Attached files
| file | filename |
|---|---|
| EX-32 - GENEREX BIOTECHNOLOGY CORP | v204775_ex32.htm |
| EX-31.1 - GENEREX BIOTECHNOLOGY CORP | v204775_ex31-1.htm |
| EX-31.2 - GENEREX BIOTECHNOLOGY CORP | v204775_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q/A
(Amendment
No. 2)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
quarterly period ended October 31, 2009
¨ TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the transition period from _________________ to ________________
COMMISSION
FILE NUMBER: 0-25169
GENEREX BIOTECHNOLOGY
CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
98-0178636
|
|
(State of other jurisdiction of
incorporation or
organization)
|
|
(IRS Employer Identification No.)
|
33 HARBOUR SQUARE, SUITE 202
TORONTO, ONTARIO
CANADA M5J
2G2
(Address
of principal executive offices)
(416)
364-2551
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required 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. x Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
¨ Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer ¨
Non-accelerated
filer ¨ Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
The
number of outstanding shares of the registrant's common stock, par value $.001,
was 248,522,740 as of December 10, 2009.
GENEREX
BIOTECHNOLOGY CORPORATION
FORM
10-Q/A
EXPLANATORY
NOTE
Generex
Biotechnology Corporation (the "Company") is filing this Amendment No. 2 (this
"Amendment No. 2") to its Quarterly Report on Form 10-Q for the quarterly period
ended October 31, 2009 (the "Original Report "), which was originally filed on
December 11, 2009 and which was amended by Amendment No. 1 on June 11, 2010
(“Amendment No. 1”), to address comments from the staff of the Securities and
Exchange Commission (the “Staff”). The Company is filing this Amendment
No. 2 to restate Item 4T. Controls and Procedures to indicate that the Company’s
Principal Executive Officer and Principal Financial Officer have concluded that
the Company’s disclosure controls and procedures were not effective as of
October 31, 2009.
Except as
discussed above, the Company has not modified or updated disclosures presented
in Amendment No. 1. Accordingly, this Amendment No. 2 does not reflect
events occurring after the filing of the Original Report or Amendment No. 1, nor
does it modify or update those disclosures affected by subsequent events or
discoveries. It also does not affect information contained in the Original
Report which was not impacted by the restatements in Amendment No. 1 or
Amendment No. 2. Events occurring after the filing of the Original Report
or other disclosures necessary to reflect subsequent events have been or will be
addressed in the Company's reports filed subsequent to the Original
Report.
This
Amendment No. 2 should be read in conjunction with the Company's filings made
with the Securities and Exchange Commission subsequent to the filing of the
Original Report, including any amendments to those filings.
i
GENEREX
BIOTECHNOLOGY CORPORATION
INDEX
|
PART
I. FINANCIAL INFORMATION
|
|
|
Item
1. Financial Statements
(unaudited)
|
|
|
Consolidated
Balance Sheets -
|
|
|
October
31, 2009 (unaudited) and July 31, 2009
|
1
|
|
Consolidated
Statements of Operations — For the three month
|
|
|
periods
ended October 31, 2009 and 2008, and cumulative from
|
|
|
November
2, 1995 to October 31, 2009 (unaudited)
|
2
|
|
Consolidated
Statements of Cash Flows — For the three month
|
|
|
periods
ended October 31, 2009 and 2008, and cumulative from
|
|
|
November
2, 1995 to October 31, 2009 (unaudited)
|
3
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5
|
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
14
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
25
|
|
Item
4T. Controls and Procedures (Restated)
|
25
|
|
PART
II: OTHER INFORMATION
|
|
|
Item
1. Legal Proceedings
|
26
|
|
Item
1A. Risk Factors
|
26
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
28
|
|
Item
3. Defaults Upon Senior Securities
|
28
|
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
29
|
|
Item
5. Other Information
|
29
|
|
Item
6. Exhibits
|
29
|
|
Signatures
|
29
|
ii
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
|
October 31,
|
July 31,
|
|||||||
|
2009 (restated)*
|
2009
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 26,262,140 | $ | 14,197,048 | ||||
|
Accounts
receivable
|
76,367 | 57,792 | ||||||
|
Inventory
(see Note 5)
|
1,424,782 | 1,271,456 | ||||||
|
Other
current assets
|
1,015,191 | 766,741 | ||||||
|
Total
Current Assets
|
28,778,480 | 16,293,037 | ||||||
|
Property
and Equipment, Net
|
1,439,598 | 1,444,770 | ||||||
|
Assets
Held for Investment, Net
|
3,470,728 | 3,373,564 | ||||||
|
Patents,
Net
|
3,646,160 | 3,702,386 | ||||||
|
TOTAL
ASSETS
|
$ | 37,334,966 | $ | 24,813,757 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable and accrued expenses (see Note 6)
|
$ | 7,609,207 | $ | 7,486,155 | ||||
|
Deferred
revenue and rebate liability
|
108,197 | 140,883 | ||||||
|
Current
maturities of long-term debt
|
1,247,772 | 1,060,788 | ||||||
|
Current
maturities of obligations under capital lease
|
37,365 | 43,836 | ||||||
|
Total
Current Liabilities
|
9,002,541 | 8,731,662 | ||||||
|
Obligations
Under Capital Lease, Net
|
— | 3,932 | ||||||
|
Long-Term
Debt, Net
|
1,681,576 | 1,854,421 | ||||||
|
Derivative
Warranty Liability (see Note 10)
|
10,131,138 | — | ||||||
|
Total
Liabilities
|
20,815,255 | 10,590,015 | ||||||
|
Commitments
and Contingencies
|
||||||||
|
Stockholders’
Equity (see Note 10):
|
||||||||
|
Special
Voting Rights Preferred Stock, $.001 par value; authorized
|
||||||||
|
1,000
shares at October 31, 2009 and July 31, 2009; -0- shares
|
||||||||
|
issued
and outstanding at October 31, 2009 and July 31, 2009
|
— | — | ||||||
|
Common
stock, $.001 par value; authorized 500,000,000 shares at October
31,
|
||||||||
|
2009
and July 31, 2009; 248,145,032 and 212,628,818 shares issued
and
|
||||||||
|
outstanding
at October 31, 2009 and July 31, 2009, respectively
|
248,144 | 212,628 | ||||||
|
Additional
paid-in capital
|
314,765,024 | 307,401,016 | ||||||
|
Deficit
accumulated during the development stage
|
(299,183,874 | ) | (294,041,489 | ) | ||||
|
Accumulated
other comprehensive income
|
690,417 | 651,587 | ||||||
|
Total
Stockholders’ Equity
|
16,519,711 | 14,223,742 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 37,334,966 | $ | 24,813,757 | ||||
* - See
Note 11 - Restatement of Previously Reported Interim Period.
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
1
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Cumulative
From
|
||||||||||||
|
November
2, 1995
|
||||||||||||
|
For
the Three Months
|
(Date
of Inception)
|
|||||||||||
|
Ended October 31,
|
to
October 31,
|
|||||||||||
|
2009 (restated)*
|
2008
|
2009 (restated)*
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
|
Revenues,
net
|
$ | 97,542 | $ | 538,346 | $ | 3,715,436 | ||||||
|
Cost
of Goods Sold
|
79,237 | 22,192 | 720,618 | |||||||||
|
Gross
profit
|
18,305 | 516,154 | 2,994,818 | |||||||||
|
Operating
Expenses:
|
||||||||||||
|
Research
and development
|
3,075,769 | 4,355,689 | 106,452,944 | |||||||||
|
Research
and development - related party
|
— | — | 220,218 | |||||||||
|
Selling
and marketing
|
1,298,704 | 837,198 | 5,731,202 | |||||||||
|
General
and administrative
|
3,825,265 | 2,847,913 | 120,626,083 | |||||||||
|
General
and administrative - related party
|
— | — | 314,328 | |||||||||
|
Total
Operating Expenses
|
8,199,738 | 8,040,800 | 233,344,775 | |||||||||
|
Operating
Loss
|
(8,181,433 | ) | (7,524,646 | ) | (230,349,957 | ) | ||||||
|
Other
Income (Expense):
|
||||||||||||
|
Miscellaneous
income (expense)
|
500 | 5 | 196,761 | |||||||||
|
Income
from rental operations, net
|
84,593 | 88,380 | 1,656,601 | |||||||||
|
Interest
income
|
10,085 | 168,465 | 7,756,959 | |||||||||
|
Interest
expense
|
(52,401 | ) | (4,429,388 | ) | (68,049,569 | ) | ||||||
|
Change
in fair value of derivative warrant liability
|
2,996,271 | — | 2,996,271 | |||||||||
|
Loss
on extinguishment of debt
|
— | — | (14,134,068 | ) | ||||||||
|
Net
Loss Before Undernoted
|
(5,142,385 | ) | (11,697,184 | ) | (299,927,002 | ) | ||||||
|
Minority
Interest Share of Loss
|
— | — | 3,038,185 | |||||||||
|
Net
Loss
|
(5,142,385 | ) | (11,697,184 | ) | (296,888,817 | ) | ||||||
|
Preferred
Stock Dividend
|
— | — | 2,295,057 | |||||||||
|
Net
Loss Available to Common Stockholders
|
$ | (5,142,385 | ) | $ | (11,697,184 | ) | $ | (299,183,874 | ) | |||
|
Basic
and Diluted Net Loss Per Common Share (see Note 8)
|
$ | (.02 | ) | $ | (.10 | ) | ||||||
|
Weighted
Average Number of Shares of Common Stock Outstanding
|
233,991,319 | 118,109,023 | ||||||||||
* - See
Note 11 - Restatement of Previously Reported Interim Period.
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
2
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Cumulative From
|
||||||||||||
|
November 2, 1995
|
||||||||||||
|
For the Three Months
|
(Date of Inception)
|
|||||||||||
|
Ended October 31,
|
to October 31,
|
|||||||||||
|
2009 (restated)*
|
2008
|
2009 (restated)*
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
loss
|
$ | (5,142,385 | ) | $ | (11,697,184 | ) | (296,888,817 | ) | ||||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
199,702 | 216,172 | 7,972,373 | |||||||||
|
Minority
interest share of loss
|
— | — | (3,038,185 | ) | ||||||||
|
Reduction
of notes receivable - common stock in exchange for services
rendered
|
— | — | 423,882 | |||||||||
|
Write-off
of uncollectible notes receivable - common stock
|
— | — | 391,103 | |||||||||
|
Write-off
of deferred offering costs
|
— | — | 3,406,196 | |||||||||
|
Write-off
of abandoned patents
|
— | — | 913,196 | |||||||||
|
Loss
on disposal of property and equipment
|
— | — | 911 | |||||||||
|
Loss
on extinguishment of debt
|
— | — | 14,134,069 | |||||||||
|
Common
stock issued as employee compensation
|
28,986 | 55,136 | 3,708,379 | |||||||||
|
Issuance
of options and option modifications as employee
compensation
|
879,000 | 9,680 | 985,996 | |||||||||
|
Common
stock issued for services rendered
|
639,224 | 46,649 | 10,701,853 | |||||||||
|
Amortization
of prepaid services in conjunction with common stock
issuance
|
— | — | 138,375 | |||||||||
|
Non-cash
compensation expense
|
— | — | 45,390 | |||||||||
|
Stock
options and warrants issued for services rendered
|
5,653 | — | 7,371,376 | |||||||||
|
Issuance
of warrants as additional exercise right inducement
|
— | — | 21,437,909 | |||||||||
|
Preferred
stock issued for services rendered
|
— | — | 100 | |||||||||
|
Treasury
stock redeemed for non-performance of services
|
— | — | (138,000 | ) | ||||||||
|
Amortization
of deferred debt issuance costs and loan origination fees
|
— | 153,791 | 2,405,629 | |||||||||
|
Amortization
of discount on convertible debentures
|
— | 4,009,835 | 38,345,592 | |||||||||
|
Common
stock issued as interest payment on convertible debentures
|
— | 252,083 | 757,514 | |||||||||
|
Interest
on short-term advance
|
— | — | 22,190 | |||||||||
|
Founders’
shares transferred for services rendered
|
— | — | 353,506 | |||||||||
|
Fees
in connection with refinancing of debt
|
— | — | 113,274 | |||||||||
|
Warrant
repricing costs
|
— | — | 3,198,604 | |||||||||
|
Change
in fair value of derivative warrant liability
|
(2,996,271 | ) | (2,996,271 | ) | ||||||||
|
Changes
in operating assets and liabilities (excluding the effects of
acquisition):
|
||||||||||||
|
Accounts
receivable
|
(26,542 | ) | (30,674 | ) | (99,777 | ) | ||||||
|
Miscellaneous
receivables
|
— | — | 43,812 | |||||||||
|
Inventory
|
(145,862 | ) | (60,179 | ) | (1,461,712 | ) | ||||||
|
Other
current assets
|
(238,187 | ) | (40,087 | ) | (692,700 | ) | ||||||
|
Accounts
payable and accrued expenses
|
1,168,647 | (574,680 | ) | 13,721,787 | ||||||||
|
Deferred
revenue
|
(33,702 | ) | 37,018 | 105,135 | ||||||||
|
Other,
net
|
— | — | 110,317 | |||||||||
|
Net
Cash Used in Operating Activities
|
(5,661,737 | ) | (7,622,440 | ) | (174,506,994 | ) | ||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||
|
Purchase
of property and equipment
|
(132,646 | ) | (1,385 | ) | (4,727,578 | ) | ||||||
|
Costs
incurred for patents
|
(42,237 | ) | (30,537 | ) | (2,244,747 | ) | ||||||
|
Change
in restricted cash
|
— | — | 45,872 | |||||||||
|
Proceeds
from maturity of short term investments
|
— | 2,214 | 195,242,918 | |||||||||
|
Purchases
of short-term investments
|
— | — | (195,242,918 | ) | ||||||||
|
Cash
received in conjunction with merger
|
— | — | 82,232 | |||||||||
|
Advances
to Antigen Express, Inc.
