Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GNBT > SEC Filings for GNBT > Form 10-K on 11-Oct-2013All Recent SEC Filings

Show all filings for GENEREX BIOTECHNOLOGY CORP

Form 10-K for GENEREX BIOTECHNOLOGY CORP


11-Oct-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis by management provides information with respect to our financial condition and results of operations for the fiscal years ended July 31, 2013, 2012 and 2011. This discussion should be read in conjunction with the information in the consolidated financial statements and the notes pertaining thereto contained in Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K for the year ended July 31, 2013 and the information discussed in Part I, Item 1A - Risk Factors.

Overview of Business

We are engaged primarily in the research and development 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 hormones, 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™.

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 clinical trials. We recently initiated an additional Phase I clinical trial in patients with either breast or ovarian cancer. The synthetic vaccine technology has certain advantages for pandemic or potentially pandemic viruses, such as the H5N1 avian and H1N1 swine flu. In addition to developing vaccines for pandemic influenza viruses, we have vaccine development efforts 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.

To date, we have received regulatory approval in Ecuador, India (subject to further study), Lebanon and Algeria for the commercial marketing and sale of Generex Oral-lyn™. We have previously submitted regulatory dossiers for Generex Oral-lyn™ in a number of other countries, including Bangladesh, Kenya, Jordan and Armenia. While we believe these countries will ultimately approve our product for commercial sale, we do not anticipate recognizing revenues in any of these jurisdictions in the next twelve months. No dossier related activities or product shipments have taken place during 2013, nor are any expected to these countries during the remainder of 2013.

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 in April 2008. Approximately 450 patients have been enrolled to date at approximately 70 clinical sites around the world, including sites in the United States, Canada, Bulgaria, Poland, Romania, Russia, Ukraine and Ecuador. The final subjects completed the trial in August 2011. After appropriate validation, the data from approximately 450 patients was tabulated, reviewed and analyzed. Those results from the Phase III trial along with a comprehensive review and supplemental analyses of approximately 40 prior Oral-lyn clinical studies were compiled and submitted to the FDA in late December 2011 in a comprehensive package including a composite metanalysis of all safety data. Following notification of the completion of their review, we will schedule a meeting with the FDA to arrive at a consensus for the pathway for regulatory approval, including any additional clinical or pharmacological studies that might be required to support regulatory approval or enhance marketing success.

We are a development stage company. From inception through July 31, 2012, we have received only limited revenues from operations. We did not generate any revenue in fiscal 2013. In the fiscal years ended July 31, 2012 and 2011, we generated $28,651 and $291,628 in revenue, respectively. The revenue in each of these fiscal years pertained primarily to the sale of our consumer/over-the-counter products. These numbers do not reflect deferred sales to customers during the respective periods with the right of return.

As of July 31, 2013, our current cash position is not sufficient to meet our working capital needs for the next twelve months. To continue operations, we will require additional funds to support our working capital requirements and any development activities, or will need to suspend operations.To continue operations, we will require additional funds to support our working capital requirements and any development activities, or will need to suspend operations. We are seeking various alternatives to ensure that we can meet some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. In addition, we are actively seeking strategic alternatives, including strategic investments and divestitures. We have sold, and are also seeking further sales of, non-essential real estate assets which are classified as Assets Held for Investment to augment its cash position. We cannot provide any assurance that we will obtain the required funding. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and our strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected and we may have to cease operations.

We operate in only one segment: the research and development of drug delivery systems and technologies for metabolic and immunological diseases.

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™) and Antigen's peptide immunotherapeutic vaccines.

During the fiscal years ended July 31, 2013 and 2012, we expended resources on the clinical testing of our buccal insulin product, Generex Oral-lyn™. The completion of late-stage trials in Canada and the United States may require significantly greater funds than we currently have on hand.

During the fiscal years ended July 31, 2013 and 2012, 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 we have completed a Phase I clinical trial for an Antigen vaccine for H5N1 avian influenza which was conducted at the Lebanese-Canadian Hospital in Beirut. Antigen's prostate cancer vaccine based on AE37 has been tested in a completed (August 2009) Phase I clinical trial in Greece.

