Company Quick10K Filing
Generex Biotechnology
Price-0.00 EPS-0
Shares53 P/E0
MCap-0 P/FCF0
Net Debt-1 EBIT-18
TEV-1 TEV/EBIT0
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-10-31 Filed 2020-12-21
S-1 2020-08-20 Public Filing
10-K 2020-07-31 Filed 2020-11-13
S-1 2020-06-15 Public Filing
10-Q 2020-04-30 Filed 2020-06-22
S-1 2020-02-18 Public Filing
10-Q 2020-01-31 Filed 2020-03-20
S-1 2019-12-12 Public Filing
10-Q 2019-10-31 Filed 2019-12-16
10-K 2019-07-31 Filed 2019-11-12
10-Q 2019-04-30 Filed 2019-06-19
10-Q 2019-01-31 Filed 2019-03-25
8-K 2021-02-19 Other Events
8-K 2021-02-17 Enter Agreement, Off-BS Arrangement, Sale of Shares
8-K 2021-02-08 Other Events
8-K 2021-02-01 Other Events, Exhibits
8-K 2021-01-06 Enter Agreement, Exhibits
8-K 2020-12-15 Enter Agreement, Exhibits
8-K 2020-11-23
8-K 2020-11-19
8-K 2020-11-18
8-K 2020-11-05
8-K 2020-10-05
8-K 2020-09-24
8-K 2020-09-18
8-K 2020-08-25
8-K 2020-08-04
8-K 2020-07-31
8-K 2020-07-13
8-K 2020-06-24
8-K 2020-06-23
8-K 2020-06-22
8-K 2020-06-19
8-K 2020-06-18
8-K 2020-06-17
8-K 2020-06-16
8-K 2020-06-15
8-K 2020-06-11
8-K 2020-06-10
8-K 2020-06-09
8-K 2020-06-08
8-K 2020-06-02
8-K 2020-05-14
8-K 2020-03-12
8-K 2020-03-03
8-K 2020-02-28
8-K 2020-01-27
8-K 2019-11-22
8-K 2019-11-19
8-K 2019-10-29
8-K 2019-10-28
8-K 2019-10-25
8-K 2019-07-11
8-K 2019-05-06
8-K 2019-04-01
8-K 2019-03-29
8-K 2019-03-25
8-K 2019-02-21
8-K 2019-02-15
8-K 2019-02-13
8-K 2019-02-08
8-K 2019-01-25
8-K 2019-01-24
8-K 2019-01-15
8-K 2019-01-07
8-K 2019-01-07

GNBT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Organization of Business and Going Concern
Note 2 - Summary of Significant Accounting Policies
Note 3 - Commitments and Contingencies
Note 4 - Inventory
Note 5 - Property and Equipment
Note 6 - Goodwill and Intangible Assets
Note 7 - Notes Payable
Note 8 - Derivative Liability
Note 9 - Stockholders' Equity
Note 10 - Redeemable Non - Controlling Interest
Note 11 - Stock - Based Compensation
Note 12 - Warrants
Note 13 - Net Income per Share (&Ldquo;Eps&Rdquo;)
Note 14 - Income Taxes
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32 ex32.htm

Generex Biotechnology Earnings 2020-10-31

Balance SheetIncome StatementCash Flow
554433221102018201820192020
Assets, Equity
1.1-2.1-5.3-8.6-11.8-15.02018201820192020
Rev, G Profit, Net Income
2.11.30.5-0.3-1.1-1.92018201820192020
Ops, Inv, Fin

10-Q 1 gnbt103120form10q.htm 10-Q

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q 

 

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: October 31, 2020

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ________________ to _______________

 

Commission File No. 000-25169

 

 

Generex Biotechnology Corporation

  (Exact name of registrant as specified in its charter)

 

Delaware 98-0178636
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

 

10102 USA Today Way, Miramar, Florida 33025

(Address of principal executive office)

 

Registrant's telephone number: (416) 364-2551

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ YES  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 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 ☒
  Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ YES   ☒ NO

 

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   GNBT   OTCQB

 

As of December 21, 2020, the registrant had 109,983,989 shares of common stock, $0.001 par value per share, outstanding.