|
— | — | (32,000 | ) | ||||||||
|
Increase
in officers’ loans receivable
|
— | — | (1,126,157 | ) | ||||||||
|
Change
in deposits
|
— | (608,279 | ) | (652,071 | ) | |||||||
|
Change
in notes receivable - common stock
|
— | — | (91,103 | ) | ||||||||
|
Change
in due from related parties
|
— | — | (2,222,390 | ) | ||||||||
|
Other,
net
|
— | — | 89,683 | |||||||||
|
Net
Cash Used in Investing Activities
|
(174,883 | ) | (637,987 | ) | (10,878,259 | ) | ||||||
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
3
|
Cumulative From
|
||||||||||||
|
November 2, 1995
|
||||||||||||
|
For the Three Months
|
(Date of Inception)
|
|||||||||||
|
Ended October 31,
|
to October 31,
|
|||||||||||
|
2009 (restated)*
|
2008
|
2009 (restated)*
|
||||||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||
|
Proceeds
from short-term advance
|
— | — | 325,179 | |||||||||
|
Repayment
of short-term advance
|
— | — | (347,369 | ) | ||||||||
|
Proceeds
from issuance of long-term debt
|
— | — | 2,005,609 | |||||||||
|
Repayment
of long-term debt
|
(23,492 | ) | (21,567 | ) | (2,048,018 | ) | ||||||
|
Repayment
of obligations under capital lease
|
(10,403 | ) | (3,024 | ) | (45,637 | ) | ||||||
|
Change
in due to related parties
|
— | — | 154,541 | |||||||||
|
Proceeds
from exercise of warrants
|
1,517,940 | — | 45,642,159 | |||||||||
|
Proceeds
from exercise of stock options
|
— | 56,000 | 5,001,916 | |||||||||
|
Proceeds
from minority interest investment
|
— | — | 3,038,185 | |||||||||
|
Proceeds
from issuance of preferred stock
|
— | — | 12,015,000 | |||||||||
|
Redemption
of SVR preferred stock
|
— | — | (100 | ) | ||||||||
|
Proceeds
from issuance of convertible debentures, net
|
— | — | 40,704,930 | |||||||||
|
Payment
of costs associated with convertible debentures
|
— | — | (722,750 | ) | ||||||||
|
Repayments
of convertible debentures
|
— | (376,667 | ) | (5,142,424 | ) | |||||||
|
Purchase
of treasury stock
|
— | — | (483,869 | ) | ||||||||
|
Proceeds
from issuance of common stock, net
|
16,400,671 | — | 112,137,624 | |||||||||
|
Purchase
and retirement of common stock
|
— | — | (497,522 | ) | ||||||||
|
Net
Cash Provided by Financing Activities
|
17,884,716 | (345,258 | ) | 211,737,454 | ||||||||
|
Effect
of Exchange Rates on Cash
|
16,996 | (14,970 | ) | (90,061 | ) | |||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
12,065,092 | (8,620,655 | ) | 26,262,140 | ||||||||
|
Cash
and Cash Equivalents, Beginning of Period
|
14,197,048 | 17,237,510 | — | |||||||||
|
Cash
and Cash Equivalents, End of Period
|
$ | 26,262,140 | $ | 8,616,855 | $ | 26,262,140 | ||||||
|
Supplemental
Disclosure of Cash Flow Information:
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | 52,401 | $ | 618,099 | ||||||||
|
Income
taxes
|
$ | — | $ | — | ||||||||
|
Disclosure
of non-cash investing and financing activities:
|
||||||||||||
|
Issuance
of common stock as satisfaction of accounts payable and accrued
expenses
|
$ | 1,055,459 | $ | — | ||||||||
|
Par
value of common stock issued in conjunction with cashless exercise of
warrants
|
$ | 4,466 | $ | — | ||||||||
|
Issuance
of common stock as repayment of convertible debentures and advance
payments
|
$ | — | $ | 3,753,334 | ||||||||
|
Issuance
of common stock as convertible debentures advance payments
|
$ | — | $ | 759,450 | ||||||||
|
Purchase
of property and equipment through the issuance of obligations under
capital lease
|
$ | — | $ | 83,002 | ||||||||
*See Note
11 - Restatement of Previously Reported Interim Period
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
4
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
Basis
of Presentation
|
The
accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and disclosures required by
generally accepted accounting principles for complete financial statements are
not included herein. The interim statements should be read in
conjunction with the financial statements and notes thereto included in the
Company’s latest Annual Report on Form 10-K. The results for the
three months ended may not be indicative of the results for the entire
year.
Interim
statements are subject to possible adjustments in connection with the annual
audit of the Company’s accounts for the fiscal year 2010. In the
Company’s opinion, all adjustments necessary for a fair presentation of these
interim statements have been included and are of a normal and recurring
nature.
The
Company is a development stage company, which has a limited history of
operations and limited revenue to date. The Company currently is
recognizing revenue from the sale of three of its four commercially available
products. Additionally, the Company has several product candidates
that are in various research or early stages of pre-clinical and clinical
development. There can be no assurance that the Company will be
successful in obtaining regulatory clearance for the sale of existing or any
future products or that any of the Company’s products will be commercially
viable.
The
Company adopted Issue No. 07-5, “Determining Whether an Instrument (or Embedded
Feature) is Indexed to an Entity’s Own Stock” (now codified as Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 815,
Derivatives and Hedging) effective as of August 1, 2009. The Company
reassessed certain outstanding warrants under ASC 815 and due to a price
adjustment clause included in these warrants, it has determined that such
warrants were no longer deemed to be indexed to the Company’s stock and,
therefore, no longer met the scope exception of ASC 815. These warrants have
been reclassified to a liability and will be adjusted to fair value on a
quarterly basis going forward. The adoption of this guidance resulted
in the recognition of income of $2,996,271 within the Company’s consolidated
statements of operations for the three months ended October 31, 2009 and a net
reclassification of $10,131,138 of previously reported stockholders’ equity to a
liability under the caption “Derivative Warrant Liability” as of October 31,
2009. (See Note 11 – Restatement of Previously Reported Interim
Period.)
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has experienced
negative cash flows from operations since inception and had an accumulated
deficit at October 31, 2009 of approximately $299 million. The Company has
funded its activities to date almost exclusively from debt and equity
financings.
The
Company will continue to require substantial funds to continue research and
development, including preclinical studies and clinical trials of its product
candidates, and to support sales and marketing efforts, if the FDA or other
regulatory approvals are obtained. Management’s plans in order to meet its
operating cash flow requirements include financing activities such as private
placements of its common stock, preferred stock offerings and issuance of debt
and convertible debt instruments. Management is also actively pursuing
industry collaboration activities including product licensing and specific
project financing.
While the
Company believes that it will be successful in obtaining the necessary financing
to fund its operations, meet revenue projections and manage costs, there are no
assurances that such additional funding will be achieved and that it will
succeed in its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts of liabilities that might be necessary should the Company be
unable to continue in existence.
|
2.
|
Effects
of Recent Accounting Pronouncements
|
Recently
Adopted Accounting Pronouncements
In
November 2007, the FASB issued guidance related to accounting for collaborative
arrangements. This guidance defines a collaborative arrangement as a contractual
arrangement in which the parties are (i) active participants to the
arrangement; and (ii) exposed to significant risks and rewards that depend
upon the commercial success of the endeavor. It also addresses the appropriate
statement of operations presentation for activities and payments between the
participants in a collaborative arrangement as well as for costs incurred and
revenue generated from transactions with third parties. This guidance is
effective for the Company’s fiscal year beginning August 1, 2009. The
adoption of this guidance did not have a significant impact on the Company’s
consolidated financial statements.
5
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
December 2007, the FASB issued an amendment to an existing accounting standard
which provides guidance related to business combinations. The amendment retains
the fundamental requirements that the acquisition method of accounting be used
for all business combinations and for an acquirer to be identified for each
business combination. This amendment also establishes principles and
requirements for how the acquirer: a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree; b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase
and c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This amendment applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. This guidance is effective for the Company’s fiscal
year beginning August 1, 2009. The adoption of this guidance did not have a
significant impact on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued guidance related to non-controlling interests in
consolidated financial statements. This guidance amends previously issued
guidance to establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. This guidance is effective for the Company’s fiscal year
beginning August 1, 2009. The adoption of this guidance did not have a
significant impact on the Company’s consolidated financial
statements.
In April
2008, the FASB issued guidance related to determining the useful life of
intangible assets. This guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The objective of the guidance is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset. The
adoption of this guidance did not have a significant impact on the Company’s
consolidated financial statements.
In May
2008, the FASB issued guidance related to accounting for convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlements). This guidance requires a portion of this type of
convertible debt to be recorded as equity and to record interest expense on the
debt portion at a rate that would have been charged on nonconvertible debt with
the same terms. The adoption of this guidance did not have a significant impact
on the Company’s consolidated financial statements.
In June
2008, the FASB issued guidance related to determining whether instruments
granted in share-based payment transactions are participating
securities. Securities participating in dividends with common stock
according to a formula are participating securities. This guidance determined
that unvested shares of restricted stock and stock units with nonforfeitable
rights to dividends are participating securities. Participating securities
require the “two-class” method to be used to calculate basic earnings per share.
This method lowers basic earnings per common share. This guidance is effective
for the Company’s fiscal year beginning August 1, 2009. The
adoption of this guidance did not have a significant impact on the Company’s
consolidated financial statements.
In
June 2008, the FASB reached a consensus regarding the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception related to accounting for
derivative instruments and hedging activities. This guidance is
effective for the Company’s fiscal year beginning August 1,
2009. The Company determined that certain of its warrants with price
protection provisions are not considered to be indexed to the Company’s own
stock, therefore, they do not meet the scope exception and thus should be
accounted for as a liability. The adoption of this guidance resulted
in the recognition of income of $2,996,271within the Company’s consolidated
statements of operations for the three month period ended October 31, 2009 and a
net reclassification of $10,131,138 of previously reported stockholders’ equity
to a liability under the caption “Derivative Warrant Liability” as of October
31, 2009. (See Notes 10 – Derivative Warrant Liability and 11
–Restatement of Previously Reported Interim Period.)
6
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June
2009, the FASB issued guidance which stipulates the FASB Accounting Standards
Codification is the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. This guidance is effective for the
Company’s fiscal year beginning August 1, 2009. The adoption of this
guidance did not have a significant impact on the Company’s consolidated
financial statements.
Recently
Issued Accounting Pronouncements
In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic
605)—Multiple Deliverable Revenue Arrangements (“ASU 2009-13”). ASU
2009-13 eliminates the residual method of allocation and requires the relative
selling price method when allocating deliverables of a multiple-deliverable
revenue arrangement. The determination of the selling price for each deliverable
requires the use of a hierarchy designed to maximize the use of available
objective evidence including, vendor specific objective evidence, third party
evidence of selling price, or estimated selling price. ASU 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, and must be
adopted in the same period using the same transition method. If adoption is
elected in a period other than the beginning of a fiscal year, the amendments in
these standards must be applied retrospectively to the beginning of the fiscal
year. Full retrospective application of these amendments to prior fiscal years
is optional. Early adoption of these standards may be elected. We are currently
evaluating the impact of these new accounting standards on our consolidated
financial statements.
|
3.
|
Stock-Based
Compensation
|
As of
October 31, 2009, the Company had three stockholder-approved stock incentive
plans under which shares and options exercisable for shares of common stock have
been or may be granted to employees, directors, consultants and advisors. A
total of 2,000,000 shares of common stock are reserved for issuance under the
2000 Stock Option Plan (the 2000 Plan), a total of 12,000,000 shares of common
stock are reserved for issuance under the 2001 Stock Option Plan (the 2001 Plan)
and 30,000,000 shares of common stock are reserved for issuance under the 2006
Stock Plan (the 2006 Plan). Restricted shares can only be issued
under the 2006 Plan. At October 31, 2009, there were 2,000,000,
8,547,628 and 19,831,340 shares of common stock reserved for future awards under
the 2000 Plan, 2001 Plan and 2006 Plan, respectively.
The 2000,
2001 and 2006 Plans (the Plans) are administered by the Board of Directors (the
Board). The Board is authorized to select from among eligible employees,
directors, advisors and consultants those individuals to whom options are to be
granted and to determine the number of shares to be subject to, and the terms
and conditions of the options. The Board is also authorized to prescribe, amend
and rescind terms relating to options granted under the Plans. Generally, the
interpretation and construction of any provision of the Plans or any options
granted hereunder is within the discretion of the Board.
The Plans
provide that options may or may not be Incentive Stock Options (ISOs) within the
meaning of Section 422 of the Internal Revenue Code. Only employees of the
Company are eligible to receive ISOs, while employees and non-employee
directors, advisors and consultants are eligible to receive options which are
not ISOs, i.e. “Non-Qualified Options.” The options granted by the Board in
connection with its adoption of the Plans were Non-Qualified Options. In
addition, the 2006 Plan also provides for restricted stock grants.
The fair
value of each option granted is estimated on the grant date using the
Black-Scholes option pricing model which takes into account as of the grant date
the exercise price and expected life of the option, the current price of the
underlying stock and its expected volatility, expected dividends on the stock
and the risk-free interest rate for the term of the option.
In the
case of restricted stock grants under the 2006 Plan, fair market value of the
shares is the market price.
7
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following is a summary of the common stock options granted, forfeited or expired
and exercised under the Plan for the three months ended October 31,
2009:
|
Weighted
|
Weighted
|
|||||||||||||||
|
Average
|
Average
|
|||||||||||||||
|
Exercise
|
Remaining
|
Aggregate
|
||||||||||||||
|
Price
|
Contractual
|
Intrinsic
|
||||||||||||||
|
Options
|
Share
|
Term (Years)
|
Value
|
|||||||||||||
|
Outstanding,
August 1, 2009
|
5,067,138 | $ | 0.44 | |||||||||||||
|
Granted
|
855,000 | $ | 0.64 | |||||||||||||
|
Forfeited
or expired
|
(270,000 | ) | $ | 0.92 | ||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Outstanding,
October 31, 2009
|
5,652,138 | $ | 0.44 | 4.91 | $ | 1,196,754 | ||||||||||
|
Exercisable,
October 31, 2009
|
4,753,388 | $ | 1,196,754 | |||||||||||||
|
Grant
Date Fair Value of Options Granted
|
$ | 0.46 | ||||||||||||||
|
Grant
Date Fair Value of Options Forfeited or Expired
|
$ | 0.70 | ||||||||||||||
|
Total
Intrinsic Value of Options Exercised
|
n/a | |||||||||||||||
The
following is a summary of the non-vested common stock options granted, vested
and forfeited under the Plan:
|
Weighted Average
|
||||||||
|
Grant Date
|
||||||||
|
Options
|
Fair Value
|
|||||||
|
Outstanding,
August 1, 2009
|
43,750 | $ | 0.59 | |||||
|
Granted
|
855,000 | $ | 0.46 | |||||
|
Vested
|
— | n/a | ||||||
|
Forfeited
|
— | n/a | ||||||
|
Outstanding,
October 31, 2009
|
898,750 | $ | 0.47 | |||||
As of
October 31, 2009, the Company had $395,176 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Plan. That cost is expected to be recognized over a
weighted-average period of 2.35 years.
During
the three months ended October 31, 2009, the Company modified the terms of
4,535,638 outstanding options which resulted in a charge to operations in the
amount of $875,773. The fair value of modification cost is estimated
as the difference of options’ fair value before and after modification
date. The estimates employ Black-Scholes option pricing model, which
takes into account the exercise price ($0.001 – $0.94), expected life of the
option (5 years), the current price of the underlying stock ($0.59) and its
expected volatility (109.05%), expected dividends on the stock($0) and the
risk-free interest rate for the term of the option (0.11%).
In August
2007, the Company issued 550,000 shares of common stock under the 2006 Plan in
the form of restricted stock awards to officers. The fair value of
these shares was based on the quoted market price of the Company’s common stock
on the dates of the issuance is $830,500. These shares were issued as an
incentive to retain key employees and officers. A portion of these
shares vested immediately while the remaining portion will vest over two years
from the date of the grant. The following table summarizes the
Company’s non-vested restricted stock activity for the nine months ended October
31, 2009:
|
|
Weighted
|
|||||||
|
|
Average
|
|||||||
|
|
Grant Date
|
|||||||
|
Number of
|
Fair
|
|||||||
|
Shares
|
Value
|
|||||||
|
Non-vested
stock, August 1, 2009
|
14,844 | $ | 1.51 | |||||
|
Granted
|
— | n/a | ||||||
|
Vested
|
(14,844 | ) | 1.51 | |||||
|
Forfeited
|
— | n/a | ||||||
|
Non-vested
stock, October 31, 2009
|
— | n/a | ||||||
8
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
4.
|
Comprehensive
Income/(Loss)
|
Comprehensive
loss, which includes net loss and the change in the foreign currency translation
account, for the three months ended October 31, 2009 and 2008 was $5,103,555 and
$12,063,798, respectively.
|
5.
|
Inventory
|
A summary
of inventory at October 31 and July 31, 2009 is as follows:
|
October 31,
|
July 31,
|
|||||||
|
2009
|
2009
|
|||||||
|
Raw
materials
|
$ | 756,745 | $ | 728,919 | ||||
|
Finished
goods
|
668,037 | 542,537 | ||||||
|
Total
|
$ | 1,424,782 | $ | 1,271,456 | ||||
|
6.
|
Accounts
Payable and Accrued Expenses
|
Accounts
payable and accrued expenses consist of the following:
|
October 31,
|
July 31,
|
|||||||
|
2009
|
2009
|
|||||||
|
Accounts
Payable
|
$ | 3,263,478 | $ | 2,983,037 | ||||
|
Research
and Development
|
1,838,239 | 1,629,293 | ||||||
|
Executive
Compensation
|
2,507,490 | 2,873,825 | ||||||
|
Total
|
$ | 7,609,207 | $ | 7,486,155 | ||||
|
7.
|
Pending
Litigation
|
In
February 2001, a former business associate of the former Vice President of
Research and Development (“VP”) of the Company and an entity known as Centrum
Technologies Inc. (“CTI”) commenced an action in the Ontario Superior Court of
Justice against the Company and the VP seeking, among other things, damages for
alleged breaches of contract and tortious acts related to a business
relationship between this former associate and the VP that ceased in July 1996.
