    
-
    
9,625
   
-
    
12,605
 
Partial conversion of Senior note payable at $0.00423 per share on 10/17/05
    
2,980,000
   
2,980
   
-
    
-
    
9,625
   
-
    
12,605
 
Partial conversion of Senior note payable at $0.00776 per share on 10/21/05
    
3,570,000
   
3,570
   
-
    
-
    
24,205
   
-
    
27,775
 
Partial conversion of Senior note payable at $0.00776 per share on 10/26/05
    
3,570,000
   
3,570
   
-
    
-
    
23,562
   
-
    
27,132
 
Partial conversion of Senior note payable at $0.00776 per share on 11/3/05
    
3,570,000
   
3,570
   
-
    
-
    
23,562
   
-
    
27,132
 
Partial conversion of Senior note payable at $0.0057 per share on 11/8/05
    
4,230,000
   
4,230
   
-
    
-
    
19,881
   
-
    
24,111
 
Partial conversion of Senior note payable at $0.0057 per share on 11/11/05
    
4,230,000
   
4,230
   
-
    
-
    
19,881
   
-
    
24,111
 
Partial conversion of Senior note payable at $0.0059 per share on 11/15/05
    
4,230,000
   
4,230
   
-
    
-
    
20,727
   
-
    
24,957
 
Partial conversion of Senior note payable at $0.0063 per share on 11/18/05
    
4,230,000
   
4,230
   
-
    
-
    
22,419
   
-
    
26,649
 
Partial conversion of Senior note payable at $0.0080 per share on 11/23/05
    
4,230,000
   
4,230
   
-
    
-
    
29,610
   
-
    
33,840
 
Partial conversion of Senior note payable at $0.01016 per share on 11/30/05
    
4,230,000
   
4,230
   
-
    
-
    
38,747
   
-
    
42,977
 
Partial conversion of Senior note payable at $0.0093 per share on 12/6/05
    
4,230,000
   
4,230
   
-
    
-
    
35,096
   
-
    
39,326
 
Partial conversion of Senior note payable at $0.00908 per share on 12/9/05
    
5,650,000
   
5,650
   
-
    
-
    
45,652
   
-
    
51,302
 
Partial conversion of Senior note payable at $0.00856 per share on 12/16/05
    
1,010,405
   
1,010
   
-
    
-
    
7,639
   
-
    
8,649
 
Shares issued at $0.09 on exercise of warrant
    
267,000
   
267
   
-
    
-
    
2,403
   
-
    
2,670
 
Vesting of deferred compensation
    
-
    
-
    
-
    
976,987
   
-
    
-
    
976,987
 
Cancellation of stock options
    
-
    
-
    
-
    
193,275
    
-
    
-
    
193,275
  
Net loss for the year
    
-
    
-
   
-
    
-
    
-
    
(4,634,331
)
  
(4,634,331
)
Balance, December 31, 2005
    
126,486,518
    
126,487
    
-
    
(285,308
)
  
5,400,818
    
(8,015,670
)
  
(2,773,672
)
Vesting of deferred compensation
    
-
    
-
    
-
    
84,972
   
-
    
-
    
84,972
 
Adjustment of presentation of Deferred Compensation
   
-
    
-
    
-
    
200,336
    
(200,336
)
  
-
    
-
  
Net loss for the quarter ended March 31, 2006
    
-
    
-
   
-
    
-
    
-
    
(207,044
)
  
(207,044
)
Balance, March 31, 2006
    
126,486,518
    
126,487
    
-
    
-
    
5,200,482
    
(8,222,714
)
  
(2,895,745
)
Vesting of stock options
    
-
    
-
    
-
    
-
    
91,413
   
-
    
91,413
 
Net income for the quarter ended June 30, 2006
    
-
    
-
   
-
    
-
    
-
    
142,312
    
142,312
  
Balance, June 30, 2006
    
126,486,518
  
$
126,487
    
-
    
-
  
$
5,291,895
    
($ 8,080,402
)
  
($ 2,662,020
)

See accompanying notes to consolidated financial statements
 
5

GRANT LIFE SCIENCES, INC.
(A development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

   
For the Six Months Ended June 30,
  
For the Period July 9, 1998 (date of inception) through
 
   
2006
  
2005
  
December 31, 2005
  
       
(Restated - Note E)
      
Cash flows from operating activities:
              
Net (loss)
  
$
(64,730
)
$
(2,204,481
)
$
(8,080,400
)
Adjustments to reconcile net (loss) to cash
                    
(used in) operations:
                    
Depreciation
   
3,701
   
3,236
   
23,104
 
Amortization
   
19,602
    
100,951
    
46,269
  
Change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
    
(1,017,234
)
  
159,939
    
(130,117
)
Loss on abandonment of assets
-
 
-
3,790
 
Vesting of stock options (Note F)
    
176,384
   
721,333
    
1,579,451
 
Common stock issued in exchange for services
rendered
   
-
   
100,000
   
388,250
 
Cancellation of stock options
    
-
    
-
    
193,275
  
Interest on convertible notes payable
    
207,556
    
-
    
864,630
  
Warrants issued in exchange for services rendered
   
-
    
-
    
11,000
 
Beneficial conversion feature discount
   
-
   
7,298
   
298,507
 
Gain on extinguishment of debt
   
-
   
-
   
(510,104
)
Write off of accounts payable due to stockholders
    
-
   
(1,230
)
  
(2,108
)
Acquisition cost
   
-
    
-
    
65,812
  
Decrease (increase) in:
                    
Accounts receivable
    
33,000
   
-
   
(39,675) -
 
Employee receivables
    
-
   
334
   
-
 
Prepaid expense
    
19,637
    
(66,873
)
  
(49,488
)
Deposits & other
    
-
    
3,000
    
(56,336
)
(Decrease) increase in:
                    
Accounts payable
    
10,873
   
187,101
   
133,193
 
Notes payable & long-term debt
    
(6,482
)
  
35,506
    
15,393
  
Accounts payable - assumed liabilities
    
-
   
-
   
(17,505
)
Accounts payable - stockholders
    
-
   
-
   
(38,900
)
Accrued expenses
    
49,333
   
76,222
   
177,889
 
Accrued payroll liabilities
    
(40,780
)
  