 

 1 

 

 

GENEREX BIOTECHNOLOGY CORPORATION

 

INDEX

 

PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements (unaudited)  
Condensed Consolidated Balance Sheets as of October 31, 2020 and July 31, 2020 (unaudited) 3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three-months ended October 31, 2020 and 2019 (unaudited) 4
Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the three-months ended October 31, 2020 and 2019 (unaudited) 5
Condensed Consolidated Statements of Cash Flows - For the three months ended October 31, 2020 and 2019 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk 65
Item 4. Controls and Procedures 65
PART II: OTHER INFORMATION  
Item 1. Legal Proceedings 66
Item 1A. Risk Factors 68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 68
Item 3. Defaults Upon Senior Securities 69
[Item 4. Removed and Reserved.]  
Item 5. Other Information 69
Item 6. Exhibits 69
Signatures 70

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
       
    October 31, 2020    

July 31,

2020

 
ASSETS          
Current assets          
Cash and cash equivalents  $833,566   $15,452 
Accounts receivable, net   183,928    164,871 
Inventory, net   718,624    742,256 
Other current assets   306,845    332,268 
Total current assets   2,042,963    1,254,847 
           
Property and equipment   175,513    213,668 
Goodwill   34,489,342    34,489,342 
Intangible assets   9,134,184    9,365,526 
Operating lease right-of-use assets, net   22,003    38,140 
Other assets   21,421    21,421 
TOTAL ASSETS  $45,885,426   $45,382,944 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities          
Accounts payable and accrued expenses  $33,464,414   $23,907,718 
Notes payable, current   9,958,563    10,666,703 
Payable to foundation for services   1,315,817    1,315,817 
Interest payable to foundation   4,149,900    3,911,141 
Loans from related parties   29,700    29,700 
Operating lease liabilities - current   22,049    38,253 
Refundable advances   2,000,000    —   
Deferred tax liability   1,502,122    1,502,122 
Total current liabilities   52,442,565    41,371,454 
           
Notes payable – noncurrent, net of debt discount   499,839    499,656 
Derivative liability   16,492,507    1,316,757 
Common stock payable   8,483,393    10,079,449 
Total liabilities   77,918,304    53,267,316 
           
Redeemable non-controlling interest (Note 10)   4,073,898    4,073,898 
           
Stockholders’ deficiency (Note 9)          
Common stock, $0.001 par value; 750,000,000 authorized shares; 108,037,614 and 82,251,801 issued and outstanding as of October 31, 2020 and July 31, 2020, respectively   108,037    82,251 
Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share; 1,000,000 authorized and no shares issued and outstanding as of both October 31, 2020 and July 31, 2020, respectively   —      —   
Additional paid-in capital   418,411,365    429,744,379 
Accumulated deficit   (464,643,597)   (452,062,905)
Accumulated other comprehensive income   778,094    780,296 
           
Non-controlling interest   9,239,325    9,497,709 
Total stockholders’ deficiency   (36,106,776)   (11,958,270)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY  $45,885,426   $45,382,944 
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 3 

 

 

 

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
       
    
   Three Months Ended October 31,
   2020  2019
Revenue  $88,435   $721,661 
Cost of goods sold   23,333    133,618 
Gross profit   65,102    588,043 
           
Operating expenses          
Research and development   1,170,008    338,734 
Bad debt expense   —      10,981 
General and administrative   13,008,172    4,787,039 
Total operating expenses   14,178,180    5,136,754 
           
Operating loss   (14,113,078)   (4,548,711)
           
Other Income (Expense):          
Interest expense   (1,019,080)   (2,516,113)
Interest income   —      452 
Change in fair value of common stock payable   123,230    —   
Change in fair value of derivative liability   4,019,852    (2,239,422)
Other income, net   —      (8,753)
Net loss   (10,989,076)   (9,312,547)
           
Net loss attributable to noncontrolling interests   (258,384)   (186,602)
           
Net loss available to common stockholders  $(10,730,692)  $(9,125,945)
           
Net loss per common share          
Basic  $(0.11)  $(0.13)
Diluted  $(0.11)  $(0.13)
           
Shares used to compute income per share          
Basic   96,859,079    69,800,583 
Diluted   96,859,079    69,800,583 
           
Comprehensive loss:          
Net loss available to common stockholders  $(10,730,692)  $(9,125,945)
Change in foreign currency translation adjustments   (2,202)   (294)
Comprehensive loss available to common stockholders  $(10,732,894)  $(9,126,239)
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 4 

 

 

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES   
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY   
                               
     Preferred Stock      Common Stock                                
     Shares      Amount      Shares      Amount     