The plaintiffs’ statement of claim also seeks to enjoin the use, if any, by the
Company of three patents allegedly owned by CTI. The three patents are entitled
Liquid Formulations for
Proteinic Pharmaceuticals, Vaccine Delivery System for
Immunization, Using Biodegradable Polymer Microspheres, and Controlled Releases of Drugs or
Hormones in Biodegradable Polymer Microspheres. It is the
Company’s position that the buccal drug delivery technologies which are the
subject matter of the Company’s research, development, and commercialization
efforts, including Generex Oral-lyn™ and the RapidMist™ Diabetes Management
System, do not make use of, are not derivative of, do not infringe upon, and are
entirely different from the intellectual property identified in the plaintiffs’
statement of claim. On July 20, 2001, the Company filed a preliminary motion to
dismiss the action of CTI as a nonexistent entity or, alternatively, to stay
such action on the grounds of want of authority of such entity to commence the
action. The plaintiffs brought a cross motion to amend the statement of claim to
substitute Centrum Biotechnologies, Inc. (“CBI”) for CTI. CBI is a corporation
of which 50 percent of the shares are owned by the former business associate and
the remaining 50 percent are owned by the Company. Consequently, the
shareholders of CBI are in a deadlock. The court granted the Company’s motion to
dismiss the action of CTI and denied the plaintiffs’ cross motion without
prejudice to the former business associate to seek leave to bring a derivative
action in the name of or on behalf of CBI. The former business associate
subsequently filed an application with the Ontario Superior Court of Justice for
an order granting him leave to file an action in the name of and on behalf of
CBI against the VP and the Company. The Company opposed the application. In
September 2003, the Ontario Superior Court of Justice granted the request and
issued an order giving the former business associate leave to file an action in
the name of and on behalf of CBI against the VP and the Company. A statement of
claim was served in July 2004. The Company is not able to predict the ultimate
outcome of this legal proceeding at the present time or to estimate an amount or
range of potential loss, if any, from this legal proceeding.
9
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company is involved in certain other legal proceedings in addition to those
specifically described herein. Subject to the uncertainty inherent in all
litigation, the Company does not believe at the present time that the resolution
of any of these legal proceedings is likely to have a material adverse effect on
the Company’s financial position, operations or cash flows.
With
respect to all litigation, as additional information concerning the estimates
used by the Company becomes known, the Company reassesses its position both with
respect to accrued liabilities and other potential exposures.
|
8.
|
Net
Loss Per Share
|
Basic
earnings per shares (EPS) and Diluted EPS for the three months ended October 31,
2009 and 2008 have been computed by dividing the net loss available to common
stockholders for each respective period by the weighted average shares
outstanding during that period. All outstanding options, warrants,
non-vested restricted stock and shares to be issued upon conversion of the
outstanding convertible debentures, representing approximately 49,049,654 and
76,837,722 incremental shares, have been excluded from the October 31, 2009 and
2008 computations of Diluted EPS as they are anti-dilutive, due to the losses
generated during the respective periods.
|
9.
|
Stockholders’
Equity
|
During
the three months ended October 31, 2009, the Company issued 23,870,513 shares of
common stock and 9,595,622 warrants to acquire the shares of common stock at
exercise prices of $0.79 to $1.00 pursuant to private placements, in exchange
for net cash proceeds after expenses of $16,400,671. The shares were
priced at $0.66 to $0.80 per share based on the quoted market price of the
Company’s common stock on the dates of the issuances.
During
the three months ended October 31, 2009, the Company issued 957,835 shares of
common stock to various consultants for services rendered in the amount of
$639,224. The shares were valued at $0.53 to $0.76 per share based on
the quoted market price of the Company’s common stock on the dates of the
issuances.
During
the three months ended October 31, 2009, the Company issued 1,582,640 shares of
common stock to various vendors as satisfaction of accounts payable and accrued
expenses in the amount of $1,055,459. The shares were valued at $0.55
to $0.77 per share based on the quoted market price of the Company’s common
stock on the dates of the issuances.
During
the three months ended October 31, 2009, the Company issued 39,174 shares of
common stock valued at $25,250 as employee compensation. The shares
were valued at $0.60 to $0.73 per share based on the quoted market price of the
Company’s common stock on the dates of the issuances.
During
the three months ended October 31, 2009, the Company granted 855,000 options to
employees as compensation. The total fair value of the options
amounted to $393,300. These options vest over a period of 4 years
resulting in a charge to operations in the amount of $5,653 in the current
quarter. The fair value of each option granted was estimated on the
grant date using the Black-Scholes option pricing model, taking into account the
grant date exercise price and current price of the underlying stock of $0.64, an
expected life of the option of 3.75 years, an expected volatility of 108.9%,
expected dividends on the stock of $0 and the risk-free interest rate for the
term of the option of 0.12%.
During
the three months ended October 31, 2009, the Company modified the terms of
4,535,638 outstanding options resulting in a charge to operations in the amount
of $875,773.
During
the three months ended October 31, 2009, the Company issued 4,466,239 shares of
common stock in conjunction with a cashless exercise of 7,576,565
warrants.
During
the three months ended October 31, 2009, the Company received aggregate cash
proceeds of $1,517,940 from exercises of warrants. The Company issued
4,599,817 shares of common stock as a result of these exercises.
During
the three months ended October 31, 2009, the Company recorded a charge to
operations in the amount of $6,963 as amortization of stock-based
compensation.
10
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following is a summary of the warrants issued, forfeited or expired and
exercised for the three months ended October 31, 2009:
|
Warrants
|
||||
|
Outstanding,
August 1, 2009
|
46,478,276 | |||
|
Issued
(see Note 9)
|
9,595,622 | |||
|
Forfeited
or expired
|
(500,000 | ) | ||
|
Exercised
|
(12,176,382 | ) | ||
|
Outstanding,
October 31, 2009
|
43,397,516 | |||
The
outstanding warrants at October 31, 2009 have a weighted average exercise price
of $0.57 per share.
The
stockholders’ equity transactions as described above are summarized
below:
|
Additional
|
Total
|
|||||||||||||||
|
Common Stock
|
Paid-In
|
Stockholders’
|
||||||||||||||
|
Shares
|
Amount
|
Capital
|
Equity
|
|||||||||||||
|
Issuance
of common stock in private placement
|
23,870,513 | $ | 23,871 | $ | 16,376,802 | $ | 16,400,673 | |||||||||
|
Issuance
of common stock for services
|
957,835 | $ | 958 | $ | 638,266 | $ | 639,224 | |||||||||
|
Issuance
of common stock as employee compensation
|
39,174 | 39 | 25,211 | 25,250 | ||||||||||||
|
Stock-based
executive compensation
|
— | — | 6,963 | 6,963 | ||||||||||||
|
Warrants
exercised for cash
|
4,599,817 | 4,600 | 1,513,340 | 1,517,940 | ||||||||||||
|
Issuance
of common stock as satisfaction of accounts payable and accrued
expenses
|
1,582,640 | 1,583 | 1,053,877 | 1,055,459 | ||||||||||||
|
Issuance
of common stock in conjunction with cashless exercise of
warrants
|
4,466,239 | 4,466 | (4,466 | ) | — | |||||||||||
|
Grant
of stock options as employee compensation
|
— | — | 5,653 | 5,653 | ||||||||||||
|
Option
re-pricing costs
|
— | — | 875,773 | 875,773 | ||||||||||||
|
Total
|
35,516,218 | $ | 35,517 | $ | 20,491,419 | $ | 20,526,935 | |||||||||
|
10.
|
Derivative
Warrant Liability
|
The
Company has warrants outstanding with price protection provisions that allow for
the reduction in the exercise price of the warrants in the event the Company
subsequently issues stock at a price lower than the exercise price of the
warrants. The Company has historically issued warrants with price
protection provisions in connection with financing to support its ongoing
operational and development activities. The Company accounts for its
warrants with price protection in accordance with FASB ASC 815.
Accounting
for Derivative Warrant Liability
The
Company’s derivative warrant instruments are measured at fair value using the
Black-Scholes option pricing model which takes into account, as of the grant
date, the exercise price and expected life of the warrant, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock and the risk-free interest rate for the term of the
warrant. The Company recognizes all of its warrants with price
protection in its consolidated balance sheet as liabilities depending on the
rights or obligations under the contracts. The liability is revalued
at each reporting period and changes in fair value are recognized currently in
the consolidated statements of operations under the caption “Change in fair
value of derivative warrant liability.” The initial recognition and
change in fair value of the derivative warrant liability have no effect on the
Company’s cash flows.
The
derivative warrants outstanding at October 31, 2009 are all currently
exercisable with a weighted-average remaining life of 6.1 years.
The
various financial statement line items and totals affected by the adoption of
FASB ASC 815 for the previously reported interim periods ended October 31, 2009
are disclosed in Note 12 - Restatement of Previously Reported Interim
Period.
11
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Fair
Value Assumptions Used in Accounting for Derivative Warrant
Liability
Fair
value is defined under FASB ASC 820 as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or
the most advantageous market for an asset or liability in an orderly transaction
between participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the
use of unobservable inputs. The standard describes a fair value hierarchy based
on the levels of inputs, of which the first two are considered observable and
the last unobservable, that may be used to measure fair value which are the
following:
|
·
|
Level
1 - Quoted prices in active markets for identical assets or
liabilities
|
|
·
|
Level
2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or corroborated by observable market data or substantially the
full term of the assets or
liabilities
|
|
·
|
Level
3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the value of the assets or
liabilities
|
The
Company has determined its derivative warrant liability to be a Level 2 fair
value measurement and has used the Black-Scholes pricing model to calculate the
fair value. This model was used because of its wide acceptance by the
investment community, relative simplicity and its emphasis on observable
inputs. Key assumptions used in the fair value calculation are
as follows:
|
October 31,
|
August 1,
|
|||||||
|
2009
|
2009
|
|||||||
|
Expected
term
|
6.42 | 6.67 | ||||||
|
Volatility
|
98.0 | % | 96.9 | % | ||||
|
Risk-free
interest rate
|
0.16 | % | 0.16 | % | ||||
|
Dividend
yield
|
0 | 0 | ||||||
|
11.
|
Restatement
of Previously Reported Interim
Period
|
The
Company adopted Issue No. 07-5, “Determining Whether an Instrument (or Embedded
Feature) is Indexed to an Entity’s Own Stock” (now codified as FASB ASC 815)
effective as of August 1, 2009. The Company reassessed certain
outstanding warrants under FASB ASC 815 and, due to a price adjustment clause
included in these warrants, determined that such warrants are no longer deemed
to be indexed to the Company’s stock and, therefore, no longer meet the scope
exception of FASB ASC 815. These warrants should have been reclassified to a
liability in the quarter ended October 31, 2009 and will be adjusted to fair
value on a quarterly basis going forward.
The
Company’s adoption of FASB ASC 815 on August 1, 2009 relating to the warrants
carried as a derivative liability had the following effect on the consolidated
statement of operations for the previously reported interim period ended October
31, 2009:
|
Three Months Ended
|
||||
|
October 31, 2009
|
||||
|
Net
loss as previously reported
|
$ | (8,138,656 | ) | |
|
Change
in fair value of derivative warrant liability
|
2,996,271 | |||
|
Net
loss as restated
|
$ | (5,142,385 | ) | |
|
Previously
reported loss per share – basic & diluted
|
$ | (0.03 | ) | |
|
Restated
loss per share – basic & diluted
|
$ | (0.02 | ) | |
12
GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company’s adoption of FASB ASC 815 relating to the warrants carried as a
derivative liability had the following effect on the consolidated balance sheets
as of the previously reported interim period October 31, 2009:
|
Previously
|
||||||||||||
|
Reported
|
Correction
|
Restated
|
||||||||||
|
Derivative
Warrant Liability
|
$ | — | $ | 10,131,138 | $ | 10,131,138 | ||||||
|
Total
Liabilities
|
$ | 10,684,117 | $ | 10,131,138 | $ | 20,815,255 | ||||||
|
Additional
paid in capital
|
327,892,433 | (13,127,409 | ) | 314,765,024 | ||||||||
|
Deficit
accumulated during the development stage
|
(302,180,145 | ) | 2,996,271 | (299,183,874 | ) | |||||||
|
Total
Stockholders’ Equity
|
$ | 26,650,849 | $ | (10,131,138 | ) | $ | 16,519,711 | |||||
|
12.
|
Subsequent
Events
|
On
December 7, 2009, the Company entered into a long-term agreement with
Sanofi-Aventis Deutschland GmbH (“Sanofi-Aventis”). Under this
agreement, sanofi-aventis will manufacture and supply recombinant human insulin
to the Company in the territories specified in the agreement. Through
this agreement, the Company will procure recombinant human insulin crystals for
use in the production of Generex Oral-lyn™. The terms of the supply
agreement require the Company to make certain minimum purchases of insulin from
sanofi-aventis through the period ended December 31,
2011. Sanofi-Aventis will be the Company’s exclusive supplier in
certain countries and a non-exclusive supplier in other
countries. Sanofi-Aventis may delete any territory from the agreement
in which Generex Oral-lyn™ has not been approved for commercial sale by December
31, 2011. The prices under the supply agreement are subject to
adjustment beginning after December 31, 2012.
On
December 9, 2009, the Company entered into an agreement with a consultant for
financial services which extends until May 31, 2010. In accordance with
the agreement, the Company issued a common stock purchase warrant for an
aggregate 1,000,000 shares of common stock. The warrant is immediately
exercisable and the Company recorded a charge of approximately $505,000 at the
time of issuance. A warrant for an additional 1,000,000 shares of common
stock will be issuable if certain milestones are met prior to the expiration of
the agreement on May 31, 2010.
The
Company has evaluated subsequent events occurring after the balance sheet
through the date the consolidated financial statements were
issued.
13
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
As used
herein, the terms the “Company,” “Generex,” “we,” “us,” or “our” refer to
Generex Biotechnology Corporation, a Delaware corporation. The following
discussion and analysis by management provides information with respect to our
financial condition and results of operations for the three- and nine-month
periods ended October 31, 2009 and 2008. This discussion should be read in
conjunction with the information contained in Part I, Item 1A - Risk
Factors and Part II,
Item 8 - Financial Statements and Supplementary Data in our Annual Report
on Form 10-K for the year ended July 31, 2009 and the information contained in
Part I, Item 1 - Financial
Statements and Part II,
Item 1A- Risk Factors in this Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 2009.