55,063
   
53,900
 
Accrued interest payable
    
34,328
   
96,178
   
331,424
 
Net cash (used in) operating activities
   
(574,812
)
  
(726,423
)
  
(4,738,746
)
                     
Cash flows from investing activities:
                    
Payments for property and equipment
    
(3,854
)
  
(5,743
)
  
(41,368
)
Net cash used in investing activities
    
(3,854
)
  
(5,743
)
  
(41,368
)
                     
Cash flows from financing activities:
                    
Proceeds from sale of common stock, net of costs and fees
    
-
   
9,000
   
1,770,887
 
Net proceeds from notes payable
    
-
   
625,000
   
3,105,255
 
Proceeds from related party notes payable
    
-
   
-
   
60,000
 
Payments for related party notes payable
    
-
   
-
   
(34,222
)
Proceeds from stock subscriptions receivable
    
-
   
-
   
100,000
 
Net cash provided by financing activities
    
-
   
634,000
   
5,001,920
 
                     
Net increase (decrease) in cash and cash equivalents
    
(578,666
)
  
(98,166
)
  
221,806
 
Cash and cash equivalents at beginning of the period
    
800,472
   
365,958
   
-
 
Cash and cash equivalents at end of the period
  
$
221,806
  
$
267,792
  
$
221,806
  

See accompanying notes to consolidated financial statements

6

GRANT LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)

NOTE A - SUMMARY OF ACCOUNTING POLICIES

Interim Financial Information
 
The interim financial information as of June 30, 2006 and for the three and six months ended June 30, 2006 is unaudited. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in the Company's Form 10-KSB for the year ended December 31, 2005.

In the opinion of management, all adjustments that are necessary for a fair presentation of the financial information for the interim periods reported have been made. The results of operations for the three and six month period ended June 30, 2006 is not necessarily indicative of the results that can be expected for the entire year ending December 31, 2006.

Business and Basis or Presentation

Grant Life Sciences, Inc. (formerly Impact Diagnostics, Inc.) (the “Company”) was organized under the laws of the State of Utah on July 9, 1998. The Company’s purpose is to research, develop, market and sell diagnostic kits for detecting disease with emphasis on the detection of low-grade cervical disease.

On July 30, 2004, the Company became a wholly owned subsidiary of Grant Ventures, Inc., a Nevada Corporation, by merging with Impact Acquisition Corporation, a Utah corporation and wholly owned subsidiary of Grant Ventures, Inc. Grant Ventures, Inc. was an inactive publicly registered shell corporation with no significant assets or operations. For accounting purposes the merger was treated as a recapitalization of the Company. Grant Ventures, Inc. changed its name to Grant Life Sciences, Inc. in November 2004.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Impact Diagnostics. All intercompany transactions and balances have been eliminated in consolidation.

Development Stage Company

Effective July 9, 1998 (date of inception), the Company is considered a development stage Company as defined in Statement of Financial Accounting Standards No. 7 “Accounting and Reporting by Development Stage Companies”, SFAS No. 7. The Company’s development stage activities consist of the development of medical diagnostic kits. Sources of financing for these development stage activities have been primarily debt and equity financing. The Company has not yet established a significant source of revenue.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. Continuing as a going concern is dependent upon successfully obtaining additional working capital through debt and equity financing.

Income Taxes

The Company follows Statement of Financial Accounting Standard No. 109 “Accounting for Income Taxes”, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

7
 
Net Income (Loss) per Common Share
 
The computation of net loss per common share is based on the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options and warrants, and the conversion of notes payable outstanding using the treasury stock method and the average market price per share during the period. The following table sets forth potential shares of common stock that are not included in the diluted net loss per share because to do so would be antidilutive:
 
   
As of June 30,
  
   
2006
  
2005
  
Options to purchase common stock - vested
    
3,595,951
    
1,605,316
  
Options to purchase common stock - unvested
    
1,175,001
    
4,337,938
  
Warrants
    
10,405,010
    
5,922,011
  
Shares from potential note conversions
    
227,037,962
    
9,877,125
  
Total
    
242,213,924
    
21,742,390
  
 
Stock-Based Compensation
 
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS123R). This Statement requires public entities to measure the cost of equity awards to employees based on the grant-date value of the award. The Company elected early adoption of this Statement, effective for 2004, in advance of the Company's required adoption date of December 15, 2005.

New Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”), an amendment to Accounting Principles Bulletin Opinion No. 20, “Accounting Changes” (“APB No. 20”), and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Though SFAS No. 154 carries forward the guidance in APB No.20 and SFAS No.3 with respect to accounting for changes in estimates, changes in reporting entity, and the correction of errors, SFAS No. 154 establishes new standards on accounting for changes in accounting principles, whereby all such changes must be accounted for by retrospective application to the financial statements of prior periods unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005, with early adoption permitted for changes and corrections made in years beginning after May 2005. The Company will implement SFAS No. 154 in its fiscal year beginning January 1, 2006. We are currently evaluating the impact of this new standard but believe that it will not have a material impact on the Company’s financial position, results of operations, or cash flows.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS No. 155 amends SFAS No. 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instrument. The Company is currently evaluating the impact this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations, or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS NO. 156”), which provides an approach to simplify efforts to obtain hedge-like (offset) accounting. This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. The Statement (1) requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations; (2) requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable; (3) permits an entity to choose either the amortization method or the fair value method for subsequent measurement for each class of separately recognized servicing assets or servicing liabilities; (4) permits at initial adoption a one-time reclassification of available-for-sale securities to trading securities by an entity with recognized servicing rights, provided the securities reclassified offset the entity’s exposure to changes in the fair value of the servicing assets or liabilities; and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the balance sheet and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for all separately recognized servicing assets and liabilities as of the beginning of an entity’s fiscal year that begins after September 15, 2006, with earlier adoption permitted in certain circumstances. The Statement also describes the manner in which it should be initially applied. The Company does not believe that SFAS No. 156 will have a material impact on its financial position, results of operations or cash flows.