 Additional Paid-in

Capital 

     Accumulated Deficit      Accumulated Other Comprehensive Income      Sub Total      Non-controlling Interest      Stockholders’ Equity  
Balance on July 31, 2019   —     $—      78,608,419   $78,608   $408,550,211   $(418,727,875)  $797,216   $(9,301,840)  $16,974,439   $7,672,599 
Stock compensation expense   —      —      —      —      787,458    —      —      787,458    —      787,458 
Issuance of common stock payable   —      —      296,793    297    921,598    —      —      921,895    —      921,985 
Conversion of debt to equity   —      —      1,164,190    1,164    1,735,673    —      —      1,736,837    —      1,736,837 
Issuance of common stock for acquisitions   —      —      960,000    960    1,150,992    —      —      1,151,952    —      1,151,952 
Reduction of derivative liabilities   —      —      —      —      1,911,487    —      —      1,911,487    —      1,911,487 
Cancellation of shares   —      —      (20,375,900)   (20,376)   20,376    —      —      —      —      —   
Purchase of shares in subsidiary   —      —      —      —      1,987,390    —      —      1,987,390    (1,987,390)   —   
Issuance of stock options   —      —      —      —      —      —      —      —      —      —   
Currency translation adjustment   —      —      —      —      —      —      (294)   (294)   —      (294)
Net loss   —      —      —      —      —      (9,125,945)        (9,125,945)   (186,602)   (9,312,547)
Balance on October 31, 2019   —     $—      60,653,502   $60,653   $417,065,185   $(427,853,820)  $796,922   $(9,931,060)  $14,800,447   $4,869,387 
                                                   
Balance on July 31, 2020   —     $—      82,251,801   $82,251   $429,744,379   $(452,062,905)  $780,296   $(21,455,979)  $9,497,709   $(11,958,270)
Stock compensation expense   —      —      51,130    51    1,221,801    —      —      1,221,852    —      1, 221,852 
Issuance of common stock payable   —      —      3,529,415    3,529    1,469,297    —      —      1,472,826    —      1,472,826 
Conversion of debt to equity   —      —      5,860,255    5,860    1,121,982    —      —      1,127,842    —      1,127,842 
Reduction of derivative liabilities   —      —      —      —      538,084    —      —      538,084    —      538,084 
Issuance of common stock and warrants with attributed derivative liability from PIPE offering (Note 8)   —      —      5,102,040    5,102    (19,729,318)   —      —      (19,724,216)   —      (19,724,216)
Deemed dividend related to issuance of warrants containing derivative liabilities   —      —      —      —      1,850,000    (1,850,000)   —      —      —      —   
Settlement of derivative liability from exercise of warrants   —      —      —      —      1,840,530    —      —      1,840,530    —      1,840,530 
Sale of common stock   —      —      2,100,000    2,100    354,610    —      —      356,710    —      356,710 
Exercise of Series D warrants   —      —      9,142,973    9,144    —      —      —      9,144         9,144 
Currency translation adjustment   —      —      —      —      —      —      (2,202)   (2,202)   —      (2,202)
Net loss   —      —      —      —      —      (10,730,692)   —      (10,730,692)   (258,384)   (10,989,076)
Balance on October 31, 2020   —     $—      108,037,614   $108,037   $418,411,365   $(464,643,597)  $778,094   $(45,346,101)  $9,239,325   $(36,106,776)

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

 

 5 

 

 

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   Three Months Ended October 31,
   2020  2019
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(10,989,076)  $(9,312,547)
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
Depreciation and amortization   262,173    203,273 
Amortization of operating lease right-of-use assets   16,137    18,887 
Stock compensation expense   1,221,852    787,458 
Loss of disposal of fixed assets   7,324    —   
Amortization of debt discount   174,049    2,065,835 
Change in fair value of derivative liabilities - convertible notes   111,150    (727,942)
Change in fair value of derivative liabilities - convertible warrants   (4,131,002)   (66,456)
Change in fair value of derivative liabilities - downside protection   —      3,033,820 
Bad debt expense   —      10,981 
Increase in notes payable due to default   255,080    —   
Change in fair value of common stock payable   (123,230)   —   
Changes in operating assets and liabilities, net of effect of acquisitions:          
Accounts receivable   (19,057)   4,024 
Inventory   23,632    (98,184)
Accounts payable and accrued expenses   9,607,452    2,166,545 
Interest payable to foundation   238,759    199,685 
Loans from related parties   —      52,912 
Refundable advance   2,000,000    —   
Other current assets   (16,204)   (163,596)
Other current liabilities   25,423    (18,500)
Net cash used in operating activities   (1,335,538)   (1,843,805)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   —      (4,451)
Cash received in acquisition of a business; net of cash paid   —      49,305 
Net cash provided by investing activities   —      44,854 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Payment of notes payable   (60,000)   (935,731)
Proceeds from note payable   —      2,976,745 
Proceeds from issuance of common stock   356,710    —   
Proceeds from issuance of common stock and warrants in PIPE offering, net of fees of $150,000   1,850,000    —   
Proceeds from exercise of warrants   9,144    —   
Net cash provided by financing activities   2,155,854    2,041,014 
           