Forward-Looking
Statements
We have
made statements in this Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this Quarterly Report on Form 10-Q of Generex
Biotechnology Corporation for the fiscal quarter ended October 31, 2009 that may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). The Act limits our
liability in any lawsuit based on forward-looking statements that we have made.
All statements, other than statements of historical facts, included in this
Quarterly Report that address activities, events or developments that we expect
or anticipate will or may occur in the future, including such matters as our
projections, future capital expenditures, business strategy, competitive
strengths, goals, expansion, market and industry developments and the growth of
our businesses and operations, are forward-looking statements. These statements
can be identified by introductory words such as "expects," “anticipates,”
"plans," "intends," "believes," "will," "estimates," "projects" or words of
similar meaning, and by the fact that they do not relate strictly to historical
or current facts. Our forward-looking statements address, among other
things:
|
|
·
|
our expectations concerning
product candidates for our
technologies;
|
|
|
·
|
our expectations concerning
existing or potential development and license agreements for third-party
collaborations and joint
ventures;
|
|
|
·
|
our expectations of when
different phases of clinical activity may commence and
conclude;
|
|
|
·
|
our expectations of when
regulatory submissions may be filed or when regulatory approvals may be
received; and
|
|
|
·
|
our expectations of when
commercial sales of our products may commence and when actual revenue from
the product sales may be
received.
|
Any or
all of our forward-looking statements may turn out to be wrong. They may be
affected by inaccurate assumptions that we might make or by known or unknown
risks and uncertainties. Actual outcomes and results may differ materially from
what is expressed or implied in our forward-looking statements. Among the
factors that could affect future results are:
|
|
·
|
the inherent uncertainties of
product development based on our new and as yet not fully proven
technologies;
|
|
|
·
|
the risks and uncertainties
regarding the actual effect on humans of seemingly safe and efficacious
formulations and treatments when tested
clinically;
|
|
|
·
|
the inherent uncertainties
associated with clinical trials of product
candidates;
|
|
|
·
|
the inherent uncertainties
associated with the process of obtaining regulatory approval to market
product candidates;
|
|
|
·
|
the inherent uncertainties
associated with commercialization of products that have received
regulatory approval;
|
|
|
·
|
the volatility of, and recent
decline in, our stock price and the impact on our ability to pay
installments due on our outstanding senior secured notes in stock rather
than cash; and
|
|
|
·
|
our ability to obtain the
necessary financing to fund our
operations.
|
14
Additional
factors that could affect future results are set forth in Part I, Item 1A Risk Factors
of our Annual Report on Form 10-K for the year ended July 31, 2009 and in Part II, Item 1A. Risk
Factors of this Quarterly Report on Form 10-Q. We caution investors that
the forward-looking statements contained in this Quarterly Report must be
interpreted and understood in light of conditions and circumstances that exist
as of the date of this Quarterly Report. We expressly disclaim any obligation or
undertaking to update or revise forward-looking statements to reflect any
changes in management's expectations resulting from future events or changes in
the conditions or circumstances upon which such expectations are
based.
Compliance
with Smaller Reporting Company Disclosure Requirements
Generex
has determined that it qualifies as a “smaller reporting company” as defined in
Rule 12-b2 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and that it will take advantage of the Securities and Exchange
Commission’s recently adopted rules permitting a smaller reporting company to
comply with scaled disclosure requirements for smaller reporting companies on an
item-by-item basis. The Company has elected to comply with the scaled disclosure
requirements for smaller reporting companies with respect to Part I, Item 3 – Quantitative
and Qualitative Disclosures About Market Risk, which is not applicable to
smaller reporting companies.
Executive
Summary
Overview
of Business
We are
engaged primarily in the research, development and commercialization of drug
delivery systems and technologies. Our primary focus at the present time is our
proprietary technology for the administration of formulations of large molecule
drugs to the oral (buccal) cavity using a hand-held aerosol applicator. Through
our wholly-owned subsidiary, Antigen, we have expanded our focus to include
immunomedicines incorporating proprietary vaccine formulations.
We
believe that our buccal delivery technology is a platform technology that has
application to many large molecule drugs and provides a convenient,
non-invasive, accurate and cost-effective way to administer such drugs. We have
identified several large molecule drugs as possible candidates for development,
including estrogen, heparin, monoclonal antibodies, human growth hormone and
fertility hormone, but to date have focused our development efforts primarily on
one pharmaceutical product, Generex Oral-lyn™, an insulin formulation
administered as a fine spray into the oral cavity using our proprietary
hand-held aerosol spray applicator known as RapidMist™.
Generex
Oral-lyn™
Regulatory
Approvals and Clinical Trials
To date,
we have received regulatory approval in Ecuador, India, Lebanon and Algeria for
the commercial marketing and sale of Generex Oral-lyn™.
In March
2008, we initiated Phase III clinical trials for this product in the U.S. with
the first patient screening for such trials at a clinical study site in Texas.
The patient screening at other participating clinical sites in the U.S. and
Canada is ongoing. Currently over 350 patients have been enrolled in 70 clinical
sites around the world, including sites in the United States, Canada, Bulgaria,
Poland, Romania, Russia and Ukraine.
In
November 2008, we submitted our product dossier to the Ministry of Health in
Damascus, Syria through Generex MENA, our branch office in Dubai. The dossier
includes Generex Oral-lyn™. We also submitted a file to register our proprietary
over-the-counter products, including Glucose RapidSpray™, 7-Day Diet Aid Spray™
(marketed as Crave-Nx™ in the United States and Canada) and BaBOOM!™ Energy
Spray. The Syrian Ministry of Health will review the dossier and inform us of
any additional requests for information that it may have. There have been no
immediate queries, and we anticipate registration in early 2010.
In
December 2008, we submitted Generex Oral-lyn™ dossier to the Ministry of Health
in Iraq (North) through Generex MENA, our branch office in Dubai and expect to
receive an approval to market the product early in 2010.
Special
Access Programs
In
October 2009, we received approval from the U.S. Food and Drug Administration
(the “FDA”) to charge to recover costs for the treatment use of Generex
Oral-lyn™ in patients with Type 1 or Type 2 diabetes mellitus in the FDA’s
Treatment Investigational New Drug program that provides for early access to
investigational treatments for life-threatening or otherwise serious
conditions.
15
We
received a Special Access Program (SAP) authorization from Health Canada for a
patient-specific, physician-supervised treatment of Type-1 diabetes with Generex
Oral-lyn™ in April 2008. SAP provides access to non-marketed drugs for
practitioners treating patients with serious or life-threatening conditions when
conventional therapies have failed, are not available or unsuitable. We received
a similar authorization from health authorities in Netherlands in September
2008. We will continue to expand our SAP participation in additional
countries around the world.
Marketing
In
November 2008 we, together with our marketing partner Shreya Life Sciences Pvt.
Ltd., officially launched Generex Oral-lyn™ in India under marketing name of
Oral Recosulin. Each package of Oral Recosulin contains two canisters of our
product along with one actuator. Product has been available for sale in India
since January 2009, and an estimated 50 dialectologists are currently
prescribing Oral Recosulin there.
In
December 2008, we, together with our marketing partner Benta SA., received an
approval to market Generex Oral-lyn™ in Lebanon. Benta SA. is currently working
on reimbursement policy for Generex Oral-lyn™. The official product launch in
Lebanon took place in May 2009.
In May
2009, the Algerian health authorities granted us permission to import and sell
Generex Oral-lyn™ for the treatment of diabetes in Algeria. We expect commercial
launch of the product by the end of calendar year 2009. Through the efforts of
our business development team, in association with our Generex MENA office, we
have entered into a marketing sub-distribution relationship with Algerian
company Continental Pharm Laboratoire. The official product launch in Algeria
took place in October 2009.
Over-The-Counter
Glucose Product Line
Using our
buccal delivery technology, we have also launched a line of over-the-counter
glucose and energy sprays , including Glucose RapidSpray™, Crave-NX™ 7-day Diet
Aid Spray, and BaBOOM!™ Energy Spray. We believe these products will complement
Generex Oral-lyn™ and may provide us with an additional revenue stream prior to
the commercialization of Generex Oral-lyn™ in other major jurisdictions. In
fiscal 2009, we received modest revenues from sales of our commercially
available products, our confectionary, Glucose RapidSpray™, a flavored glucose
“energy” spray supplemented with vitamins, BaBOOM!™ Energy Spray, and a fat-free
glucose spray to aid in dieting, Crave-NX™. All three products are
available in retail stores and independent pharmacies in the United States and
Canada. In addition, the products are being distributed in the Middle East
through our Generex MENA office in Dubai. We expect other distribution
territories for these products to include South Africa, India, South America and
other jurisdictions worldwide. We are currently pursuing European registrations
for these products.
Other
Product Candidates
In
October 2008, we announced the enrollment of subjects in our bioequivalence
clinical trial of MetControl™, our proprietary Metformin medicinal chewing gum
product. The protocol for the study is an open-label, two-treatment, two-period,
randomized, crossover study comparing MetControl™ and immediate release
Metformin™ tablets in healthy volunteers. The study results, that we received
and analyzed in December 2008 demonstrated bioequivalence and will allow us to
proceed with additional research and development initiatives and consider
regulatory agency registration applications. We are compiling the data
from this study and expect to file with the regulatory agency in early
2010.
Our
subsidiary, Antigen Express, concentrates on developing proprietary vaccine
formulations that work by stimulating the immune system to either attack
offending agents (i.e., cancer cells, bacteria, and viruses) or to stop
attacking benign elements (i.e., self proteins and allergens). Our
immunomedicine products are based on two platform technologies and are in the
early stages of development. We continue clinical development of Antigen’s
synthetic peptide vaccines designed to stimulate a potent and specific immune
response against tumors expressing the HER-2/neu oncogene for patients with
HER-2/neu positive breast cancer in a Phase II clinical trial and patients with
prostate cancer and against avian influenza in two Phase I trials. An additional
Phase I trial has been initiated recently in patients with either breast or
ovarian cancer. The synthetic vaccine technology has particularly
advantages for pandemic or potentially pandemic viruses, such as the H5N1 avian
and H1N1 swine flu. In addition to pandemic influenza viruses, development
efforts also are underway for seasonal influenza virus, HIV, HPV, melanoma,
ovarian cancer, allergy and Type I diabetes mellitus. We have established
collaborations with clinical investigators at academic centers to advance these
technologies.
Competition
We face
competition from other providers of alternate forms of insulin. Some of our most
significant competitors, Pfizer, Eli Lilly, and Novo Nordisk, have announced
that they will discontinue development and/or sale of their inhalable forms of
insulin. Generex Oral-lyn™ is not an inhaled insulin; rather, it is a buccally
absorbed formulation with no residual pulmonary deposition. We believe that our
buccal delivery technology offers several advantages over inhaled insulin,
including the avoidance of pulmonary inhalation, which requires frequent
physician monitoring, ease of use and portability.
16
Brief
Company Background
We are a
development stage company. From inception through the end of the fiscal quarter
ended October 31, 2009, we have received only limited revenues from operations.
In the fiscal years ended July 31, 2009 and 2008, we received approximately
$1,118,509 and $124,891 in revenue. The revenue in fiscal 2009 included $550,000
relating to an upfront license fee for the signing of a license and distribution
agreement for Generex Oral-lyn™, while the remainder of the revenue in both
fiscal periods pertained to the sale of our confectionary products. These
numbers do not reflect deferred sales to customers during the respective periods
with the right of return.
We
operate in only one segment: the research, development and commercialization of
drug delivery systems and technologies for metabolic and immunological
diseases.
We were
incorporated in the State of Delaware in 1997. Our principal executive offices
are located at 33 Harbour Square, Suite 202, Toronto, Canada, and our telephone
number at that address is (416) 364-2551. We maintain an Internet website at
www.generex.com.
We make available free of charge on or through our website our filings with the
SEC.
Accounting
for Research and Development Projects
Our major
research and development projects are the refinement of our platform buccal
delivery technology, our buccal insulin project (Generex Oral-lyn™), our buccal
morphine product and Antigen’s peptide immunotherapeutic vaccines.
During
the last fiscal quarter, we expended resources on the clinical testing and
commercialization, of our buccal insulin product, Generex Oral-lyn™. In July
2007, we received no objection from the FDA to proceed with our long-term
multi-center Phase III study protocol for Generex Oral-lyn™. Late-stage trials
involve testing our product with a large number of patients over a significant
period of time. The completion of late-stage trials in Canada and eventually the
United States may require significantly greater funds than we currently have on
hand.
Generex
Oral-lyn™ was approved for commercial sale by drug regulatory authorities in
Ecuador in May 2005. PharmaBrand handled the commercial launch of Generex
Oral-lyn™ in Ecuador in June 2006. While we anticipate generating revenue from
sales of Generex Oral-lyn™ in Ecuador, we do not expect that such revenues will
be sufficient to sustain our research and development and regulatory
activities.
Generex
Oral-lyn™ was approved for importation and commercial sale in India in November
2007. We have entered into a licensing and distribution agreement with Shreya
Life Sciences Pvt. Ltd. and since January 2009 Generex Oral-lyn™ is available in
India under marketing name of Oral Recosulin.
Generex
Oral-lyn™ was approved for importation and commercial sale in Lebanon in
December 2008. We have entered into a subdistribution agreement with Benta SA.
and officially launched the product in May 2009.
Generex
Oral-lyn™ was approved for importation and commercial sale in Algeria in May
2009. We have entered into a subdistribution agreement with Continental Pharm
Laboratoire and officially launched the product in October 2009.
We have
not yet recognized any revenue from the sale of our oral insulin product in any
of the four countries where it is currently approved for commercial
sale.
Although
we initiated regulatory approval process for our morphine and fentanyl buccal
products, we did not expend resources to further this product during our last
fiscal year.
During
the last fiscal quarter, we expended resources on research and development
relating to Antigen’s peptide immunotherapeutic vaccines and related
technologies. One Antigen vaccine is currently in Phase II clinical trials in
the United States involving patients with HER-2/neu positive breast cancer, and
an Antigen vaccine for H5N1 avian influenza is in Phase I clinical trials
conducted at the Lebanese-Canadian Hospital in Beirut. Antigen’s prostate cancer
vaccine based on AE37 is currently in Phase I clinical trials in Greece.
Preliminary pre-clinical work has commenced with respect to the experimental
vaccine for patients with acute myeloid leukemia at Beijing Daopei Hospital in
China.
Because
of various uncertainties, we cannot predict the timing of completion and
commercialization of our buccal insulin in all jurisdictions or buccal morphine
products or Antigen’s peptide immunotherapeutic vaccines or related
technologies. These uncertainties include the success of current studies, our
ability to obtain the required financing and the time required to obtain
regulatory approval even if our research and development efforts are completed
and successful, our ability to enter into collaborative marketing and
distribution agreements with third-parties, and the success of such marketing
and distribution arrangements. For the same reasons, we cannot predict when any
products may begin to produce net cash inflows.
17
Most of
our buccal delivery research and development activities to date have involved
developing our platform technology for use with insulin. Insubstantial amounts
have been expended on projects with other drugs, including morphine and
fentanyl, and those projects involved a substantial amount of platform
technology development. As a result, we have not made significant distinctions
in the accounting for research and development expenses among products, as a
significant portion of all research has involved improvements to the platform
technology in connection with insulin, which may benefit all of our potential
buccal products. During the three months ended October 31, 2009, approximately
85% of our $3,075,769 in research expenses was attributable to insulin and
platform technology development, and we did not have any research expenses
related to morphine, fentanyl or other buccal projects. During the three
months ended October 31, 2008, approximately 88% of our $4,355,689 in research
expenses was attributable to insulin and platform technology development, and we
did not have any research expenses related to morphine, fentanyl or other buccal
projects.