8
 
NOTE B - BUSINESS COMBINATION AND CORPORATE RESTRUCTURE

On July 30, 2004, the Company entered into a merger transaction with Impact Diagnostics, Inc. ("Impact”). In accordance with SFAS No. 141, Impact was the acquiring entity. While the transaction is accounted for using the purchase method of accounting, in substance the Agreement is a recapitalization of the Impact’s capital structure.

For accounting purposes, the Company accounted for the transaction as a reverse acquisition and Impact is the surviving entity. The total purchase price and carrying value of net assets acquired was $65,812. The Company did not recognize goodwill or any intangible assets in connection with the transaction. From 1999 until the date of the Agreement, Grant was an inactive corporation with no significant assets and liabilities.

Effective with the Agreement, all 35,060,720 previously outstanding shares owned by the Impact’s members were exchanged on a share for share basis with shares of the Company’s common stock.

The total consideration was $65,812 and the significant components of the transaction are as follows:

Common stock retained
  
$
6,000
  
Assets acquired
    
-
  
Liabilities assumed - accounts payable
    
20,034
  
Liabilities assumed - accounts payable - stockholder
    
39,778
  
Cash paid
    
-
  
Total consideration paid/organization cost
  
$
65,812
  

On September 20, 2004, the Company’s Board of Directors approved a change in the Company’s name to Grant Life Sciences, Inc. The accompanying financial statements have been changed to reflect the change as if it had happened at the beginning of the periods presented. Stockholders approved this change effective November 12, 2004.

In accordance with SOP 98-5, the Company expensed $65,812 as organization costs in 2004.

NOTE C - NOTES PAYABLE

Notes payable at June 30, 2006 and December 31, 2005 are as follows:

   
June 30, 2006
  
December 31, 2005
  
10% note payable, unsecured, originally due on 11/30/2002. The note payable was in default as of December 31, 2002. The venture capital firm that issued the loan has since been placed in receivership. As of December 31, 2003 the note balance was $587,753 with accrued interest payable of $141,501. In August 2004, this note for $587,753 and accrued interest of $175,787 was restructured into a 3-year convertible note of $350,000 plus 89,500 5-year warrants to purchase additional shares at $0.01 per share. The note is convertible into shares of common stock at a conversion price of $0.83798 per share. Interest is payable quarterly at 6% per year. The 89,500 warrants have a value of $0.0378 per share. The conversion resulted in a $411,597 gain on extinguishment of debt in 2004.
    
350,000
    
350,000
  
10% convertible notes with interest due quarterly subject to certain conditions, due three years from the date of the notes, June 14, 2008, August 18, 2008, and August 29, 2008. The holder has the option to convert unpaid principal to the Company's common stock at the lower of (i) $0.40 or (ii) 43% of the average of the three lowest intraday trading prices for the common stock on a principal market for the twenty trading days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company's assets and intellectual property and registration rights. (see below) In 2005 $470,313 of note principal was converted into 67,580,405 shares at an average conversion rate of $0.007 per share. No note principal was converted in 2006.
    
448,047
    
240,491
  
6% note payable, unsecured, interest and principal to be paid in eight equal quarterly payments beginning 6/07/05. Final payment is due 3/7/2007.
    
15,393
    
21,875
  
Total notes payable
    
813,440
    
612,366
  
Less: current portion
    
(15,393
)
  
(21,875
)
Balance notes payable (long term portion)
  
$
798,047
  
$
590,491
  
 
9

NOTE D - CONVERTIBLE NOTES PAYABLE

During 2005, the Company issued to qualified investors Convertible Notes in a total amount of $2,000,000 in exchange for net proceeds of $1,761,670. The proceeds that the Company received were net of prepaid interest of $133,330 representing the first eight month's interest calculated at 10% per annum for the aggregate of $2,000,000 of convertible notes, $30,000 that was placed into an escrow fund to purchase key man life insurance, and related costs of $75,000. Prepaid interest is amortized over the first eight months of the note and capitalized financing costs are amortized over the maturity period (three years) of the convertible notes.

The transactions, to the extent that it is to be satisfied with common stock of the Company, would normally be included as equity obligations. However, in the instant case, due to the indeterminate number of shares which might be issued under the embedded convertible host debt conversion feature, the Company is required to record a liability for the fair value of the detachable warrants and the embedded convertible feature of the note payable (included in the liabilities as a "derivative liability").

The accompanying financial statements comply with current requirements relating to warrants and embedded conversion features as described in FAS 133, EITF 98-5, EITF 00-19, EITF 00-27, and APB 14 as follows:

·
The Company allocated the proceeds received between convertible debt and the detachable warrants based upon the relative fair values on the dates the proceeds were received.
·
Subsequent to the initial recording, the change in the fair value of the detachable warrants, determined under the Black-Scholes option pricing formula, and the change in the fair value of the embedded derivative in the conversion feature of the convertible debentures are recorded as adjustments to the liabilities at June 30, 2006.
·
The expense relating to the change in the fair value of the Company's stock reflected in the change in the fair value of the warrants and derivatives (noted above) is included as other income (expense).
·
Accreted interest of $207,556 during the six months ended June 30, 2006 and $10,228 during the same peiod in 2005.

During 2005, $470,311 of the June 14th convertible note was converted into 67,580,405 shares at an average conversion rate of $0.007 according to the terms of the note. No note principal of the convertible notes was converted into shares during 2006.

The following table summarizes the various components of the convertible notes as of June 30, 2006:
 
Convertible notes:
 
$
448,047
  
Warrant liability
   
107,617
  
Derivative liability
   
1,642,997
  
 
    
2,198,661
  
         
Adjustment of note and warrant liability to fair value
   
130,117
  
         
Accretion of interest related to convertible debenture
   
(448,048
)
Converted to common shares
   
(351,043
)
Total convertible notes:
  
$
1,529,687
  


10

NOTE E - RESTATEMENT

During the year ended December 31, 2005, it was determined the correct application of accounting principles had not been applied in the 2005 accounting for convertible debentures and detachable warrants (see Note C).