Because of various uncertainties, we cannot predict the timing of completion and commercialization of our buccal insulin 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.

Most of our buccal delivery research and development activities to date have involved developing our platform technology for use with insulin. 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 fiscal year ended July 31, 2013, approximately 24% of our $2,192,724 in research and development expenses was attributable to insulin and platform technology development. During the fiscal year ended July 31, 2012, approximately 61% of our $4,987,236 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to other buccal projects. During the fiscal year ended July 31, 2011, approximately 75% or $7,669,139 of our $10,250,397 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to other buccal projects.

During the fiscal year ended July 31, 2013, approximately 76%, or $1,658,731 of our research and development expenses was attributable to Antigen's immunomedicine products. During the fiscal year ended July 31, 2012, approximately 39% or $1,941,774 in research expenses was attributable to Antigen's immunomedicine products. Approximately 25% or $2,581,258 of our research and development expenses for the fiscal year ended July 31, 2011 was related to Antigen's immunomedicine products. 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 consolidated 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 consolidated 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 our over-the-counter consumer products are generally recognized in the period in which the products are delivered. Delivery of the products generally completes the criteria for revenue recognition for us. In the event where the customers have the right of return, sales are deferred until the right of return lapses, the product is sold to a third party or a provision for returns can be reasonably estimated based on historical experience.

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 accounting for the impairment 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 Consolidated Statement of Operations. As of July 31, 2013, there were no indications of any impairment of our long-lived assets.

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. In the fiscal year ended July 31, 2012, we recorded a write down of $440,780 on certain patents. There were no patent write downs or disposals in the fiscal years ended July 31, 2013 or 2011.

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.

Share-based compensation. Management determines value of stock-based compensation to employees in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation - Stock Compensation. Management determines value of stock-based compensation to non-employees and consultants in accordance with and ASC 505, Equity-Based Payments to Non-Employees.

Derivative warrant liability. FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the consolidated balance sheet at fair value for fiscal years beginning after December 15, 2008. As a result, certain derivative warrant liabilities (namely those with a price protection feature) are now separately valued as of August 1, 2009 and accounted for on our balance sheet, with any changes in fair value recorded in earnings. On our consolidated balance sheets as of July 31, 2013, July 31, 2012 and July 31, 2011, we used the binomial lattice model to estimate the fair value of these warrants. Key assumptions of the binomial lattice option-pricing model include the market price of our stock, the exercise price of the warrants, applicable volatility rates, risk-free interest rates, expected dividends 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

Year Ended July 31, 2013 Compared to Year Ended July 31, 2012

Our net loss available to shareholders for the fiscal year ended July 31, 2013 (fiscal 2013) was $10,276,796 versus $9,867,024 in the fiscal year ended July 31, 2012 (fiscal 2012). The increase in net loss in fiscal 2013 versus fiscal 2012 is primarily due a larger loss on the revaluation of derivatives, a larger preferred stock dividend and a smaller gain on sale of assets, offset by a decrease in operating expenses by approximately $3.9 million in fiscal 2013. Our operating loss for fiscal 2012 decreased to $6,129,359 compared to $10,024,048 in fiscal 2012. The decrease resulted primarily from a decrease in research and development expenses to $2,192,724 from $4,987,236, a decrease in selling expense to zero from $165,175 and a decrease in general and administrative expenses to $3,936,635 from $4,889,179. Revenue decreased to zero from $28,651 from. The decrease in revenue is attributable to the discontinuation of sales of our consumer/over-the-counter products in early fiscal 2012.

The decrease in general and administrative expenses is primarily related to a decrease in legal and audit expenses of approximately $214,000 in fiscal 2013 versus 2012 due to cost cutting measures, as well as a decrease of approximately $401,000 in payroll related costs due to a reduction in the number of employees which also caused a reduction in travel and office expenses of approximately $84,000 and $151,000, respectively versus fiscal 2012. The decrease in selling expenses to zero from $165,175 for fiscal 2013 versus fiscal 2012 is associated with the elimination in advertising and promotion related to the discontinuation of our consumer/over-the-counter product line. Research and development expenses decreased by almost $2.8 million in fiscal 2013 from fiscal 2012, as we did not have any expenditures relating to the Phase III trials for our Generex Oral-lyn™ product in fiscal 2013.