Approximately
15%, or $446,346, of our research and development expenses for the three months
ended October 31, 2009 was related to Antigen's immunomedicine products
compared to approximately 12%, or $510,660, of our research and development
expenses for the three months ended October 31, 2008. Because these
products are in initial phases of clinical trials or early, pre-clinical stage
of development (with the exception of the Phase II clinical trials of Antigen
HER-2/neu positive breast cancer vaccine that are underway), all of the expenses
were accounted for as basic research and no distinctions were made as to
particular products. Due to the early stage of development, we cannot predict
the timing of completion of any products arising from this technology, or when
products from this technology might begin producing revenues.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations is
based on our consolidated financial statements which have been prepared in
conformity with accounting principles generally accepted in the United States of
America. It 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.
We
consider certain accounting policies related to impairment of long-lived assets,
intangible assets and accrued liabilities to be critical to our business
operations and the understanding of our results of operations:
Going Concern.
As shown in the accompanying financial statements, we have not been
profitable and have reported recurring losses from operations. These
factors raise substantial doubt about our ability to continue to operate in the
normal course of business. The accompanying financial statements do not
include any adjustments that might be necessary should we be unable to continue
as a going concern.
Revenue Recognition.
Net sales of Glucose RapidSpray™, BaBOOM!™ Energy Spray and GlucoBreak™ are
generally recognized in the period in which the products are delivered. Delivery
of the products generally completes the criteria for revenue recognition for the
Company. In the event where the customers have the right of return, sales are
deferred until the right of return lapses or the product is resold.
Inventory.
Inventories are stated at the lower of cost or market with cost
determined using the first-in first-out method. Management considers such
factors as the amount of inventory on hand and in the distribution channel,
estimated time to sell such inventory, inventories shelf life and current market
conditions when determining whether the lower cost or market is used. As
appropriate, a provision is recorded to reduce inventories to their net
realizable value. Inventory also includes the cost of products sold to the
customers with the rights of return.
Impairment of Long-Lived
Assets. Management reviews for impairment whenever events or changes in
circumstances indicate that the carrying amount of property and equipment may
not be recoverable under the provisions of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." If it is determined that an impairment loss has occurred based upon
expected future cash flows, the loss is recognized in the Statement of
Operations.
Intangible Assets. We
have intangible assets related to patents. The determination of the related
estimated useful lives and whether or not these assets are impaired involves
significant judgments. In assessing the recoverability of these intangible
assets, we use an estimate of undiscounted operating income and related cash
flows over the remaining useful life, market conditions and other factors to
determine the recoverability of the asset. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges against these assets.
Estimating accrued
liabilities, specifically litigation accruals. Management's current
estimated range of liabilities related to pending litigation is based on
management's best estimate of future costs. While the final resolution of the
litigation could result in amounts different than current accruals, and
therefore have an impact on our consolidated financial results in a future
reporting period, management believes the ultimate outcome will not have a
significant effect on our consolidated results of operations, financial position
or cash flows.
18
Share-based
compensation. Management determines value of stock-based compensation in
accordance with Statement of Financial Accounting Standards No. 123(R)
“Share-Based Payment” which revises SFAS No. 123 “Accounting for Stock-Based
Compensation” for stock and options grants to employees. We also follow
the guidance of Emerging Issues Task Force 96-18 “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” for equity instruments issued to
consultants.
Derivative warrant
liability. FASB ASC 815, Derivatives and Hedging, requires all
derivatives to be recorded on the balance sheet at fair value for fiscal years
beginning after December 15, 2008. As a result, certain derivative warrant
liabilities are now separately valued as of August 1, 2009 and accounted for on
the Company’s balance sheet, with any changes in fair value recorded in
earnings. The Company uses the Black-Scholes option-pricing model to
estimate fair value because of its relative simplicity and because it embodies
all of the requisite assumptions necessary to fair value these
instruments. Key assumptions of the Black-Scholes option-pricing model
include the market price of the Company’s stock, applicable volatility rates,
risk-free interest rates and the instrument’s remaining term. These
assumptions require significant management judgment. In addition, changes
in any of these variables during a period can result in material changes in the
fair value (and resultant gains or losses) of this derivative
instrument.
Results
of Operations
Three
Months Ended October 31, 2009 Compared to Three Months Ended October 31,
2008
As
described in Note 11 to the financial statements, we reassessed certain
outstanding warrants under Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 815, Derivatives and Hedging for the
quarter ended October 31, 2009. Due to a price adjustment clause included
in these warrants, such warrants were no longer deemed to be indexed to our
stock and therefore, no longer met the scope exception of ASC 815. These
warrants should have been reclassified to a liability and adjusted to fair value
at the end of the reporting period. The impact to the consolidated
statement of operations for the three months ended October 31, 2009 was a gain
of $2,996,271.
Our net
loss for the quarter ended October 31, 2009 was $5,142,385 versus $11,697,184 in
the corresponding quarter of the prior fiscal year. The decrease in net loss in
this fiscal quarter versus the corresponding quarter of the prior fiscal year is
primarily due to the prior year’s quarter interest expense of $4,429,388, as
well as a gain in the current year’s quarter due to the revaluation of the
derivative warrant liability of $2,996,271. The prior year quarter’s
interest charge consisted mainly of non-cash interest charges recorded in
connection with our secured convertible debentures. Interest expense for
the current year quarter was $52,401. The decrease in net loss was
partially offset by the increase in our general and administrative expenses and
selling and marketing expenses and the decrease in research and development
expenses. Our operating loss for the quarter ended October 31, 2009
increased to $8,181,433 compared to $7,524,646 in the first fiscal quarter of
2008. The increase in operating loss resulted from an increase in general
and administrative expenses (to $3,825,265 from $2,847,913) and an increase in
selling expense (to $1,298,704 from $837,198), offset by a decrease in research
and development expenses (to $3,075,769 from $4,355,689). Our revenues in the
first quarter ended October 31, 2009 decreased to $97,542 from $538,346 for the
quarter ended October 31, 2008 reflecting only the sales of our
over-the-counter products in the current fiscal year quarter, while the
comparative prior year quarter included an upfront, non-refundable $500,000
license fee related to our Oral-lyn™ product.
The
decrease in research and development expenses in the last fiscal quarter versus
the comparative quarter in the previous fiscal year, is primarily due to timing
differences related to the clinical costs associated with the global Phase III
clinical trials of our oral insulin product and platform technology, as well as
the timing of earlier stage (pre-clinical, Phase I and Phase II) clinical trials
related to the Antigen immunotherapy products versus the previous fiscal year’s
quarter. The increase in general and administrative expenses is primarily
related to the non-cash, one time stock option modification charge of $875,773
in the quarter ended October 31, 2009. The increase in selling expenses
for the quarter ended October 31, 2009 versus the prior year comparative quarter
is associated with increased advertising and promotion of our over-the-counter
products, as well as the costs associated with our MENA sales office in
Dubai.
Our
interest expense in the first quarter of fiscal 2009 decreased to $52,401,
compared to interest expense of $4,429,388 in the first quarter of fiscal 2008,
due to interest expense and costs of the repriced warrant recognized on the
secured convertible notes issued in March 2008 in connection with a private
placement recognized in the prior year quarter, but not in the current
year. Our interest income decreased to $10,085 in the first quarter of
fiscal 2009, compared to $168,465 in the same quarter for the last year,
primarily due to lower market interest rates and lower average cash
balances. We received a slightly lower income from rental operations (net
of expense) of $84,593 in the first quarter of fiscal 2009 compared to $88,380
in the same quarter for the last year. The change in fair value of the
warrants carried as a derivative liability contributed a gain of $2,996,271 in
the current quarter. As the related accounting policy was adopted at the
beginning of the current fiscal year, there was no similar adjustment in the
comparative previous fiscal year quarter.
19
Financial
Condition, Liquidity and Resources
Sources
of Liquidity
To date
we have financed our development stage activities primarily through private
placements of our common stock and securities convertible into our common
stock.
As of
October 31, 2009, we believed that our anticipated cash position was sufficient
to meet our working capital needs for the next twelve months based on the pace
of our planned activities. Beyond that, we anticipate that we will require
additional funds to support our working capital requirements or for other
purposes.
While we
have generally been able to raise equity capital as required, our cash balances
were very low during portions of fiscal 2009, although we successfully raised
over $31 million (net of issuance costs and expenses) during the period from May
2009 to September 2009. Unforeseen problems with our clinical program,
manufacturing and commercialization plans in Ecuador and India or further
negative developments in general economic conditions could interfere with our
ability to raise additional equity capital as needed, or materially adversely
affect the terms upon which such capital is available. Our inability to
obtain required funding will have a material adverse effect on one or more of
our research or development programs and curtail some of our commercialization
efforts.
Management
may seek to meet all or some of our operating cash flow requirements through
financing activities, such as private placement of our common stock, at-market
stock issuance programs, preferred stock offerings and offerings of debt and
convertible debt instruments, as well as through merger or acquisition
opportunities. We have filed a shelf registration statement with the
Securities and Exchange Commission (“SEC”) to register an indeterminate number
of shares of common stock and preferred stock and an indeterminate number of
warrants and units, the aggregate initial offering price of which is not to
exceed $150,000,000.
We
conducted offerings in August and September of 2009, pursuant to this
registration statement as described below and raised an aggregate of $16.4
million in net proceeds. On October 14, 2009, we entered into an At Market
Issuance Sales Agreement with Wm Smith& Co. under which we may sell an
aggregate of $20,000,000 in gross proceeds of our common stock from time to time
through Wm Smith, as the agent for the offer and sale of the common stock;
however, we determined in late October 2009, that in light of general market
conditions, we would not exercise our right to issue and sell shares of our
common stock under the At Market Issuance Sales Agreement until further
notice.
Management
is actively pursuing industry collaboration activities, including product
licensing and specific project financing. To secure a reliable long-term
insulin supply for our future commercial needs, we entered into a long-term
agreement with Sanofi-Aventis Deutschland GmbH (“Sanofi-Aventis”), on
December 7, 2009. Under this agreement, sanofi-aventis will
manufacture and supply recombinant human insulin to us in the territories
specified in the agreement. Through this agreement, we will procure
recombinant human insulin crystals for use in the production of Generex
Oral-lyn™. The terms of the supply agreement require us to make certain
minimum purchases of insulin from sanofi-aventis through the period ended
December 31, 2011. Sanofi-Aventis will be our exclusive supplier in
certain countries and a non-exclusive supplier some other countries.
Sanofi-Aventis may delete any territory from the agreement in which Generex
Oral-lyn™ has not been approved for commercial sale by December 31, 2011.
The prices under the supply agreement are subject to adjustment beginning after
December 31, 2012.
We
believe that the commencement of Phase III clinical trial trials for Oral-lyn™
in the United States and Canada represents a significant milestone event. We
also anticipate that the commercial launch of Oral-lyn™ in India, Lebanon and
Algeria, may provide us with revenue in 2010. We believe that the
successful commercial launch of Oral-lyn™ in India and other countries where we
have approval would enhance our ability to access additional sources of
funding. We will continue to require substantial funds to continue
research and development, including preclinical studies and clinical trials of
our product candidates, and to commence sales and marketing efforts if the FDA
or other regulatory approvals are obtained.
Financing
– August 2009
On August
6, 2009, we and certain investors entered into a securities purchase agreement
pursuant to which we sold an aggregate of 8,558,013 shares of our common stock
and warrants exercisable for up to 2,995,305 shares of our common stock to the
investors. The purchase price of each unit (comprised of one share and one
warrant to purchase thirty-five percent (35%) of one share of common stock) was
$0.6602, and the exercise price per share of the warrants is $0.79. The
warrants are exercisable for a period of 5 years beginning 183 days after the
closing date. The net proceeds to us from the registered direct public
offering, after deducting placement agent fees and our offering expenses, were
approximately $5,200,000.
The
shares and the warrants were issued pursuant to a prospectus supplement filed
with the Securities and Exchange Commission on August 6, 2009, in connection
with a takedown from our shelf registration statement on Form S-3 (File
No. 333-139637), as amended, which became effective on February 23, 2007
(the “Shelf Registration Statement”).
20
Midtown
Partners & Co., LLC (“Midtown”) acted as our exclusive placement agent
pursuant to the Placement Agency Agreement that we entered into with Midtown on
June 8, 2009. Pursuant to the Placement Agency Agreement, we paid
Midtown a cash fee in the aggregate amount of $213,000. This fee
represents 4% of the gross purchase price paid for the shares and warrants at
the closing by certain specified investors and 2% of the gross purchase price
paid for the shares and warrants at the closing by the other investors. In
addition, we issued Midtown, or its permitted assigns, a five-year warrant to
purchase up to 577,666 shares of our common stock representing 5% of the sum of
the number of shares of common stock issued at the closing, and (ii) the number
of shares of common stock issuable upon exercise of all warrants issued at the
closing. The shares underlying Midtown’s warrant will be issued pursuant to the
prospectus supplement. The warrant provides for cashless exercise in the event
there is no registration statement covering the underlying warrant shares.
The exercise price per share is $0.79. We also reimbursed the placement agent
for certain fees and legal expenses reasonably incurred in connection with this
offering.
Financing
– September 2009
On
September 14, 2009, we and certain investors entered into a securities purchase
agreement pursuant to which we sold an aggregate of 15,312,500 shares of our
common stock and warrants exercisable for up to 5,053,125 shares of our common
stock to the investors. The purchase price of each unit (comprised of one share
and one warrant to purchase thirty-three percent (33%) of one share of common
stock) was $0.80, and the exercise price per share of the warrants is
$1.00. The warrants are exercisable for a period of 5 years beginning 183
days after the closing date. The net proceeds to us from the registered
direct public offering, after deducting placement agent fees and our offering
expenses, were approximately $11,660,000.
The
shares and the warrants were issued pursuant to a prospectus supplement filed
with the Securities and Exchange Commission on September 14, 2009, in connection
with a takedown from the Shelf Registration Statement.
Pursuant
to an amendment to the Placement Agency Agreement entered into with Midtown on
June 8, 2009 and a Placement Agency Agreement entered in to with Maxim
Group LLC (“Maxim”) on September 11, 2009, we paid each of Midtown and
Maxim cash fees in the aggregate amount of $245,000. This fee represented
4% of the gross purchase price paid for the shares and warrants at the closing
by certain specified investors brought to the investment by each respective
placement agent and 2% of the gross purchase price paid for the shares and
warrants at the closing by the other investors. In addition, we issued to
each of Midtown and Maxim, or their permitted assigns, a five-year warrant to
purchase up to 253,571 shares of common stock of the company representing (A)
2.5% of the sum of (i) the number of shares issued at the closing to investors
introduced to the transaction by Midtown or Maxim, as the case may be, and (ii)
the number of shares issuable upon exercise of all warrants issued at the
closing to investors introduced to the transaction by Midtown or Maxim, as the
case may be, and (B) 1.25% of the sum of (i) the number of shares issued at the
closing to investors which were not introduced to the transaction by a
registered broker-dealer, and (ii) the number of shares issuable upon exercise
of all warrants issued at the closing to investors which were not introduced to
the transaction by a registered broker-dealer. The shares underlying Midtown and
Maxim’s warrant were issued pursuant to the prospectus supplement. The warrants
provide for cashless exercise in the event there is no registration statement
covering the underlying warrant shares. The exercise price per share is
$1.00. We also reimbursed the placement agents for certain fees and legal
expenses reasonably incurred in connection with this offering.