Effects of currency translation on cash and cash equivalents   (2,202)   (294)
           
Net increase in cash and cash equivalents   818,114    241,769 
           
Cash and cash equivalents, beginning of period   15,452    298,485 
Cash and cash equivalents, end of period  $833,566   $540,254 
Supplemental Disclosure of Cash Flow Information          
Cash paid for interest  $50,000   $25,000 
Cash paid for taxes  $—     $—   
           
Supplemental Disclosure of Non-Cash Investing and Financing Activities          
Reduction of derivative liabilities  $538,084   $1,911,487 
Discount on derivative liability upon issuance of debt  $—     $1,052,349 
Issuance of common stock for conversion of debt  $1,127,842   $1,694,851 
Recording of right of use asset and liability  $—     $116,440 
Increase common stock payable  $—     $14,500 
Issuance of shares--common stock payable  $1,472,826   $921,895 
Derivative liability in connection with issuance of warrants from PIPE offering  $21,574,216   $—   
Settlement of derivative liability from exercise of warrants  $1,840,530   $—   
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

  

 6 

 

 

  Generex Biotechnology Corporation and Subsidiaries

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

 

Note 1 – Organization of Business and Going Concern

Generex Biotechnology Corporation (“Generex”, “Company”, “GNBT”, "we", "us" or "our"), was formed in the State of Delaware on September 4, 1997 and its year-end is July 31. As of October 31, 2020, the active subsidiaries of the Company are Generex Pharmaceuticals, Inc.; 1097346 Ontario, Inc.; NuGenerex Immuno-Oncology, Inc.; Nugenerex Diagnostics, Inc.; Rapid Medical Diagnostics Corporation; GNBTELC, LLC; Olaregen Therapeutix, Inc.; Regentys Corporation; Nugenerex Management Services, Inc.; Nugenerex Distribution Solutions 2, LLC; DMEiq, LLC (d/b/a DME-IQ); Rapport Services, LLC; NMSIELC, LLC; High Desert Diagnostic Laboratory, Inc.; NuGenerex Distribution Solutions, LLC; Pantheon F & A, LLC; Nugenerex Surgical Holdings, LLC; NuGenerex Health, LLC; NuGenerex HMO, LLC; NuGenHealth, LLC; and NuGenerex MSO, LLC.

 

Generex is an integrated healthcare holding company with end-to-end solutions for patient centric care from rapid diagnosis through delivery of personalized therapies. In addition to advancing a legacy portfolio of immune-oncology assets, medical devices, and diagnostics, the Company is focused on an acquisition strategy of strategic businesses that complement existing assets and provide immediate sources of revenue and working capital.

 

On October 3, 2018, the Company entered into an Asset Purchase Agreement with Veneto Holdings, L.L.C. (“Veneto”) to purchase certain assets of Veneto and its subsidiaries to formulate Nugenerex Distribution Solutions 2, LLC (“NDS 2”). The Agreement bifurcated the closing. On October 3, 2018 (the “First Closing”), the Company purchased substantially all the operating assets of Veneto including (a) system of dispensing pharmacies, (b) one central adjudicating pharmacy, (c) a wholesale pharmaceutical purchasing company, and (d) an in-network laboratory. On November 1, 2018, the Company consummated the acquisition of the Second Closing Assets, consisting primarily of Veneto’s management services organization business and two additional ancillary services.

 

In March 2019, the Company changed its business model to no longer utilize the existing pharmacies. Going forward Veneto will conduct business exclusively through its management services organization (“MSO”) and by entering into more ancillary provider service agreements with third party pharmacies as an effort to reduce fixed costs and salaries. This was made practicable due to the decrease in overall script volume coupled with delays in the Company being able to receive operating licenses from various government agencies.

 

On January 7, 2019, the Company closed two separate Acquisition Agreements pursuant to which the Company acquired a 51% interest in both Regentys Corporation (“Regentys”) and Olaregen Therapeutix Inc. (“Olaregen”). Regentys is a regenerative medicine company focused on developing novel treatments for patients with gastrointestinal (GI) disorders. Olaregen is a New York based regenerative medicine company that is preparing to launch its proprietary, patented, wound conforming gel matrix, Excellagen, an FDA 510K cleared wound healing product. In the first quarter of 2020 the Company acquired increased its ownership of Olaregen to 77%. In the third quarter of 2020 the Company acquired the remaining interest in Olaregen in exchange for its shares of common stock and became a wholly owned subsidiary of the Company.

 

 7 

 

 

 

On August 1, 2019, the Company, through its wholly owned subsidiary NDS, closed on Asset Purchase Agreements (the “APAs”) for the purchase of substantially all the operating assets of MediSource Partners, LLC (“MediSource”) and Pantheon Medical - Foot & Ankle, LLC (“Pantheon”).