In its original accounting for the debentures and detachable warrants, the Company recognized an embedded beneficial conversion feature present in the convertible note and allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid in capital. The Company has determined that the embedded conversion feature should have been accounted for in accordance with FAS 133, EITF 98-5, EITF 00-19, EITF 00-27, and APD 14. Accordingly, the proceeds attributed to the common stock, convertible debt and warrants have been restated to reflect the relative fair value method.

In accordance with SFAS 154 the necessary corrections to apply the accounting principles on the aforementioned transactions are currently reflected in the reported Consolidated Statements of Losses for the three and six months ended June 30, 2005 and the Consolidated Statement of Cash Flows for the six months ended June 30, 2005. The impact on the previously issued June 30, 2005 financial statements is as follows:
 
Balance Sheets as at June 30, 2005
  
               
   
June 30, 2005 balance sheets prior to restatement
  
June 30, 2005 balance sheets post restatement
  
Amount increase (decrease) in June 30, 2005 balance sheets
  
Total Assets
  
$
534,847
  
$
534,847
  
$
-
  
                     
Derivative liability related to convertible notes
    
-
  
$
585,714
  
$
585,714
  
Warrant liability related to convertible notes
    
-
  
$
274,225
  
$
274,225
  
Long term debt
  
$
373,338
  
$
373,844
  
$
506
  
Total Liabilities
  
$
954,941
  
$
1,815,386
  
$
860,445
  
                     
Additional paid in capital
  
$
5,677,568
  
$
4,977,568
  
$
(700,000
)
Accumulated deficit
  
$
(5,425,377
)
$
(5,585,821
)
$
(160,445
)
Deficiency in Stockholders’ Equity
  
$
(420,094
)
$
(1,280,539
)
$
(860,445
)


Condensed Consolidated Statement of Losses for Three Months Ended June 30, 2005
  
               
   
Three Months ended June 30, 2005 financial statement balance prior to restatement
  
Three Months ended June 30, 2005 financial statement post restatement
  
Amount increase (decrease) in June 30, 2005 financial statements
  
Change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
    
-
  
$
(159,939
)
$
(159,939
)
Interest expense
  
$
(193,144
)
$
(193,650
)
$
(506
)
Net loss
  
$
(1,153,463
)
$
(1,313,908
)
$
(160,445
)
                     
Loss per share-basic and fully diluted
  
$
(0.02
)
$
(0.02
)
$
-
  


11


Condensed Consolidated Statement of Losses for Six Months Ended June 30, 2005
  
               
   
Six Months ended June 30, 2005 financial statement balance prior to restatement
  
Six Months ended June 30, 2005 financial statement post restatement
  
Amount increase (decrease) in June 30, 2005 financial statements
  
Change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
    
-
  
$
(159,939
)
$
(159,939
)
Interest expense
  
$
(215,747
)
$
(216,253
)
$
(506
)
Net loss
  
$
(2,044,037
)
$
(2,204,481
)
$
(160,445
)
                     
Loss per share-basic
  
$
(0.04
)
$
(0.04
)
$
-
  
                     
Loss per share-fully diluted
  
$
(0.04
)
$
(0.04
)
$
-
  


Consolidated Statement of Cash Flows
  
               
   
June 30, 2005 financial statement balance prior to restatement
  
June 30, 2005 financial statement post restatement
  
Change in June 30, 2005 financial statements
  
Net loss
  
$
(2,044,036
)
$
(2,204,481
)
$
(160,445
)
Change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
    
-
  
$
159,939
  
$
159,939
  
Notes payable
  
$
35,000
  
$
35,506
  
$
506
  
Net cash used in operating activities
  
$
(726,423
)
$
(726,423
)
$
-
  
                     
Net cash used in by investing activities
  
$
(5,743
)
$
(5,743
)
$
-
  
                     
Net cash provided by financing activities
  
$
634,000
  
$
634,000
  
$
-
  

NOTE F - COMMON STOCK

At the 2006 Annual Meeting of Stockholders of Grant Life Sciences, Inc. the stockholders of the Company, by an affirmative vote of 64% of its outstanding shares of common stock, agreed to the filing of a Certificate of Amendment to the Articles of Incorporation of the Company pursuant to which the Company’s authorized shares of common stock would be increased from 150,000,000 shares to 750,000,000 shares of common stock with $0.001 par value per share. As of both June 30, 2006 and December 31, 2005, the Company has 126,486,518 shares of common stock issued and outstanding. The Company is authorized to issue 20,000,000 shares of preferred stock with $0.001 par value per share. No shares of preferred stock have been issued to date.

In 1998, the Company issued 18,795,000 shares of its common stock at $0.005 per share for $100,000 which is shown as subscription receivable until it was settled in the year 2000.

In 1999 the Company issued 1,253,000 shares of its common stock at $0.004 per share for $5,000 in cash.

In 2001 the Company issued 250,600 shares of its common stock at $0.004 per share for $1,000 in cash.

In 2002 the Company issued 689,150 shares of its common stock at $0.13 per share for $92,500 in cash.

In 2002 the Company issued 1,591,310 shares of its common stock at $0.06 per share in return for services valued at $103,250.

12

In 2002 the Company issued 1,790,000 shares of its common stock at $0.14 per share in satisfaction of $250,000 of debt.

In 2003 the Company issued 930,800 shares of its common stock at $0.13 per share for $120,000 in cash.

In July 2004, per the Agreement and Plan of Merger with Impact Diagnostics, Inc. all previously outstanding 35,060,720 shares of common stock owned by the Impact’s stockholders were exchanged for the same number of shares of the Company’s common stock. The value of the stock that was issued was the historical cost of the Company’s net tangible assets, which did not differ materially from their fair value.

In connection with the Merger, on July 5, 2004, the board of directors of Impact Diagnostics, Inc. approved a stock split of 3.58 shares to 1. As a result of the split, the outstanding common stock of Impact Diagnostics, Inc. increased from 9,793,497 to 35,060,720 shares. Pursuant to the Merger Agreement, each share of Impact Diagnostics common stock was exchanged for one share of Grant Life Sciences common stock. All numbers, in the financial statements and notes to the financial statements have been adjusted to reflect the stock split for all periods presented.