Our interest expense in fiscal 2013 decreased to $530,222, compared to interest expense of $592,525 in fiscal 2012, due to lower mortgage balances in fiscal 2013 because of the discharge and partial discharge of mortgages upon sale of properties, as well as lower interest penalties related to the discharge of mortgages upon the sale of certain of our properties versus fiscal 2012. We received lower income from assets held for investment (net of expense) in fiscal 2013 of $1,245,165 (which included a $1,081,807 gain on sale of properties) versus $2,206,216 (which included a $1,957,089 gain on sale of properties) in fiscal 2012. In fiscal 2013, we had a larger loss on the revaluation of derivatives of $3,140,259 versus a loss of $1,081,440 in fiscal 2012.

Our net loss available to shareholders was increased by $1,722,474 in fiscal 2013 versus $376,746 in fiscal 2012 relating to preferred stock dividends as a result of the accounting treatment of our convertible preferred stock financings in June 2013, August 2012 and February 2012, respectively. This amount represents a deemed dividend to the investors as a result of these financings, as further described in Note 9 to the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Year Ended July 31, 2012 Compared to Year Ended July 31, 2011

Our net loss available to shareholders for the fiscal year ended July 31, 2012 (fiscal 2012) was $9,867,024 versus $22,442,284 in the fiscal year ended July 31, 2011 (fiscal 2011). The decrease in net loss in fiscal 2012 versus fiscal 2011 is primarily due to the decrease in operating expenses by approximately $14.6 million in fiscal 2012, offset by a loss due to the revaluation of the derivative liabilities in fiscal 2012 of $1,081,440 versus a gain of $2,220,916 in fiscal 2011. Our operating loss for fiscal 2012 decreased to $10,024,048 compared to $24,533,082 in fiscal 2011. The decrease resulted primarily from a decrease in research and development expenses to $4,987,236 from $10,250,397, a decrease in selling expense to $165,175 from $1,025,774 and a decrease in general and administrative expenses to $4,889,179 from $13,392,920. Revenue decreased to $28,651 from $291,628, while gross profits decreased to $17,542 from $136,009. The decrease in revenue and gross profit is attributable to the discontinuation of sales of our consumer/over-the-counterproducts.

The decrease in general and administrative expenses is primarily related to a decrease in professional expenses including legal, audit, consulting and financial services of over $6.1 million in fiscal 2012 versus 2011 due to cost cutting measures, as well as a decrease of over $1.0 million in payroll related costs due to a reduction in the number of employees which also caused a reduction in travel expenses of over $450,000 versus fiscal 2011. The decrease in selling expenses of over $860,000 for fiscal 2012 versus fiscal 2011 is associated with a reduction in advertising and promotion related to the discontinuation of our consumer/over-the-counter products, as well as the closure of our MENA sales office in Dubai. Research and development expenses decreased by almost $5.3 million in fiscal 2012 from fiscal 2011, as expenditures relating to the Phase III trials for our Generex Oral-lyn™ product decreased significantly in fiscal 2012 versus fiscal 2011.

Our interest expense in fiscal 2012 increased to $592,525, compared to interest expense of $208,906 in fiscal 2011, due to the refinancing of properties, as well as interest penalties related to the discharge of mortgages upon the sale of certain of our properties. Our interest income decreased to $1,519 in fiscal 2012 from $6,455 in fiscal 2011 due to lower average cash balances. We received higher income from assets held for investment (net of expense) of $2,206,216 which included $1,957,089 gain on sale of properties, as well as income from rental operations (net of expense) of $249,127 versus $349,458 in income from rental operations (net of expense) in fiscal 2011.