 

MediSource contracts with vendors (including Pantheon) for nationwide distribution of implants and devices for spine, hips, knees, foot, ankle, hand, and wrist surgeries. Additional product lines include biologics (blood, bone, tissue, and stem cells), durable medical equipment, and soft goods. MediSource also supplies kits to process bone marrow aspirates and platelet rich plasma biologics at the time of surgery.

 

Pantheon sells a physician friendly, “all-in-one,” integrated kit that includes plates, screws, and tools required for orthopedic surgeons and podiatrists conducting foot and ankle surgeries. Over the next three years, Pantheon expects to develop and submit several new product lines to the FDA, which will include cannulated surgical screws and surgical staples, as well as a proprietary Hammertoe System.

 

Since July 20, 2020, the termination of the Travis Brid consulting agreement and the COVID-19 pandemic have curtailed the operations of MediSource and Pantheon and as result, the goodwill and intangibles were fully impaired.

 

On August 25, 2020, Generex Biotechnology Corporation’s wholly owned subsidiary NuGenerex Health LLC, (“NuGenerex Health”), entered into a strategic joint venture with Worldwide Digitech, LLC (“WWDT”) by signing an Operating Agreement to form NuGenHealth LLC (“NuGenHealth”). Under the agreement profits shall be distributed equally; 50% to NuGenerex Health LLC and 50% to WWDT.

 

WWDT will provide the software powered by the HealthKOS framework and back-end support for the NuGenHealth SaaS system, while NuGenerex Health LLC shall be responsible for the day-to-day management and oversight of business operations along with operating capital totaling approximately $1,500,000.

 

On September 24, 2020, NuGenHealth, LLC, a subsidiary of Generex Biotechnology Corporation, signed a services agreement with Paradise Valley Family Medicine, P.C. an Arizona professional corporation (“PVFM”) to provide a software and services solution for patient engagement, Remote Patient Monitoring (RPM) and Chronic Care Management (CCM) services that are recommended and reimbursed by the Centers of Medicare and Medicaid Services (CMS).

 

Going Concern

 

The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern. The Company has experienced recurring net losses and negative cash flows from operations since inception and has an accumulated deficit of $464,643,597 and a working capital deficiency of $50,399,602 on October 31, 2020. The Company has funded its activities to date almost exclusively from debt and equity financings.

 

The Company will continue to require substantial funds to implement its new investment acquisition plans.  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 issuances of debt and convertible debt instruments. Management is also actively pursuing financial and strategic alternatives, including strategic investments and divestitures, industry collaboration activities and strategic partners.

 

The recent, widespread outbreak of a novel infectious disease called Coronavirus Disease 2019, or COVID-19, has created a dynamic and uncertain situation in the national economy. Regarding the Company, sales of Olaregen's Excellagen have been significantly impacted by the COVID-19 pandemic. Surgeries and outpatient procedures were delayed and rescheduled, severely limiting sales of wound care and surgical products. Going forward, as the VA and other hospital systems re-open, the re-scheduled surgeries and procedures are expected to start up and create a backlog of cases, which should accelerate product sales to pre-COVID levels in due course. 

 

 8 

 

 

As a result of the termination of the Travis Bird Consulting Agreement and the ongoing COVID-19 pandemic, the operations of Medisource and Pantheon have been significantly curtailed resulting in no sales for during the current quarter ending October 31, 2020 compared to $449,196 for the same period in the prior year with no expectation that such sales will resume in the near future.

 

Because of the COVID-19 pandemic Generex and its subsidiaries are currently pursuing the development of a SARS-CoV-2 vaccine using the company's patented Ii-Key peptide vaccine technology. To this end, the Company applied for funding to BARDA in the U.S., Health Canada, and the Malaysian Ministry of Health as well as with CEPI, the international public/private consortium focused on the development of vaccines for the global market. To date, Generex has identified viral epitopes through computer vaccinology algorithms, and manufactured those peptide sequences with the Ii-Key moiety for testing in immunological screening program using convalescent blood samples from patients who have recovered from COVID-19. The immunological blood screening program is in progress. Manufacturing partners have been identified and contracted for clinical and commercial supply. Completion of the Ii-Key-SARS-CoV-2 peptide vaccine program is being funded through a partnership with international partners, including Bintai Kinden.

 

The Company continues to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on its operations and financial condition. The scope of pandemic is unprecedented and its long-term impact on the Company’s operations and financial condition cannot be reasonably estimated at this time.