On September 20, 2004, the Company’s Board of Directors approved a change in the Company’s name to Grant Life Sciences, Inc. The accompanying financial statements have been changed to reflect the change as if it had happened at the beginning of the periods presented. Stockholders approved this change effective November 12, 2004.

In March and April of 2004, the Company issued 238,660 shares of common stock for cash at $0.0838 per share for $20,000.

In June 2004, the Company issued 500,000 shares of common stock in exchange for services valued at $40,000 to consultants. The stock issued was valued at $.08 per share, which represents the fair value of the stock issued, which did not differ materially from the value of the services rendered. Expense of $20,000, related to financial consulting, is included in general administrative expense and expense of $20,000 related to R&D consulting is included in R&D expense.

On August 19, 2004, the Company completed a private placement of 9,560,596 shares to accredited investors at a price of $0.1835 per share. As an additional enticement to purchase the shares, one 5-year warrant to purchase stock at $0.1835 was issued for each 5 shares of stock purchased. The private placement resulted in net proceeds to the company of approximately $1,494,937. The Company also issued warrants to purchase 2,670,000 shares at an exercise price of $0.01 per warrant and warrants to purchase 411,104 shares at an exercise price of $0.185 per warrant to its placement agent in connection with the Merger and private placement.

A bridge loan of $50,000, made to the Company on July 6, 2004, was converted to equity on July 31, 2004 as part of the private placement. In addition to the warrants received as part of the offering, 50,000 warrants with an exercise price of $0.1835 were issued to the lender.

In July, 2004, the Company issued 2,720,000 shares of common stock for a convertible note payable and accrued interest of $205,885.

In August 2004, the Company issued 249,475 shares of common stock at $0.1835 per share in satisfaction of two related party notes payable of $45,779. Accrued interest was forgiven by the lenders.

In November 2004, the Company issued 2,403,000 shares of common stock for exercise of warrants at $0.01 strike price, for total cash proceeds of $24,030. These warrants were originally issued in connection with the Merger and private placement of common stock.

In March 2005, convertible notes, maturing in January and February 2005, were converted into 1,395,322 shares of stock. The conversion price per share was $0.092178, as stated in the notes, which originated in January and February of 2004.

In April 2005, the Company issued 500,000 shares of common stock to its financial advisory group in exchange for services rendered over the 2005 calendar year. The stock issued was valued at $0.40 per share, which represents the fair value of the stock issued, which did not differ materially from the value of the services rendered.

In June 2005, the Company issued 50,000 shares of common stock for exercise of stock options for cash $9,000.

In September 2005, 200,000 shares were issued in exchange for legal services at $.22 per share. The commitment to issue the shares was made on June 14, 2005.

13
 
From September 2005 to December 2005, $470,311 of principal of the Senior 10% convertible notes converted into 67,580,405 shares. The average conversion price per share was $0.0070.

During the fourth quarter of 2005 warrants for 517,000 shares were exercised for $5,420 in cash.

NOTE G - STOCK OPTIONS AND WARRANTS

The Company has a Stock Incentive Plan. The options granted under the Plan may be either qualified or non-qualified options. Up to 25,000,000 options may be granted to employees, directors and consultants under the plan. Options may be granted with different vesting terms and expire no later than 10 years from the date of grant. During the six months ended June, 2006, 600,000 options were granted, 500,000 with an exercise price of $0.05, and 100,000 with an exercise price of $0.018. No options were exercised, or terminated. In 2005, 950,000 options were granted, 850,000 with an exercise price of $0.18 and 100,000 with an exercise price of $0.40. In 2004, 5,243,254 options were granted under the plan. All of the options granted in 2004 have an exercise price of $0.18, but differing vesting terms. 50,000 of these options were exercised in June 2005. Stockholders approved the plan effective November 12, 2004.

Stock Options

Transactions involving stock options issued to employees, directors and consultants under the Company’s 2004 Stock Incentive Plan are summarized below. The following table summarizes the options outstanding and the related exercise prices for the shares of the Company’s common stock issued under the 2004 Stock Incenctive Plan and as of June 30, 2006 :

 
Options Outstanding
  
Options Exercisable
  
 
 
Exercise Prices
  
 
Number Outstanding
  
Weighted Average Remaining Contractual Life (Years)
  
Weighed Average Exercise Price
  
 
Number Exercisable
  
Weighted Average Exercise Price
  
$ 0.18
    
4,170,952
    
7.1
  
$
0.18
    
3,312,618
  
$
0.18
  
$ 0.05
    
500,000
    
9.9
  
$
0.05
    
250,000
  
$
0.05
  
$ 0.018
    
100,000
    
9.9
  
$
0.018
    
33,333
  
$
0.018
  
Total
    
4,770,952
    
7.5
  
$
0.16
    
3,595,951
  
$
0.17
  


   
Number of Shares
  
Weighted Average Price Per Share
  
Aggregate Intrinsic Value
  
Outstanding at December 31, 2003
    
-
    
-
    
-
  
Granted
   
5,243,254
  
$
0.18
    
-
  
Exercised
    
-
    
-
    
-
  
Canceled or expired
    
-
    
-
    
-
  
Outstanding at December 31, 2004
    
5,243,254
    
0.18
    
-
  
Granted
   
950,000
    
0.19
    
-
  
Exercised
    
(50,000
)
  
0.18
    
-
  
Canceled or expired
    
(1,972,302
)
  
0.18
    
-
  
Outstanding at December 31, 2005
    
4,170,952
    
0.18
    
-
  
Granted
   
-
    
-
    
-
  
Exercised
    
-
    
-
    
-
  
Canceled or expired
    
-
    
-
    
-
  
Outstanding at March 31, 2006
    
4,170,952
    
0.18
    
-
  
Granted
   
600,000
    
0.045
  
$
500
  
Exercised
    
-
    
-
    
-
  
Canceled or expired
    
-
    
-
    
-
 
Outstanding at June 30, 2006
    
4,770,952
  
$
0.16
  
$
500
  
                     
Exercisable June 30,2006
    
3,595,951
  
$
0.17
  
$
167
  


14


A summary of the status of the Company’s nonvested options as of December 31, 2005 and changes during the six months ended June 30, 2006 is as follows:

Nonvested Shares
  
Number
of
options
  
Weighted
average
grant date
fair value
  
Nonvested at December 31, 2005
    
983,334
 
$
0.66
  
Granted
    
600,000
  
$
0.018
  
Vested
    
(408,333
)
$
0.18
  
Forfeited
    
-
    
-
  
Nonvested at June 30, 2006
    
1,175,001
 
$
0.51
  

As at June 30, 2006, the total compensation cost not yet recognized related to nonvested option awards is $113,218 which is expected to be realized over a weighted average period of 0.61 years.