Proceeds
from Warrant Exercises
We may
receive additional proceeds from the exercise of warrants issued in the private
placements conducted in June, August and September 2009, although some of the
warrants include a cashless exercise feature. In the June 2009 private
placement, we sold an aggregate of 17,200,000 shares of our common stock and
warrants exercisable for up to 8,600,000 shares of our common stock to investors
and issued Midtown, our exclusive placement agent for the transaction, a
five-year warrant to purchase up to 244,926 shares of our common stock .
As of March 16, 2010, all of the warrants issued in the June, August and
September 2009 private placements will be exercisable. At December 10,
2009, outstanding warrants issued in connection with the June, August and
September 2009 private placements were as follows:
|
Date Issued
|
Aggregate No. of
Shares
Unexercised
|
Exercise
Price
|
Expiration Date
|
||||||
|
June
15, 2009
|
8,844,926 | 0.76 |
December
15, 2014
|
||||||
|
August
6, 2009
|
3,572,971 | 0.79 |
February
4, 2015
|
||||||
|
September
14, 2009
|
6,022,651 | 1.00 |
March
15,
2015
|
||||||
In
addition, we may receive additional proceeds from the exercise of warrants
issued in connection with the securities purchase agreement and related
documents that we entered into on March 31, 2008 with existing institutional
investors relating to a private placement of 8% secured convertible notes (the
“Notes”) and warrants (the “Series Warrants”) for aggregate gross proceeds to us
of $20,650,000. As of June 1, 2009, the outstanding principal balance and
accrued interest on the Notes were satisfied in full.
21
The
Series Warrants issued in connection with the March 2008 securities purchase
agreement included:
(i) Series
A and A-1 Warrants, which are exercisable for a period of 7 years into an
aggregate of 75% of the number of shares of our common stock initially issuable
upon conversion of the Notes, with the Series A Warrants being exercisable into
5,257,729 shares immediately upon issuance and the Series A-1 warrants being
exercisable into 7,541,857 shares as of October 1, 2008;
(ii) Series
B Warrants, which became exercisable on October 1, 2008 into 100% of the shares
of our common stock initially issuable upon conversion of the Notes (initially
17,066,166 shares) and remain exercisable for a period of 18 months after the
registration statement covering the shares of common stock issuable upon
conversion or exercise of the Notes and Warrants was declared effective by the
SEC; and
(iii) Series
C Warrants, which are exercisable for a period of 7 years as of October 1, 2008,
but only to the extent that the Series B Warrant are exercised and only in the
same percentage that the Series B Warrants are exercised, up to a maximum
percentage of 75% of the number of shares of our common stock initially issuable
upon conversion of the Notes (initially a maximum of 12,799,580
shares).
The
initial exercise price of each Series Warrant was $1.21. The exercise
price of the Series Warrants was subsequently reduced initially to $0.50 and
then to $0.33 as a result of an anti-dilution provision triggered by the May
2009 private placement. The Series Warrants include a cashless exercise
feature. At October 31, 2009, outstanding Series Warrants were
as follows:
|
Date Issued
|
Aggregate No. of
Shares Unexercised
|
Exercise
Price*
|
Expiration Date
|
||||||
|
March
31, 2008
|
1,768,231
|
$
|
0.33
|
January
29, 2010
|
|||||
|
March
31, 2008
|
14,330,603
|
$
|
0.33
|
March
31, 2016
|
|||||
|
March
31, 2008
|
7,690,902
|
$
|
0.33
|
September
30,
2016
|
|||||
*Subject
to anti-dilution adjustments upon issuance of securities at a price per share of
common stock less than the then applicable exercise price or the market price of
our common stock at that time, whichever is lower. Due to the
anti-dilution adjustment provision of these warrants, they have been
reclassified on the Company’s balance sheet as a liability under the caption
“Derivative Warrant Liability” with any changes in fair value at each reporting
period recorded in earnings in accordance with ASC 815.
At
Market Issuance Agreement
On
October 14, 2009, we entered into an At Market Issuance Sales Agreement
(the “Agreement”), with Wm Smith & Co. (“Wm Smith”), under which we may sell
an aggregate of $20,000,000 in gross proceeds of our common stock from time to
time through Wm Smith, as the agent for the offer and sale of the common stock.
Wm Smith may sell the common stock by any method permitted by law, including
sales deemed to be an “at the market” offering as defined in Rule 415 of
the Securities Act, including without limitation sales made directly on NASDAQ
Capital Market, on any other existing trading market for the common stock or to
or through a market maker. Wm Smith may also sell the common stock in privately
negotiated transactions, subject to Generex’s prior approval. We will pay
Wm Smith a commission not to exceed 3% of the gross proceeds of the sales price
of all common stock sold through it as sales agent under the
agreement.
The sales
agreement will terminate on the earliest of (1) the sale of all of the
common stock subject to the agreement, or (2) termination of the agreement
by Generex or Wm Smith. Wm Smith may terminate the sales agreement at any time
in certain circumstances, including the occurrence of a material adverse change
that, in Wm Smith’s reasonable judgment, may impair its ability to sell the
common stock, Generex’s failure to satisfy any condition under of the agreement
or a suspension or limitation of trading of our common stock on NASDAQ. We may
terminate the sales agreement at any time upon 10 days prior notice, and Wm
Smith may terminate the Agreement at any time upon 10 days prior
notice.
We
announced on October 29, 2009, that, in light of general market conditions, we
will not exercise our right to issue and sell shares of our common stock under
the sales agreement until further notice.
22
Cash
Flows for the Three Months Ended October 31, 2009
For the
three months ended October 31, 2009, we used $5,661,737 in cash to fund our
operating activities. The use for operating activities included a net loss of
$5,142,385, a net increase in accounts receivable of $26,542, an increase of
$145,682 in inventory, an increase of $238,187 in other current assets and a
decrease in deferred revenue of $33,702, offset by an increase of $1,168,647 in
accounts payable and accrued expenses.
The use
of cash was offset by non-cash increases of approximately $199,702 related to
depreciation and amortization, $907,986 in stock-based compensation to employees
and $644,877 in stock-based compensation issued in exchange for services
rendered by consultants. There was also a non-cash gain of $2,996,271 related to
the change of fair valuation of the derivative warrant liability at October 31,
2009.
We had
net cash outflows from investing activities of $174,883 in the three months
ended October 31, 2009, representing payments for property and equipment of
$132,646 and costs incurred for patents of $42,237.
We had
net cash flows provided by financing activities of $17,884,716 in the three
months ended October 31, 2009. We received $16,400,671 from issuances
of common stock in our August and September registered direct offerings.
We received $1,517,940 in cash proceeds from exercises of warrants. We
made payments related to our capital leases in the amount of $10,403 and
long-term debt in the amount of $23,492.
Our net
working capital at October 31, 2009 increased to $19,775,939 from $7,561,375 at
July 31, 2009, which was attributed largely to the net proceeds raised from the
issuance of common stock and exercises of warrants, offset by our net loss for
the first quarter of fiscal 2010.
Funding
Requirements
We expect
to devote substantial resources to obtaining regulatory approval of Generex
Oral-lyn™ in the U.S., Canada and Europe and to commercializing Generex
Oral-lyn™ in India, Lebanon, Ecuador and Algeria. We also will devote
resources to obtaining approval for the importation, marketing and
commercialization of Generex Oral-lyn™ in other countries where we have licensed
distributors. In addition, we will expend resources on further clinical
development of our immunotherapeutic vaccines. Our future funding requirements
and our ability to raise additional capital will depend on factors that
include:
|
|
·
|
the timing and amount of expense
incurred to complete our clinical
trials;
|
|
|
·
|
the costs and timing of the
regulatory process as we seek approval of our products in
development;
|
|
|
·
|
the advancement of our products
in development;
|
|
|
·
|
our ability to generate new
relationships with industry partners throughout the world that will
provide us with regulatory assistance and long-term commercialization
opportunities;
|
|
|
·
|
the timing, receipt and amount of
sales, if any, from Generex Oral-lyn™ in India, Lebanon, Algeria and
Ecuador;
|
|
|
·
|
the timing, receipt and amount of
sales, if any, from our over-the-counter
products;
|
|
|
·
|
the cost of manufacturing (paid
to third parties) of our licensed products, and the cost of marketing and
sales activities of those
products;
|
|
|
·
|
the costs of prosecuting,
maintaining, and enforcing patent claims, if any claims are
made;
|
|
|
·
|
our ability to maintain existing
collaborative relationships and establish new relationships as we advance
our products in development;
and
|
|
|
·
|
the receptivity of the financial
market to biopharmaceutical
companies.
|
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on the Company’s financial condition, changes in
financial condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors, and we
do not have any non-consolidated special purpose entities.
23
Certain
Related Party Transactions
We
utilize a management company to manage all of our real properties. The property
management company is owned by Ms. Perri, Ms. Gluskin and the estate of Mark
Perri, our former Chairman of the Board. In the three month period ended October
31, 2009 and the fiscal year ended July 31, 2009, we paid the management company
approximately $13,375 and $47,981, respectively, in management fees. We believe
that the amounts paid to the management company approximate the rates that would
be charged by a non-affiliated property management company.
Consulting Fees. Peter
Amanatides, a former director, is the Senior Vice-President and Chief Operating
Officer of PharmaLogika, Inc., a private consulting firm in the pharmaceuticals
regulatory field. At October 31, 2009, we accrued a balance of $50,000
in fees to PharmaLogika. We do not expect to pay any further fees to
PharmaLogika going forward. Mr. Amanatides is neither a director nor a
shareholder of PharmaLogika.
Private Placement of Notes and
Warrants. One of the institutional investors in the March 2008 private
placement of the Notes and Series Warrants was Cranshire Capital, L.P.
Cranshire purchased Notes in the aggregate principal amount of $5,000,000 and
received Series A Warrants initially exercisable for 1,273,058 shares of common
stock, Series A-1 Warrants initially exercisable for 1,826,115 shares, Series B
Warrants initially exercisable for 4,132,231 and Series C Warrants initially
exercisable for 3,099,173. On February 11, 2009, Cranshire jointly filed an
amendment to Schedule 13G with Downsview Capital, Inc. and Mitchell P. Kopin
reporting beneficial ownership of more 9.99% of our outstanding shares of common
stock. The beneficial ownership of Cranshire as of May 29, 2009 was 5.6%
based on the number of shares of common stock outstanding as of that
date.
See Part III, Item 13 – Certain
Relationships and Related Transactions, and Directors Independence in our
Annual Report on Form 10-K for the year ended July 31, 2009 for further
descriptions of our transactions with related parties during 2009.
New
Accounting Pronouncements
In
November 2007, the FASB issued guidance related to accounting for collaborative
arrangements. This guidance defines a collaborative arrangement as a contractual
arrangement in which the parties are (i) active participants to the
arrangement; and (ii) exposed to significant risks and rewards that depend
upon the commercial success of the endeavor. It also addresses the appropriate
statement of operations presentation for activities and payments between the
participants in a collaborative arrangement as well as for costs incurred and
revenue generated from transactions with third parties. This guidance is
effective for our fiscal year beginning August 1, 2009. The adoption of
this guidance did not have a significant impact on our consolidated financial
statements.
In
December 2007, the FASB issued an amendment to an existing accounting standard
which provides guidance related to business combinations. The amendment retains
the fundamental requirements that the acquisition method of accounting be used
for all business combinations and for an acquirer to be identified for each
business combination. This amendment also establishes principles and
requirements for how the acquirer: a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree; b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase
and c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This amendment applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. This guidance is effective for our fiscal year
beginning August 1, 2009. The adoption of this guidance did not have a
significant impact on our consolidated financial statements.
In
December 2007, the FASB issued guidance related to non-controlling interests in
consolidated financial statements. This guidance amends previously issued
guidance to establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This guidance is effective for our fiscal
year beginning August 1, 2009. The adoption of this guidance did not have a
significant impact on our consolidated financial statements.
In April
2008, the FASB issued guidance related to determining the useful life of
intangible assets. This guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The objective of the guidance is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset. The
adoption of this guidance did not have a significant impact on our consolidated
financial statements.
In May
2008, the FASB issued guidance related to accounting for convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlements).” This guidance requires a portion of this type of
convertible debt to be recorded as equity and to record interest expense on the
debt portion at a rate that would have been charged on nonconvertible debt with
the same terms. The adoption of this guidance did not have a significant impact
on our consolidated financial statements.
24
In June
2008, the FASB issued guidance related to determining whether instruments
granted in share-based payment transactions are participating securities.
Securities participating in dividends with common stock according to a formula
are participating securities. This guidance determined that unvested shares of
restricted stock and stock units with nonforfeitable rights to dividends are
participating securities. Participating securities require the “two-class”
method to be used to calculate basic earnings per share. This method lowers
basic earnings per common share. This guidance is effective for our fiscal year
beginning August 1, 2009. The adoption of this guidance did not have a
significant impact on our consolidated financial statements.
In
June 2008, the FASB reached a consensus regarding the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception related to accounting for
derivative instruments and hedging activities. This guidance is
effective for our fiscal year beginning August 1, 2009. The Company
determined that certain of its warrants with price protection provisions are not
considered to be indexed to the Company’s own stock, do not meet the scope
exception and, thus, should be accounted for as a liability. The adoption
of this guidance resulted in the recognition of income of $2,996,271 within the
Company’s consolidated statements of operations for the three months ended
October 31, 2009 and a net reclassification of $10,131,138 of previously
reported stockholders’ equity to a liability under the caption “Derivative
Warrant Liability” as of October 31, 2009.
In June
2009, the FASB issued guidance which stipulates the FASB Accounting Standards
Codification is the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. This guidance is effective for our
fiscal year beginning August 1, 2009. The adoption of this guidance did not
have a significant impact on our consolidated financial statements.
In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic
605)—Multiple Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13
eliminates the residual method of allocation and requires the relative selling
price method when allocating deliverables of a multiple-deliverable revenue
arrangement. The determination of the selling price for each deliverable
requires the use of a hierarchy designed to maximize the use of available
objective evidence including, vendor specific objective evidence, third party
evidence of selling price, or estimated selling price. ASU 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, and must be
adopted in the same period using the same transition method. If adoption is
elected in a period other than the beginning of a fiscal year, the amendments in
these standards must be applied retrospectively to the beginning of the fiscal
year. Full retrospective application of these amendments to prior fiscal years
is optional. Early adoption of these standards may be elected. We are currently
evaluating the impact of these new accounting standards on our consolidated
financial statements.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
As a
smaller reporting company, we have elected scaled disclosure reporting
obligations and therefore is not required to provide the information in this
Item 3.
Item 4T.
Controls and Procedures (Restated)
Evaluation
of Disclosure Controls and Procedures
Prior to
the filing of this Quarterly Report on Form 10-Q, an evaluation was performed
under the supervision of and with the participation of Generex’s management,
including the Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), of the effectiveness of Generex’s disclosure controls and procedures.
Based on the evaluation, the CEO and CFO concluded that, as of October 31, 2009,
Generex’s disclosure controls and procedures were effective to ensure that
information required to be disclosed by Generex in reports that it files or
submits under the Exchange Act, is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and is accumulated and
communicated to Generex’s management, as appropriate, to allow timely decisions
regarding required disclosure.