 

There is always uncertainty and risk associated with the development of any vaccine, medical treatment or therapy, but the continued development depends upon the completing the trials under various collaboration agreements and associated potential commercialization of the product, FDA approval and/or licensing agreements. Any collaborator with whom we may enter into such collaboration agreements may not support fully our research and commercial interests since our program may compete for time, attention and resources with such collaborator's internal programs. Therefore, these collaborators may not commit sufficient resources to our program to move it forward effectively, or that the program will advance as rapidly as it might if we had retained complete control of all research, development, regulatory and commercialization decisions. During the pandemic COVID-19, it is anticipated that delays will occur, but the full impact of any slow down due to COVID-19 has not been determined.

 

 9 

 

 

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the filing of this document. There are no assurances that such additional funding will be achieved and that the Company will succeed in its future operations. The unaudited condensed interim consolidated 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 as a going concern. The Company’s inability to obtain required funding in the near future or its inability to obtain funding on favorable terms will have a material adverse effect on its operations and strategic development plan for future growth. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition, and business prospects will be materially and adversely affected, and the Company may have to cease operations.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.

 

The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated.

 

Operating results for the three months ended October 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2021. The balance sheet on October 31, 2020 does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, these condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2020 as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

 

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Acquisition cost is measured as the aggregate of the fair value at the date of acquisition of the assets given, equity instruments issued, or liabilities incurred or assumed. Acquisition related costs are expensed as incurred (except for those costs arising on the issue of equity instruments which are recognized directly in equity). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value on the acquisition date. Goodwill is measured as the excess of the acquisition cost and the amount of any non-controlling interest, over the fair value of the identifiable net assets acquired.

 

Revenue Recognition

 

It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 “Revenue Recognition.” Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation.

 10 

 

 

Revenue from NGDx is recognized upon payment at the time the product(s) is released (shipment delivered using a common carrier), and the control is transferred which is simultaneous to when payment received and accepted.

Revenue from product sales of Olaregen’s Excellagen® is recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from coupons, discounts, chargebacks and distributor fees, processing fees, as well as allowances for returns and government rebates. Revenue from product sales of Pantheon medical surgical kits used in surgical procedures is recorded all revenue is recognized at a point in time, generally when title of the product and control is transferred to the client which occurs upon the completion of surgical procedure when the product utilized and the medical facility provides a final list of products consumed. The Company constrains revenue by considering factors that could otherwise lead to a probable reversal of revenue. Where appropriate, the Company utilizes the expected value method to determine the appropriate amount for estimates of variable consideration based on factors such as the Company’s historical experience, contractual arrangement and specific known market events and trends. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers.

Revenue from the provision of management services is recognized in accordance with the contractual terms of the relationship (item i); however, the current agreements in place typically specify that a percentage of the gross margin associated with the third-parties’ sales that the Company facilitates is to be remitted (iii), and as such, the revenue is considered earned upon completion of the third parties’ sales of such products (iv).

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   Three months ended October 31,
Revenue Source  2020  2019
Product sales  $88,435   $713,405 
Management services   —      8,256 
Total Revenue  $88,435   $721,661 

 

Provisions for estimated sales returns and uncollectible accounts are recorded in the period in which the related sales are recognized based on historical and anticipated rates.

Adoption of New Accounting Standards

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates Step 2 from the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has adopted the standard effective August 1, 2020. The adoption of this ASU had no material impact on its consolidated financial statements.

 

Recently Issued Accounting Standards

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material on the Company’s consolidated financial statements and financial statement disclosures.

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year.

 

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Note 3 - Commitments and Contingencies

 

Pending Litigation

 

The Company is a defendant in one legal proceeding relating to alleged breach of contract and claims against certain of the Company’s original buccal delivery patents. The Company is also a defendant in two legal proceedings brought by a former executive officer and her affiliate. These legal proceedings have been reported in the Company’s prior periodic reports. No activity has occurred in these cases in several years, and the Company now considers them dormant.

 

In December 2011, a vendor of the Company commenced an action against the Company and its subsidiary, Generex Pharmaceuticals, Inc., in the Ontario Superior Court of Justice claiming damages for unpaid invoices including interest in the amount of $429,000, in addition to costs and further interest. The Company responded to this statement of claim and also asserted a counterclaim in the proceeding for $200,000 arising from the vendor’s breach of contract and detinue, together with interest and costs. On November 16, 2012, the parties agreed to settle this action and the Company has agreed to pay the plaintiff $125,000, following the spinout of its subsidiary NGIO, from the proceeds of any public or private financing related to NGIO subsequent to such spinout. Each party agreed to execute mutual releases to the claim and counterclaim to be held in trust by each party’s counsel until payment of the settlement amount. Following payment to the plaintiff, the parties agree that a Consent Dismissal Order without costs will be filed with the court. If the Company fails to make the payment following completion of any post-spinout financing related to NGIO or any other subsidiaries, the Plaintiffs may take out a judgment in the amount of the claim plus interest of 3% per annum and costs fixed at $25,000 which has been accrued as of October 31, 2020.