The weighted-average fair value of stock options granted during the current year and the years ended December 31, 2005 and 2004 and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows:
 
   
2006
  
2005
  
2004
  
Significant assumptions (weighted-average):
              
Risk-free interest rate at grant date
   
4.9
%
  
3.6
%
  
3.7
%
Expected stock price volatility
   
373
%
  
107
%
  
114
%
Expected dividend payout
   
0
%
  
0
%
  
0
%
Expected option life-years based on management’s estimate
    
3 yrs
    
3 yrs
    
3 yrs
  
 
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS123R). This Statement requires public entities to measure the cost of equity awards to employees based on the grant-date value of the award. The Company elected early adoption of this Statement, effective for 2004, in advance of the Company's required adoption date of December 15, 2005. During the three and six months ended June 30, 2006, the Company recognized $91,413 ($36,811 in general and administrative and $54,602 in research and development expenses) and $176,384 ($67,182 in general and administrative and $ 109,202 in research and development expenses) respectively as expense relating to vested stock options. During the three and six months ended June 30, 2005, the Company recognized $428,859 ($290,255 in general and administrative and $138,604 in research and development expenses)and $721,333 ($444,125 in general and administrative and $277,208 in research and development expenses) respectively as expenses relating to vested stock options.

Warrants

The following tables summarize changes in warrants outstanding and the related exercise prices for the shares of the Company’s common stock issued by the Company as of June 30, 2006:

Warrants Outstanding & Exercisable
  
                 
 
 
Exercise Prices
  
 
Number Outstanding
  
Weighted Average Remaining Contractual Life (Years)
  
Weighed Average Exercise Price
  
$ 0.01
    
89,500
   
3.1
  
$
0.01
  
$ 0.1835
    
411,104
   
3.1
  
$
0.1835
  
$ 0.1835
    
1,912,100
   
3.1
  
$
0.1835
  
$ 0.1835
   
50,000
   
3.1
  
$
0.1835
  
$ 0.18
    
250,000
   
3.3
  
$
0.18
  
$ 0.45
    
2,692,307
    
4.0
  
$
0.45
  
$0.45
    
2,307,692
    
4.1
  
$
0.45
  
$0.45
    
2,692,307
    
4.2
  
$
0.45
  
     
10,405,010
        
$
0.38
  


15


   
Number of Shares
  
Weighted Average Exercise Price
 
Outstanding at January 1, 2003
    
-
  
$
-
  
Granted
   
-
    
-
  
Exercised
    
-
    
-
  
Canceled or expired
    
-
    
-
  
Outstanding at December 31, 2003
    
-
    
-
  
Granted
   
5,382,704
    
0.09
  
Exercised
    
(2,403,000
)
  
0.01
  
Canceled or expired
    
-
    
-
  
Outstanding at December 31, 2004
    
2,979,704
    
0.16
  
Granted
   
7,942,306
    
0.45
  
Exercised
    
(517,000
)
  
0.01
  
Canceled or expired
    
-
    
-
  
Outstanding at December 31, 2005
    
10,405,010
    
0.38
  
Granted
   
-
    
-
  
Exercised
    
-
    
-
  
Canceled or expired
    
-
    
-
  
Outstanding at March 31, 2006
    
10,405,010
    
0.38
  
Granted
   
-
    
-
  
Exercised
    
-
    
-
  
Canceled or expired
    
-
    
-
  
Outstanding at June 30, 2006
    
10,405,010
  
$
0.38
  

All warrants outstanding were exercisable at the date of grant. All of the warrants, except 250,000 warrants issued in 2004 for R&D services, were issued in connection with financings. The exercise price of the warrants issued in 2005 can be adjusted downward if stock is issued below the market price.

Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking and Cautionary Statements
 
This report contains certain forward-looking statements.  These statements relate to future events or our future performance and involve known and unknown risks and uncertainties.  Actual results may differ substantially from such forward-looking statements, including, but not limited to, the following:
 
·   our ability to meet our cash and working capital needs;
 
·  our ability to maintain our corporate existence as a viable entity; and
 
·  other risks detailed in our periodic report filings with the SEC.
 
In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans,” “anticipates”, “believes,” “estimates,” “predicts”, “potential”, “continue”, or the negative of these terms or other comparable terminology.  These statements are only predictions.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Overview

We are considered a development stage company engaged primarily in the development of protein-based screening tests that are used to screen women for cervical cancer and pre-cancerous conditions that typically result in cervical cancer.  We believe our tests detect the presence of certain antibodies that appear only when cervical cancer or certain pre-cancerous conditions are present in the body.  Our tests are performed by analyzing a small amount of blood taken from the patient.  In one version of our test, the blood sample is analyzed in a clinical testing laboratory using standard laboratory equipment and analytic software, which generally can produce test results in about two hours.  Our rapid test is designed to be administered at the point of care by a health professional in a doctor’s office, hospital, and clinic or even at home, and provides easy-to-read results in approximately 15 minutes. Our planned cervical cancer test uses proprietary technology to detect the presence of antibodies.  We believe that in the future we may be able to use that technology to develop rapid tests for other diseases and cancers.