Subsequent
to the date of that evaluation, management, including Generex’s interim
President and Chief Executive Officer and our CFO, have re-evaluated the
effectiveness of the design and operation of the disclosure controls and
procedures as of the end of the period covered by this report and have concluded
that Generex’s disclosure controls and procedures were not effective to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements.
Our
disclosure controls and procedures were not effective because of the material
weakness arising from accounting errors following the application of FASB ASC
815-40-15 to the Company on August 1, 2009 that resulted in the reclassification
of certain warrants to a liability in the three-month period ended
October 31, 2009 and adjustments to fair value at the end of such
period. Based on the impact of the aforementioned accounting errors, the
Company determined to restate our consolidated financial statements as of
October 31, 2009.
25
The
Company has taken the following steps that we believe will remediate the
deficiencies in disclosure controls and procedures that are identified
above:
|
|
·
|
In
June 2009, we added a new member to our internal accounting staff at the
level of Vice President, Finance, who has extensive experience in
financial reporting of SEC reporting companies and who is active in the
review and preparation of our financial reporting
documents.
|
|
|
·
|
In
conjunction with the quarterly and annual technical review of our
consolidated financial statements by our outside accounting firm (other
than our independent auditors), we review all recent Accounting Standard
Updates (“ASU’s”) to determine if there are any ASU’s which need to be
applied to the Company’s financial statements. We also have our
outside accounting firm review and prepare updates to the “Effects of
Recent Accounting Pronouncements” note to the financial statements and
have asked that accounting literature related to ASU’s be diligently
reviewed in the future.
|
|
|
·
|
On
a quarterly and annual basis, we review and complete a current version of
a GAAP disclosure checklist and verify that we have addressed all
applicable items on the checklist. We ask our independent registered
public accounting firm to provide the checklist to us to ensure that we
have the most current version
available.
|
We
believe that the foregoing steps will remediate the significant deficiencies
identified above, and we will continue to monitor the effectiveness of these
steps and make any changes that our management deems appropriate.
Changes
in Internal Control over Financial Reporting
During
the fiscal quarter ended October 31, 2009, there were no changes in Generex’s
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, Generex’s internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
None.
Item
1A. Risk Factors.
In
addition to the other information included in this Quarterly Report on Form
10-Q, you should carefully review and consider the factors discussed in Part I, Item 1A - Risk
Factors of our Annual Report on Form 10-K for the year ended July 31,
2009, certain of which have been updated below. These factors materially affect
our business, financial condition or future results of operations. The risks,
uncertainties and other factors described in our Annual Report on Form 10-K and
below are not the only ones facing our company. Additional risks, uncertainties
and other factors not presently known to us or that we currently deem immaterial
may also impair our business operations, financial condition or operating
results. Any of the risks, uncertainties and other factors could cause the
trading price of our common stock to decline substantially.
Risks
Related to Our Financial Condition
We
have a history of losses and will incur additional losses.
We are a
development stage company with a limited history of operations, and do not
expect sufficient revenues to support our operation in the immediately
foreseeable future. In the three months ended October 31, 2009, we
received revenues of $97,542 from sales of our over-the-counter confectionary
products. In the fiscal year ended July 31, 2009, we received modest
revenues of approximately $618,509 from sales of these products. We did
not recognize any revenue from the sale of our oral insulin product in Ecuador
or India in fiscal 2009, although we did recognize $500,000 in licensing fee
revenue relating to the signing of a licensing and distribution agreement for
the sale of Generex Oral-lyn™ in Korea. We do not expect to receive any revenues
in Ecuador until we enter into a definitive manufacturing and distribution
agreement with our business partner there. While we have entered into a
licensing and distribution agreement with a leading Indian-based pharmaceutical
company and insulin distributor, we do not anticipate significant revenue from
the initial commercial launch of Generex Oral-lyn™ in India sometime this fiscal
year. We also have entered in subdistribution agreements in Lebanon and
Algeria but do not expect any signification revenue from the launch of the
product in those countries in calendar year 2009.
To date,
we have not been profitable and our accumulated net loss available to
shareholders was $299,183,874 at October 31, 2009. Our losses have resulted
principally from costs incurred in research and development, including clinical
trials, and from general and administrative costs associated with our
operations. While we seek to attain profitability, we cannot be sure that we
will ever achieve product and other revenue sufficient for us to attain this
objective.
26
With the
exception of Generex Oral-lyn™ which is currently available for sale in Ecuador
and has been approved for sale in India, Lebanon and Algeria and our
over-the-counter glucose and energy spray products, Glucose RapidSpray™,
BaBOOM!™ Energy Spray and Crave-Nx™, our product candidates are in research or
early stages of pre-clinical and clinical development. We will need to conduct
substantial additional research, development and clinical trials. We will also
need to receive necessary regulatory clearances both in the United States and
foreign countries and obtain meaningful patent protection for and establish
freedom to commercialize each of our product candidates. We must also complete
further clinical trials and seek regulatory approvals for Generex Oral-lyn™ in
countries outside of Ecuador, India, Lebanon and Algeria. We cannot be sure that
we will obtain required regulatory approvals, or successfully research, develop,
commercialize, manufacture and market any other product candidates. We expect
that these activities, together with future general and administrative
activities, will result in significant expenses for the foreseeable
future.
Risks
Related to the Market for Our Common Stock
Our
common stock could be delisted from The NASDAQ Capital Market.
On July
23, 2008, we received notice from The NASDAQ Stock Market that we were not
compliance with Marketplace Rule 4310(c)(4) (now known as Listing Rule
5550(a)(2)), which requires us to have a minimum bid price per share of at least
$1.00 for thirty (30) consecutive business days. In accordance with this
Rule, we had 180 calendar days, or until January 20, 2009, subject to extension,
to regain compliance with this Rule.
Our
initial compliance period of 180 calendar days ending on January 20, 2009 was
subsequently extended until November 9, 2009 due to NASDAQ’s temporary
suspension of the minimum bid price requirement from October 16, 2008 until
August 3, 2009.
On
November 9, 2009, we received a letter from NASDAQ indicating that we had not
regained compliance with the $1.00 minimum bid price required for continued
listing under Listing Rule 5550(a)(2) within the grace period previously allowed
by NASDAQ following the initial notice of noncompliance on
July 23, 2008.
Pursuant
to Listing Rule 5810(c)(3)(A), NASDAQ has given us an additional 180 calendar
day compliance period because we met all other initial inclusion criteria (other
than the minimum bid price requirement) as of January 6, 2009. Therefore,
we have 180 calendar days, or until May 5, 2010, to regain compliance
with the rule. To regain compliance with the minimum bid price requirement, the
closing bid price of our common stock must close at $1.00 per share or more for
a minimum of ten consecutive business days.
If, by
May 5, 2010, we do not regain compliance with Listing Rule 5550(a)(2), we will
receive written notification that our stock will be delisted. At that
time, we may appeal the delisting determination to a NASDAQ Hearings
Panel. An appeal to the Hearings Panel would stay the delisting. If
we are not successful in such an appeal, our stock would be delisted from the
NASDAQ Capital Market and likely trade on NASDAQ’s over-the-counter bulletin
board, assuming we meet the requisite criteria.
Our
recent equity financing will dilute current stockholders and could prevent the
acquisition or sale of our business.
The
equity financing transactions into which we have recently entered have and will
dilute current stockholders. Currently approximately 42,680,284 shares of common
stock are issuable upon exercise of the warrants that we issued on March 31,
2008, May 15, 2009, June 15, 2009, August 6, 2009 and September 14, 2009
(without regard to additional shares which may become issuable due to
anti-dilution adjustments or in connection with payments of interest), which
represents approximately 17% of the shares of common stock currently
outstanding. Assuming the holders of the warrants convert and exercise all
of the warrants into shares of common stock, the number of shares of issued and
outstanding common stock will increase significantly, and current stockholders
will own a smaller percentage of the outstanding common stock of Generex. The
issuance of shares of common stock pursuant to the warrants will also have a
dilutive effect on earnings per share and may adversely affect the market price
of the common stock.
In
addition, the issuance of shares of common stock upon exercise of the warrants
sold in the offerings that closed on June 15, 2009, August 6, 2009 and September
14, 2009 and sold in our March 31, 2008 private placement could have an
anti-takeover effect because such issuance will make it more difficult for, or
discourage an attempt by, a party to obtain control of Generex by tender offer
or other means. The issuance of common stock upon the exercise of the warrants
will increase the number of shares entitled to vote, increase the number of
votes required to approve a change of control of the company, and dilute the
interest of a party attempting to obtain control of the company.
If we
raise funds through one or more additional equity financings in the future,
including if we exercise our right to issue and sell shares under the sales
agreement with Wm Smith, it will have a further dilutive effect on existing
holders of our shares by reducing their percentage ownership. The shares may be
sold at a time when the market price is low because we need the funds. This will
dilute existing holders more than if our stock price was higher. In addition,
equity financings normally involve shares sold at a discount to the current
market price.
27
Item.
2. Unregistered Sales of Equity Securities and Use of Proceeds.
In the
fiscal quarter ended October 31, 2009, we sold common stock and other securities
in transactions in reliance upon exemptions from the registration requirements
of the Securities Act.
During
the three months ended October 31, 2009, we issued 12,000 shares of common stock
to American Capital Ventures, Inc. pursuant to an agreement with us for
financial services. The sale of such shares was exempt from registration under
the Securities Act in reliance upon Section 4(2) thereof. We believe that
American Capital Ventures, Inc. is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D under the Securities Act. The
certificates issued for the shares of common stock will include a legend to
indicate that they are restricted. The sales of such securities did not involve
the use of underwriters, and no commissions were paid in connection
therewith.
During
the three months ended October 31, 2009, we issued 37,500 shares of our
restricted common stock as partial consideration for the provision of services
by The Abajian Group, LLC under a consulting agreement with us. William Abajian,
a Business Development Consultant to Generex, is a principal of The Abajian
Group, LLC. The sale of such shares was exempt from registration under the
Securities Act in reliance upon Section 4(2) thereof. We believe that The
Abajian Group, LLC. is an “accredited investor” as that term is defined in Rule
501(a) of Regulation D under the Securities Act. The certificates issued for the
shares of common stock will include a legend to indicate that they are
restricted. The sales of such securities did not involve the use of
underwriters, and no commissions were paid in connection therewith.
We have
issued shares of our common stock to The Investor Relations Group, Inc., a
consultant, pursuant to an agreement to provide us with investor relation.
During the three months ended October 31, 2009, we issued 83,335 shares of
common stock to The Investor Relations Group, Inc. The sale of such shares was
exempt from registration under the Securities Act in reliance upon Section 4(2)
thereof. We believe that The Investor Relations Group, Inc. is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D under the
Securities Act. The certificates issued for the shares of common stock will
include a legend to indicate that they are restricted. The sales of such
securities did not involve the use of underwriters, and no commissions were paid
in connection therewith.
We have
issued shares of our common stock to Ventures and Projects Management, Inc, a
consultant, pursuant to an agreement to provide us with investor relation
services through September 4, 2009. During the three months ended October
31, 2009, we issued 500,000 shares of common stock to Ventures and Projects
Management, Inc, pursuant to this agreement. The sale of such shares was exempt
from registration under the Securities Act in reliance upon Section 4(2)
thereof. We believe that Ventures and Projects Management, Inc, is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D
under the Securities Act. The certificates issued for the shares of common stock
will include a legend to indicate that they are restricted. The sales of such
securities did not involve the use of underwriters, and no commissions were paid
in connection therewith.
We have
issued shares of our common stock to Seahawk Capital Partners, Inc, a
consultant, pursuant to an agreement to provide us with investor relation
services until October 11, 2010. During the three months ended October 31,
2009, we issued 60,000 shares of common stock to Seahawk Capital Partners
pursuant to this agreement. The sale of such shares was exempt from registration
under the Securities Act in reliance upon Section 4(2) thereof. We believe that
Seahawk Capital Partners is an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D under the Securities Act. The certificates issued
for the shares of common stock included a legend to indicate that they are
restricted. The sales of such securities did not involve the use of
underwriters, and no commissions were paid in connection therewith.
We have
issued shares of our common stock to Oceanus Capital LLC, a consultant, pursuant
to an agreement to provide us with investor relation. During the three
months ended October 31, 2009, we issued 250,000 shares of common stock to
Oceanus Capital LLC. The sale of such shares was exempt from registration under
the Securities Act in reliance upon Section 4(2) thereof. We believe that
Oceanus Capital LLC is an “accredited investor” as that term is defined in Rule
501(a) of Regulation D under the Securities Act. The certificates issued for the
shares of common stock will include a legend to indicate that they are
restricted. The sales of such securities did not involve the use of
underwriters, and no commissions were paid in connection therewith.
Issuer
Purchases of Equity Securities
Neither
Generex nor any affiliated purchaser (as defined in Section 240.10 b-18(a)(3) of
the Exchange Act) purchased any of its equity securities during the fiscal
quarter ended October 31, 2009.
Item
3. Defaults Upon Senior Securities.
None.
28
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
Reference
is made to the disclosure set forth under Part II, Item 2 - Unregistered Sales
of Equity Securities and Use of Proceeds under the caption Unregistered Sales of Equity
Securities in this Quarterly Report on Form 10-Q, which is incorporated
by reference herein.
Item
6. Exhibits.
Exhibits
are incorporated herein by reference or are filed with this quarterly report as
set forth in the Exhibit Index beginning on page 30 hereof.
SIGNATURES
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.