 

On August 22, 2017, Generex received a letter from counsel for Three Brothers Trading LLC, d/b/a Alternative Execution Group (“AEXG”), claiming breach of a Memorandum of Understanding (“MOU”) between Generex and AEXG. The MOU related to AEXG referring potential financing candidate to Generex. The letter from AEXG counsel claimed that Generex’s acceptance of $3,000,000 in financing from Pharma Trials, LLC, in March 2017, violated the provisions of the MOU prohibiting Generex from seeking other financing, with certain exceptions, for a period of 60 days after execution of the MOU. AEXG has demanded at least $210,000 in cash and 84,000 warrants for Generex stock convertible at $2.50 per share, for attorney’s fees and costs.  AEXG filed a demand for arbitration and on September 25, 2018 an arbitration hearing was held with an arbitrator from the American Arbitration Association’s International Centre for Dispute Resolution. On December 3, 2018, an arbitrator awarded AEXG an aggregate of $315,695 in damages, costs and fees as well as warrants exercisable for 84,000 shares of Generex Common Stock at an exercise price of $2.50 per share.  AEXG filed a petition to confirm the arbitrator’s award in the United States District Court for the Southern District of New York. The petition includes a demand of $3,300,360 as the value of the warrants. The arbitrator did not award the specific amount of $3.5 million, but only liquidated damages in the amount of $210,000 and the value of 84,000 warrants “as of today” (the date of the award) plus attorney’s fees, certain costs, prejudgment and post-judgment interest (which continues to run on a daily basis) and arbitration fees. Generex has responded that the value of the warrants on the date of the award is $0 or some figure far less than the value calculated by AEXG. The petition to confirm the arbitrator’s award and Generex’s opposition were remanded by the Court to the arbitrator and returned for clarification. The arbitrator stated that he was unable to add any clarification, as he did not take evidence on the issue of warrant valuation. AEXG filed a petition and on April 24, 2020, the Court issued an Opinion and Order in the Litigation confirming the portions of the Arbitration Award regarding liquidated damages, pre-judgment interest, legal fees, and costs, but remanding to the Arbitrator for further proceedings the portion of the Arbitration Award relating to “the economic value today of 84,000 warrants convertible to Generex’s stock exercisable at $2.50 per share as of September 24, 2018” (the “Remanded Arbitration”). On September 18, 2020, the Court issued that AEXG recover from Generex the total sum of $384,771, which sum consists of $210,000 in liquidated damages, $93,304 in legal fees, $12,393 in arbitration fees, $3,313 in arbitration expenses, $65,762 in pre-judgment interest, and post-judgment interest at a rate established by 28 U.S.C § 1961 from September 18, 2020, until the judgment is satisfied (the “Partial Final Judgment”).  The parties settled and agreed to the terms of the Partial Final Judgment that included a payment schedule to which Generex has paid $200,000 in cash to date with the remaining balance being paid and retired in 30 days. The settlement terms do not apply, settle, or resolve in any manner the Remanded Arbitration or the issues pending therein, including, but not limited to, the economic value of the 84,000 warrants, Generex’s right to contest AEXG’s attorneys’ fees, or Generex’s right to contest the issue of who is the prevailing party for fees other than those fees awarded in the Arbitration Award. Generex continues to vigorously defend the open

matters. As of October 31, 2020, the Company has accrued approximately $450,000 related to this matter.

 

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On June 28, 2018, the Company was named in respect of a claim by Burrard Pharmaceutical Enterprises Ltd. and Moa’yeri Kayhan for unspecified damages and other remedies issued by the Supreme Court of British Columbia. The claim is made in connection with one advanced against Burrard and Kayhan by Middle East Pharmaceutical Factory L.L.C., a foreign corporation, for fraudulent or negligent misrepresentation. Middle East alleges that it was misled by Burrard and Kayhan into believing that Burrard had rights to distribute Generex product in the Middle East. Burrard and Kayhan allege that they did have rights in that regard, which the Company denies. The matter remains at the pleadings stage and the Company is investigating the facts.