16


In conjunction with the primary diagnostic cervical cancer blood tests that we are developing, we have also acquired the exclusive worldwide rights to diagnostic devices for HIV-1, HIV-2 and dengue fever and a proprietary diagnostic reagent a key ingredient commonly used by leading manufacturers of rapid tests as a detectable label. We acquired these rights from AccuDx Corporation in March 2005 for a period of ten years. Pursuant to the license agreement AccuDx will assist us in arranging to use an FDA/GMP-compliant contract manufacturing facility in Tijuana, Mexico to manufacture our diagnostic test devices.

We had no revenues and net income of $142,312 in the three months ended June 30, 2006 compared with a net loss of $1,313,908 during the same three months in 2005. During the six months ended June 30, 2006 we incurred a net loss of $64,730 in 2006 compared to a net loss of $2,204,481 in the same period in 2005. This profit and the losses are materially affected by non-cash changes in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities, as depicted in the following table:

   
For the three months ended June 30,
  
For the six months ended June 30,
  
   
2006
  
2005
  
2006
  
2005
  
       
Restated
      
Restated
  
                   
Reported Net Income (loss)
  
$
142,312
  
$
(1,313,908
)
$
(64,730
)
$
(2,204,481
)
                           
Change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
    
(736,145
)
  
159,939
    
(1,017,234
)
  
159,939
  
                           
Net loss before change in fair value related to adjustment of derivative and warrant liability to fair value of underlying securities
  
$
(593,833
)
$
(1,153,969
)
$
(1,081,964
)
$
(2,044,542
)

 
For the three months ended June 30, the reductions in operating expense results from: $155,000 lower R&D expenditures of which $84,000 was the result of lower stock option expense and $31,000 in lower salaries,, the reduction in general and administrative expenses of $383,000 which was primarily from $253,000 in lower amortization of employee, director and consultant option expenses, $19,000 lower wages, $112,000 lower consulting, and $54,000 lower legal fees, and interest costs which declined by $22,000.

For the six months ended June 30, the $1,043,000 reduction in operating expense results from: $263,000 lower R&D expenditures of which $168,000 was the result of lower stock option expense and $70,000 in lower salaries, the reduction in general and administrative expenses of $780,000 which was primarily from $377,000 in lower amortization of employee, director and consultant option expenses, $52,000 lower wages, $234,000 lower consulting, and $64,000 lower legal fees partially offset by an increase of $33,000 in audit fees, and interest cost which increased by $80,000. Since inception in July 1998, we have incurred cumulative losses of $8,080,400.
 
In June and August, 2005 we sold $2,000,000 of convertible debt in a private placement as part of an agreement to sell $2,000,000 of convertible debt. In order to meet the number of shares that may be required on conversion of the $2 million of convertible notes, based on latest conversion rates, we requested and received shareholder approval at our annual meeting held May 23, 2006 to increase our authorized shares of common stock from 150 million shares to 750 million shares.

Application of Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.
 

17

Stock-Based Compensation

  On December 16, 2004, the FASB published Statement No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS No. 123R include stock options, restricted stock plans, performance-based equity awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS No. 123R are effective as of the first interim period that begins after December 15, 2005. The Company adopted this Statement early, for the year 2004. The company incurred expense of $976,986 in 2005 and $426,081 in 2004 for the stock options granted under its 2004 Stock Incentive Plan. The Company anticipates continuing to incur such costs in order to conserve its limited financial resources. The determination of the volatility, expected term and other assumptions used to determine the fair value of equity based compensation issued to non-employees under SFAS No. 123 involves subjective judgment and the consideration of a variety of factors, including our historical stock price, option exercise activity to date and the review of assumptions used by comparable enterprises.

Accounting for Derivatives

In June 1998, FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.

In June 2005, the Company obtained a commitment from accredited investors to purchase convertible debt with warrants. The Company evaluated the transaction as a derivative transaction in accordance with SFAS No. 133. The transactions, to the extent that it is to be satisfied with common stock of the Company, would normally be included as equity obligations. However, in the instant case, due to the indeterminate number of shares which might be issued under the embedded convertible host debt conversion feature, the Company is required to record a liability for the fair value of the detachable warrants and the embedded convertible feature of the note payable (included in the liabilities as a "derivative liability").

The Company accounts for warrants and embedded conversion features as described in SFAS 133, EITF 98-5, 00-19, and 00-27, and APB 14 as follows:

·
The Company allocated the proceeds received between the convertible debt and the detachable warrants based upon the relative fair market values on the dates the proceeds were received.
·
Subsequent to the initial recording, the change in the fair value of the detachable warrants, determined under the Black-Scholes option pricing formula, and the change in the fair value of the embedded derivative in the conversion feature of the convertible debentures at each reporting date are recorded as adjustments to the liabilities.
·
The expense relating to the change in the fair value of the Company's stock reflected in the change in the fair value of the warrants and derivatives is included as other income (expense).
 
Plan of Operations

Grant Life Sciences, Inc. (GLIF.OB), a development stage company, engages in the research, development, marketing, and sale of diagnostic kits for the screening, monitoring, and diagnosis of diseases with emphasis on women’s health, infectious diseases, and cancers.
 
During the next year, we expect we may acquire laboratory assets to augment our clinical research and development efforts, which are presently outsourced, and may continue to be outsourced. We have relocated our offices to California where our chairman, president and chief financial officer reside.
 
During the next 12 months, we plan to expand on our broadened business strategy of in- and out-licensing technologies and products. To this end, we have recently established OEM agreements to manufacture and distribute more than two-dozen immunoassay tests for the India and other South East Asia markets. These newly added tests are additions to the AccuDx rapid test line (HIV1/2, Dengue fever IgG and IgM), and include trimarkers (Toxoplasma, Rubella, and CMV IgG and IgM antibodies), HSV (IgG and IgM), HBVsAg, HCV, Troponin-I, TB rapid test, hemoglobin A1c, cancer markers, thyroid hormone panel (T3, T4, TSH), and others. In addition, we have signed a Letter of Intent (LOI) to exclusively represent Response Biomedical Corp. of Burnaby, B.C. to distribute its RAMP cardiac products in India.
 