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GENEREX BIOTECHNOLOGY CORPORATION
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||
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(Registrant)
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||
|
Date: December
10, 2010
|
By:
|
/s/
Mark A. Fletcher
|
|
Mark
A. Fletcher
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||
|
Interim
President and Chief Executive Officer
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||
|
Date: December
10, 2010
|
By:
|
/s/ Rose C. Perri
|
|
Rose C. Perri
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||
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Chief Financial Officer
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||
29
EXHIBIT
INDEX
|
Exhibit
Number
|
|
Description of Exhibit(1)
|
|
2
|
Agreement
and Plan of Merger among Generex Biotechnology Corporation, Antigen
Express, Inc. and AGEXP Acquisition Inc. (incorporated by reference to
Exhibit 2.1 to Generex Biotechnology Corporation’s Current Report on Form
8-K filed on August 15, 2003)
|
|
|
3(i)
|
Restated
Certificate of Incorporation of Generex Biotechnology Corporation
(incorporated by reference to Exhibit 4.1 to Generex Biotechnology
Corporation’s Post-Effective Amendment No. 1 to the Registration Statement
on Form S-8 filed on October 26, 2009)
|
|
|
3(ii)
|
Amended
and Restated By-Laws of Generex Biotechnology Corporation (incorporated by
reference to Exhibit 3.2(ii) to Generex Biotechnology Corporation’s Report
on Form 8-K filed December 5, 2007)
|
|
|
4.1
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
Generex Biotechnology Corporation’s Registration Statement on Form S-1
(File No. 333-82667) filed on July 12, 1999)
|
|
|
4.2.1
|
Form
of Securities Purchase Agreement entered into with Cranshire Capital,
L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore Capital,
Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard Todd
Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 10-Q/A for the quarter ended October 31, 2003 filed on August 13,
2003)
|
|
|
4.2.2
|
Form
of Registration Rights Agreement entered into with Cranshire Capital,
L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore Capital,
Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard Todd
Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated by
reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
Form 10-Q/A for the quarter ended October 31, 2003 filed on August 13,
2003)
|
|
|
4.2.3
|
Form
of Warrant granted to Cranshire Capital, L.P.; Gryphon Partners, L.P.;
Langley Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial; Omicron
Capital; Photon Fund, Ltd.; Howard Todd Horberg and Vertical Ventures, LLC
dated May 29, 2003 (incorporated by reference to Exhibit 4.3 to Generex
Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
October 31, 2003 filed on August 13, 2003)
|
|
|
4.3
|
Form
of replacement Warrant issued to warrant holders exercising at reduced
exercise price in May and June 2003 (incorporated by reference to Exhibit
4.13.7 to Generex Biotechnology Corporation’s Report on Form 10-K for the
period ended July 31, 2003 filed on October 29, 2003)
|
|
|
4.4.1
|
Securities
Purchase Agreement, dated December 19, 2003, by and among Generex
Biotechnology Corporation and the investors named therein (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K/A filed on March 24, 2004)
|
|
|
4.4.2
|
Registration
Rights Agreement, dated December 19, 2003, by and among Generex
Biotechnology Corporation and the investors named therein (incorporated by
reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
Form 8-K/A filed on March 24, 2004)
|
|
|
4.4.3
|
Form
of Warrant issued in connection with Exhibit 4.4.1 (incorporated by
reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
Form 8-K/A filed on March 24, 2004)
|
|
|
4.4.4
|
Form
of Additional Investment Right issued in connection with Exhibit 4.4.1
(incorporated by reference to Exhibit 4.4 to Generex Biotechnology
Corporation’s Report on Form 8-K/A filed on March 24,
2004)
|
30
|
4.5.1
|
Securities
Purchase Agreement, dated January 7, 2004, by and between Generex
Biotechnology Corporation and ICN Capital Limited (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.5.2
|
Registration
Rights Agreement, dated January 7, 2004, by and between Generex
Biotechnology Corporation and ICN Capital Limited (incorporated by
reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.5.3
|
Warrant
issued in connection with Exhibit 4.5.1 (incorporated by reference to
Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 1, 2004)
|
|
|
4.5.4
|
Additional
Investment Right issued in connection with Exhibit 4.5.1 (incorporated by
reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.6.1
|
Securities
Purchase Agreement, dated January 9, 2004, by and between Generex
Biotechnology Corporation and Vertical Ventures, LLC (incorporated by
reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.6.2
|
Registration
Rights Agreement, dated January 9, 2004, by and between Generex
Biotechnology Corporation and Vertical Ventures, LLC (incorporated by
reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.6.3
|
Warrant
issued in connection with Exhibit 4.6.1 (incorporated by reference to
Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 1, 2004)
|
|
|
4.6.4
|
Additional
Investment Right issued in connection with Exhibit 4.6.1 (incorporated by
reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.7.1
|
Securities
Purchase Agreement, dated February 6, 2004, by and between Generex
Biotechnology Corporation and Alexandra Global Master Fund, Ltd.
(incorporated by reference to Exhibit 4.9 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on March 1,
2004)
|
|
|
4.7.2
|
Registration
Rights Agreement, dated February 6, 2004, by and between Generex
Biotechnology Corporation and Alexandra Global Master Fund, Ltd.
(incorporated by reference to Exhibit 4.10 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on March 1,
2004)
|
|
|
4.7.3
|
Warrant
issued in connection with Exhibit 4.7.1 (incorporated by reference to
Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 1, 2004)
|
|
|
4.7.4
|
Additional
Investment Right issued in connection with Exhibit 4.7.1 (incorporated by
reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
|
||
|
4.7.5
|
Escrow
Agreement, dated February 26, 2004, by and among Generex Biotechnology
Corporation, Eckert Seamans Cherin & Mellott, LLC and Alexandra Global
Master Fund, Ltd. (incorporated by reference to Exhibit 4.13 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on March 1,
2004)
|
|
|
4.8.1
|
Securities
Purchase Agreement, dated February 11, 2004, by and between Generex
Biotechnology Corporation and Michael Sourlis (incorporated by reference
to Exhibit 4.14 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 1, 2004)
|
|
|
4.8.2
|
Registration
Rights Agreement, dated February 11, 2004, by and between Generex
Biotechnology Corporation and Michael Sourlis (incorporated by reference
to Exhibit 4.15 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 1, 2004)
|
|
|
4.8.3
|
Additional
Investment Right issued in connection with Exhibit 4.8.1 (incorporated by
reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1,
2004)
|
31
|
4.9.1
|
Securities
Purchase Agreement, dated February 13, 2004, by and between Generex
Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated by
reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.9.2
|
Registration
Rights Agreement, dated February 13, 2004, by and between Generex
Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated by
reference to Exhibit 4.19 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.9.3
|
Warrant
issued in connection with Exhibit 4.9.1 (incorporated by reference to
Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 1, 2004)
|
|
|
4.9.4
|
Additional
Investment Right issued in connection with Exhibit 4.9.1 (incorporated by
reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on
Form 8-K filed on March 1, 2004)
|
|
|
4.10.1
|
Securities
Purchase Agreement, dated June 23, 2004, by and among Generex
Biotechnology Corporation and the investors named therein (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on July 14, 2004)
|
|
|
4.10.2
|
Registration
Rights Agreement, dated June 23, 2004, by and among Generex Biotechnology
Corporation and the investors (incorporated by reference to Exhibit 4.2 to
Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14,
2004)
|
|
|
4.10.3
|
Form
of Warrant issued in connection with Exhibit 4.10.1 (incorporated by
reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on July 14, 2004)
|
|
|
4.10.4
|
Form
of Additional Investment Right issued in connection Exhibit 4.10.1
(incorporated by reference to Exhibit 4.4 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on July 14,
2004)
|
|
|
4.11.1
|
Securities
Purchase Agreement, dated November 10, 2004, by and among Generex
Biotechnology Corporation and the investors named therein (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on November 12, 2004)
|
|
|
4.11.2
|
Form
of 6% Secured Convertible Debenture issued in connection with Exhibit
4.11.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on November 12,
2004)
|
|
|
4.11.3
|
Registration
Rights Agreement, dated November 10, 2004, by and among Generex
Biotechnology Corporation and the investors named therein (incorporated by
reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on November 12, 2004)
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4.11.4
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Form
of Voting Agreement entered into in connection with Exhibit 4.11.1
(incorporated by reference to Exhibit 4.7 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on November 12,
2004)
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4.12
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Warrant
issued to The Aethena Group, LLC on April 28, 2005 (incorporated by
reference to Exhibit 4.20 to Generex Biotechnology Corporation’s Quarterly
Report on Form 10-Q filed on June 14, 2005)
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4.13.1
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Amendment
No. 4 to Securities Purchase Agreement and Registration Rights Agreement
entered into by and between Generex Biotechnology Corporation and the
Purchasers listed on the signature pages thereto on January 19, 2006
(incorporated by reference herein to Exhibit 4.1 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on January 20,
2006)
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4.13.2
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Form
of Additional AIRs issued in connection with Exhibit 4.13.1 (incorporated
by reference herein to Exhibit 4.4 to Generex Biotechnology Corporation’s
Report on Form 8-K filed on January 20, 2006)
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4.14
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Form
of Warrant issued by Generex Biotechnology Corporation on January 23, 2006
(incorporated by reference to Exhibit 4.2 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on January 24,
2006)
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32
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4.15.1
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Agreement
to Amend Warrants between Generex Biotechnology Corporation and Cranshire
Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit
4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
February 28, 2006).
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4.15.2
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Agreement
to Amend Warrants between Generex Biotechnology Corporation and Omicron
Master Trust dated February 27, 2006 (incorporated by reference to Exhibit
4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
February 28, 2006).
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4.15.3
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Agreement
to Amend Warrants between Generex Biotechnology Corporation and Iroquois
Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit
4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
February 28, 2006).
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4.15.4
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Agreement
to Amend Warrants between Generex Biotechnology Corporation and Smithfield
Fiduciary LLC dated February 27, 2006 (incorporated by reference to
Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on February 28, 2006).
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4.15.5
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Form
of Warrant issued by Generex Biotechnology Corporation on February 27,
2006 (incorporated by reference to Exhibit 4.26 to Generex Biotechnology
Corporation’s Report on Form 10-K filed on October 16,
2006)
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4.16.1
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Agreement
to Amend Additional Investment Right between Generex Biotechnology
Corporation and Cranshire Capital, L.P. dated February 28, 2006
(incorporated by reference to Exhibit 4.1 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on March 1,
2006).
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4.16.2
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Agreement
to Amend Additional Investment Right between Generex Biotechnology
Corporation and Omicron Master Trust dated February 28, 2006 (incorporated
by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report
on Form 8-K filed on March 1, 2006).
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4.16.3
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Agreement
to Amend Additional Investment Right between Generex Biotechnology
Corporation and Iroquois Capital LP dated February 28, 2006 (incorporated
by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report
on Form 8-K filed on March 1, 2006).
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4.16.4
|
Agreement
to Amend Additional Investment Right between Generex Biotechnology
Corporation and Smithfield Fiduciary LLC dated February 28, 2006
(incorporated by reference to Exhibit 4.4 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on March 1,
2006).
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4.16.5
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Form
of Additional AIR Debenture issued by Generex Biotechnology Corporation on
February 28, 2006 (incorporated by reference to Exhibit 4.31 to Generex
Biotechnology Corporation’s Report on Form 10-K filed on October 16,
2006)
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4.16.6
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Form
of Additional AIR Warrant issued by Generex Biotechnology Corporation on
February 28, 2006 (incorporated by reference to Exhibit 4.32 to Generex
Biotechnology Corporation’s Report on Form 10-K filed on October 16,
2006)
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4.17.1
|
Form
of Agreement to Amend Warrants between Generex Biotechnology Corporation
and the Investors dated March 6, 2006 (incorporated by reference to
Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on March 7, 2006).
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4.17.2
|
Form
of Warrant issued by Generex Biotechnology Corporation on March 6, 2006
(incorporated by reference to Exhibit 4.2 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on March 7,
2006)
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4.18
|
Warrant
issued by Generex Biotechnology Corporation on April 17, 2006 to Zapfe
Holdings, Inc. (incorporated by reference to Exhibit 4.33 to Generex
Biotechnology Corporation’s Report on Form 10-Q filed on June 14,
2006)
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4.19
|
Form
of Warrant issued by Generex Biotechnology Corporation on April 17, 2006
to certain employees (incorporated by reference to Exhibit 4.34 to Generex
Biotechnology Corporation’s Report on Form 10-Q filed on June 14,
2006).
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4.20.1
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Securities
Purchase Agreement entered into by and between Generex Biotechnology
Corporation and four Investors on June 1, 2006 (incorporated by reference
to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on June 2, 2006)
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4.20.2
|
Form
of Warrant issued by Generex Biotechnology Corporation on June 1, 2006
(incorporated by reference to Exhibit 4.2 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on June 2, 2006)
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4.21.1
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Form
of Amendment to Outstanding Warrants (incorporated by reference to Exhibit
4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
June 2, 2006)
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4.21.2
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Form
of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 in
connection with Exhibit 4.39 (incorporated by reference to Exhibit 4.4 to
Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2,
2006)
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4.22.1
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Securities
Purchase Agreement, dated as of March 31, 2008 among the Registrant and
each of the purchasers named therein (incorporated by reference to Exhibit
4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
April 2, 2008)
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4.22.2
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Form
of 8% Secured Convertible Note, as amended (incorporated by reference to
Exhibit 4.2 to Generex Biotechnology Corporation’s Registration Statement
(333-150562) on Form S-3 filed on October 31, 2008)
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4.22.3
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Form
of Series A Warrant, as amended (incorporated by reference to Exhibit 4.3
to Generex Biotechnology Corporation’s Registration Statement on Form S-3
(333-150562) filed on October 31, 2008)
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4.22.4
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Form
of Series A-1 Warrant, as amended (incorporated by reference to Exhibit
4.4 to Generex Biotechnology Corporation’s Registration Statement on Form
S-3 (333-150562) filed on October 31, 2008)
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4.22.5
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Form
of Series B Warrant, as amended (incorporated by reference to Exhibit 4.5
to Generex Biotechnology Corporation’s Registration Statement on Form S-3
(333-150562) filed on October 31, 2008)
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4.22.6
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Form
of Series C Warrant, as amended (incorporated by reference to Exhibit 4.6
to Generex Biotechnology Corporation’s Registration Statement on Form S-3
(333-150562) filed on October 31, 2008)
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4.22.7
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Registration
Rights Agreement, dated March 31, 2008, among Registrant and each of the
purchasers under Securities Purchase Agreement (incorporated by reference
to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K
filed on April 2, 2008)
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4.22.8
|
Security
Agreement (incorporated by reference to Exhibit 4.8 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on April 2,
2008)
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4.22.9
|
Form
of Guaranty (incorporated by reference to Exhibit 4.9 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on April 2,
2008)
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4.23.1
|
Form
of Securities Purchase Agreement, dated May 15, 2009, entered into between
Generex Biotechnology Corporation and each investor in the offering
(incorporated by reference to Exhibit 1.2 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on May 18, 2009)
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4.24.1
|
Form
of Securities Purchase Agreement, dated June 15, 2009, entered into
between Generex Biotechnology Corporation and each investor in the
offering (incorporated by reference to Exhibit 10.1 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on June 16,
2009)
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4.24.2
|
Form
of Warrant issued in connection with Exhibit 4.24.1 (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on June 16,
2009)
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34
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4.24.3
|
Form
of Warrant issued to Midtown Partners & Co., LLC in connection with
Exhibit 4.24.1 (incorporated by reference to Exhibit 4.2 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on June 16,
2009)
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4.25.1
|
Form
of Securities Purchase Agreement, dated August 6, 2009, entered into
between Generex Biotechnology Corporation and each investor in the
offering (incorporated by reference to Exhibit 10.1 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on August 6,
2009)
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4.25.2
|
Form
of Warrant issued in connection with Exhibit 4.25.1 (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on August 6, 2009)
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4.25.3
|
Form
of Warrant issued to Midtown Partners & Co., LLC in connection with
Exhibit 4.25.1 (incorporated by reference to Exhibit 4.28 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on August 6,
2009)
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4.26.1
|
Form
of Securities Purchase Agreement, dated September 11, 2009, entered into
between Generex Biotechnology Corporation and each investor in the
offering (incorporated by reference to Exhibit 10.1 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on September 15,
2009)
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4.26.2
|
Form
of Warrant issued in connection with Exhibit 4.26.1 (incorporated by
reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
Form 8-K filed on September 15, 2009)
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4.26.3
|
Form
of Warrant issued to Midtown Partners & Co., LLC in connection with
Exhibit 4.26.1 (incorporated by reference to Exhibit 4.2 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on September 15,
2009)
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9
|
Form
of Voting Agreement entered into in connection with Exhibit 4.11.1
(incorporated by reference to Exhibit 4.7 to Generex Biotechnology
Corporation’s Report on Form 8-K filed on November 12,
2004)
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10.1
|
At
Market Offering Issuance Agreement dated October 14, 2009
entered into between Generex Biotechnology Corporation and Wm Smith &
Co, LLC (incorporated by reference to Exhibit 10.1 to Generex
Biotechnology Corporation’s Report on Form 8-K filed on October
15, 2009)
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10.2
|
Recombinant
Human Insulin Active Ingredient Manufacturing and Supply Agreement entered
into on December 7, 2009 by and between Generex Biotechnology
Corporation and Sanofi-Aventis Deutschland GmbH (incorporated by reference
to Exhibit 10.2 to Generex Biotechnology Corporation’s Report on Form 10-Q
filed on December 11, 2009) (subject to confidential
treatment)
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31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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32
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
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(1)
|
In
the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant’s file number under the
Exchange Act is 000-25169.
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35