Our net loss available to shareholders was increased by $376,746 in fiscal 2012 versus $766,417 in fiscal 2011 relating to preferred stock dividends as a result of the accounting treatment of our convertible preferred stock financings in February 2012 and July 2011, respectively. This amount represents a deemed dividend to the investors as a result of these financings, as further described in Note 9 to the Notes to Consolidated Financial Statementsincluded elsewhere in this Annual Report.

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 July 31, 2013, our current cash position is not sufficient to meet our working capital needs for the next twelve months. Therefore, we will require additional funds to support our working capital requirements and any development or other activities, or will need to curtail our clinical trials and other planned activities or suspend operations. To continue operations, we will require additional funds to support our working capital requirements and any development activities, or will need to suspend operations. We are seeking various alternatives to ensure that we can meet some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. In addition, we are actively seeking strategic alternatives, including strategic investments and divestitures. We have sold, and are also seeking further sales of, non-essential real estate assets which are classified as Assets Held for Investment to augment its cash position. We cannot provide any assurance that we will obtain the required funding. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and our strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected and we may have to cease operations.

While we have financed our development stage activities to date primarily through private placements of our common stock and securities convertible into our common stock and raised approximately $4.0 million during fiscal 2012 (including the net proceeds from mortgage financings in January and February 2012) and approximately $5.3 million during fiscal 2013 to date (including the proceeds from our mortgage financing in November 2012 and proceeds from warrant exercises), our cash balances have been extremely low throughout fiscal 2013.

On March 30, 2011, our realigned management team announced its strategic development plan for Generex's future growth. The plan included the spin-out of Antigen Express, a reverse stock split for Generex and a rights offering to Generex stockholders. As proposed, we would spin out Antigen Express as a separate DTC-eligible company, register its shares with the Securities and Exchange Commission (the "SEC"), and seek to list its shares on a national securities exchange. Management believes that the spin-out would increase value for stockholders and provide Antigen Express with ready access to capital markets to finance its on-going clinical and regulatory initiatives. Management further believes that the spin-out would benefit Generex, by allowing Generex to hold a controlling interest in a publicly-traded company while continuing to focus on maximizing opportunities for its buccal drug delivery platform. The spin-out would be accomplished by the issuance of one or more dividends of Antigen Express stock to Generex stockholders. No determination has been made as to the timing of the proposed spin-out. This prospectus does not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities related to these planned transactions.

Although stockholders approved a reverse stock split proposal at the June 8, 2011 annual meeting of stockholders, the reverse stock split could only be implemented in conjunction with an effort to list our common stock on a national stock exchange. The stockholder approval expired on December 7, 2012. Our stockholders approved a new reverse split proposal at our annual general meeting held on March 28, 2013, which approval allows the Board to implement a reverse split in its discretion and is not contingent upon listing our common stock on a national stock exchange. The terms of the securities purchase agreements that we entered into on January 31, 2012, August 8, 2012, December 10, 2012 and June 17, 2013 also prohibit us from undertaking a reverse or forward stock split or reclassification of our common stock except for a reverse stock split made in conjunction with a listing of the common stock on a national securities exchange.

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, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. The securities purchase agreements that we entered into on December 10, 2012 and June 17, 2013 with certain investors prohibits us from (i) issuing additional equity securities until 60 days after the effective date of a registration statement covering the resale of the common stock issuable upon exercise of the warrants and conversion of the preferred stock sold in that transaction and (ii) issuing additional debt or equity securities with a variable conversion or exercise price until December 10, 2013 and June 17, 2014, respectively.

Through the shelf registration statement (File No. 333-164591) that we filed on January 29, 2010 and which was declared effective on February 9, 2010, we raised an aggregate of $4,056,000 in gross proceeds between January and April 2011 and raised an additional $2,575,000 in gross proceeds in July 2011 pursuant to a convertible preferred stock purchase agreement with takedowns from the shelf registration statement as described below. Upon the filing of our Annual Report on Form 10-K on October 14, 2011, we were no longer eligible to use the shelf registration statement as the aggregate market value of our outstanding voting and non-voting common equity held by non-affiliates is less than $75 million. As . . .

  Add GNBT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GNBT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.