18

We plan to take advantage of our established sales channel to provide important diagnostic tests to the vast India market and we intend to continue adding new products in the area of infectious diseases, hormones, and cancer biomarkers, for sales in the future. We are also actively expanding our sales channel to other South East Asia countries. Starting in the third quarter of 2006 we plan to increase revenue from the sales of immunoassay kits and RAMP cardiac products significantly.
 
As part of our in- and out-licensing strategy, we signed a Memorandum of Understanding (MOU) with Diagnostic Technology Ltd. (Haifa, Israel) in April related to Grant’s cervical cancer-diagnostic technology (U.S. Patent No. 6,743,593). The MOU, initially for a 90 day due diligence period was extended an additional 60 days in order to complete the evaluation of human papillomavirus antibody test.
 
As a development stage company, we plan to acquiring new products through our in-licensing activities, optimizing the technologies and products, and out-licensing to our partners for further development or sales through our own marketing channels. In addition to the human papillomavirus antibody test, we are actively evaluating a human papillomavirus antigen test and other new technologies.
 
During the next 12 months, we anticipate that we may add employees, including scientists and other professionals in the research and development, product development, business development, regulatory, manufacturing, marketing and clinical studies areas.
 
We do not anticipate investing in real estate or interests in real estate, real estate mortgages, or securities of or interests in persons primarily engaged in real estate activities during the next 12 months.  We do not intend to undertake investments in real estate as a part of our normal operations.

Liquidity and Capital Resources

As of June 30, 2006, we had total current assets of $349,074 and total current liabilities of $525,864. These current liabilities include $99,999 of accrued liquidated damages owed to investors who purchased shares in July and August of 2004, under the terms of the Registration Rights Agreement associated with this financing. The registration agreement covering the shares was filed on time, but was not effective by the due date. This form SB-2 Registration Statement was declared effective by the Securities and Exchange Commission on July 9, 2005.

Our continuation as a going concern is dependent on our ability to generate sufficient cash flows to meet our obligations on a timely basis and to obtain additional financing as may be required.

Auditor’s Opinion Expressed Doubt About The Company’s Ability to Continue as a “Going Concern”

The independent auditors report on our December 31, 2005 financial statements included in the Company's Annual Report states that the Company is in the development stage and has not established a significant source of revenues. This raises substantial doubt about the Company's ability to continue as a going concern. If we are unable to develop our business, we have to discontinue operations or cease to exist, which would be detrimental to the value of the Company's common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”), an amendment to Accounting Principles Bulletin Opinion No. 20, “Accounting Changes” (“APB No. 20”), and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Though SFAS No. 154 carries forward the guidance in APB No.20 and SFAS No.3 with respect to accounting for changes in estimates, changes in reporting entity, and the correction of errors, SFAS No. 154 establishes new standards on accounting for changes in accounting principles, whereby all such changes must be accounted for by retrospective application to the financial statements of prior periods unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005, with early adoption permitted for changes and corrections made in years beginning after May 2005. The Company will implement SFAS No. 154 in its fiscal year beginning January 1, 2006. We are currently evaluating the impact of this new standard but believe that it will not have a material impact on the Company’s financial position, results of operations, or cash flows.

19


In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS No. 155 amends SFAS No. 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instrument. The Company is currently evaluating the impact this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations, or cash flows.
 
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS NO. 156”), which provides an approach to simplify efforts to obtain hedge-like (offset) accounting. This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. The Statement (1) requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations; (2) requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable; (3) permits an entity to choose either the amortization method or the fair value method for subsequent measurement for each class of separately recognized servicing assets or servicing liabilities; (4) permits at initial adoption a one-time reclassification of available-for-sale securities to trading securities by an entity with recognized servicing rights, provided the securities reclassified offset the entity’s exposure to changes in the fair value of the servicing assets or liabilities; and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the balance sheet and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for all separately recognized servicing assets and liabilities as of the beginning of an entity’s fiscal year that begins after September 15, 2006, with earlier adoption permitted in certain circumstances. The Statement also describes the manner in which it should be initially applied. The Company does not believe that SFAS No. 156 will have a material impact on its financial position, results of operations or cash flows.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements as of June 30, 2006 or as of the date of this report.

Inflation

In the opinion of management, inflation has not had a material effect on the operations of the Company.

Item 3. Controls and Procedures
 
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2006. Based on such evaluation, our principal executive officer and principal financial officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934.
 
During the second quarter of fiscal 2006, there were no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 

20

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

On January 3, 2006 a summons and complaint was filed in the Supreme Court of the State of New York by various investors against the Company. On June 26, 2006 the Company agreed to a settlement of this matter whereby the investors were paid $17,422 in cash and will be issued shares for the remaining $52, 265 of the claim at $0.01 per share.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

In January 2006, the Company was served with a default notice by the holders of the $2,000,000 convertible notes. The default was the result of the Company’s not having maintained an effective registration statement for sufficient shares to permit the note holders to continue conversion of the notes to common shares. In February 2006, the notice of default was withdrawn in exchange for an agreement with the Company whereby the rate at which the notes could be converted was reduced from 50% to 43% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including conversion date.

Item 4. Submission of Matters to a Vote of Security Holders
 
At the annual meeting of shareholders held May 23, 2006 in Los Angeles, shareholders representing 64% of the issued and outstanding common shares were present in person or by proxy. At that meeting the shareholders elected Stan Yakatan, Michael Ahlin, Jack Levine, and Dr. Hun-Chi Lin directors, approved the increase in authorized share capital from 150,000,000 to 750,000,000 common shares, and approved the appointment of Singer Lewak Greenbaum & Goldstein LLP as the Company’s independent auditors for the fiscal year ended December 31, 2005.

Item 5. Other Information

None.

Item 6.    Exhibits
 
Exhibit
Number
 
Description 
     
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 

21

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
 
GRANT LIFE SCIENCES, INC.
 
 		  
 		  
 
Date: August 14, 2006
    /s/  Hun-Chi Lin
 
Hun-Chi Lin
 
President and Chief Scientist
 
     
Date: August 14, 2006
   /s/ Don Rutherford
 
Don Rutherford
 
Chief Financial Officer
 
 
 
22