 

On October 26, 2018, Generex entered into a securities purchase agreement with Alpha Capital Anstalt (“Alpha”) pursuant to which a note due on October 26, 2019 was called for repayment in the principal amount of $682,000.  On January 25, 2019, Generex received a letter from Alpha’s counsel stating that the note was in default because Generex’s common stock was not listed on NASDAQ within 90 days after the issuance of the note.  The letter demanded repayment in full. On February 12, 2019, Alpha filed a lawsuit in the Supreme Court of New York, demanding the aggregate principal amount, default interest and costs. Generex does not agree with Alpha’s legal demands and continues to defend the lawsuit.

 

 14 

 

 

On March 21, 2019 Compass Bank filed suit against NuGenerex Distributions Solutions 2, L.L.C. (“NDS”) in the District Court of Dallas County, Texas requesting damages of $3,413,000. This lawsuit is directly connected to assets that were supposed to be transferred to NDS from a third party, but never were transferred. Compass Bank had a lien on those certain assets that were supposed to be transferred into the ownership of NDS, a subsidiary of Generex. NDS and Generex shall continue to defend this legal matter. As of October 31, 2020, the Company has accrued $3,416,695 related to this matter.

 

In May 2019 Brooks Houghton threatened litigation by way of a FINRA Dispute Resolution. Brooks Houghton, who the managing representative is Mr. Centonfanti a prior board member, was under contract to perform due diligence on the Veneto transaction, as well as other unrelated items. The Veneto transaction closed three times, each time with a reduction in price due to material negative circumstances. Brook Houghton, who was under contract to perform due diligence, claims their fee should be paid on the initial closing price not the ultimate resolution of the matter. The company offered to compensate Brooks Houghton pursuant to agreement, 3% on the most recent closing price for Veneto for which Brooks Houghton may have performed some level of work on, payable in kind, and Brooks Houghton declined the offer. Brooks Houghton is claiming $450,000 for the first closing of Veneto, $714,000 for the second closing of Veneto, $882,353 for the Regentys acquisition, and $705,882 for Olaregen. The Company shall continue to defend this legal matter. As of October 31, 2020, the Company has accrued for the full $2,752,235 balance.

 

On September 9, 2019 Generex and its subsidiary NuGenerex Distribution Solutions, LLC, and NuGenerex Distributions Solutions 2, LLC (jointly “NDS”) filed a litigation against Veneto, and the constituent entities, for fraud, breach of contract, and a motion for a temporary restraining order restraining the shares contemplated in the Asset Purchase Agreement (“APA”) (supra) for hiding their involvement in a massive healthcare fraud scheme, which is currently being prosecuted civilly by the federal government and filing to transfer assets specified in the APA. . Our motion for a temporary restraining order on transfer of shares we issued in connection with the acquisition of Veneto assets was denied by the Court of Chancery. Generex has continued to pursue claims against Veneto and its principals in a separate arbitration. In a related action, our transfer agent for our common stock was sued for failure to process a transfer of the shares issued pursuant to the APA. This suit was brought in the United States District Court for the Eastern District of New York. Generex was not named in the suit, but our transfer agent notified us of our obligation to indemnify them pursuant to our agreement with the transfer agent. The action against the transfer agent was dismissed with prejudice and on consent on November 25, 2019.

 

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On December 2, 2019 the Company was named as a respondent in an arbitration brought by KSKZ Management, LLC before the American Arbitration Association in Texas.  The Claimant alleges that the Company breached a consulting agreement that purportedly obligated the Company to pay claimant a monthly consulting fee for three years.  Kevin Kuykendall is the manager and a member of Claimant. Claimant is seeking approximately $3,450,000 in unpaid consulting fees allegedly due.  The Company is vigorously defending itself and has filed counterclaims against Claimant. The Company believes that the likelihood of an unfavorable outcome is remote and as result has not accrued anything for this claim.

On February 18, 2020 the Company was named as a defendant in an action brought by Discover Growth Fund, LLC in the United States District Court for the District of Delaware. The plaintiff alleges that the Company breached a Purchase Agreement and Promissory Note and seeks $2,475,000 in damages. The plaintiff also filed a confession of judgment in support of its claim. On May 4, 2020 the District Court entered judgment against the Company in the amount of $2,200,000. Counsel for Generex and Discover have engaged in settlement discussions. In addition, on August 20, 2020 the Company was named as a defendant in an action brought by Discover Growth Fund, LLC in the Court of Chancery of the State of Delaware. The complaint alleges that the Company breached a Purchase Agreement, Promissory Note and Transfer Agent Instructions and seeks to compel the Company to honor notices of conversion from Discover Growth Fund, LLC and issue it shares pursuant to the Purchase Agreement and Promissory Note.  Discover has since dropped the Delaware case without prejudice. The Company has accrued approximately $2,500,000 as of October 31, 2020.

On May 6, 2020, the Company was named as a defendant in an action brought by Iliad Research and Trading LP in Salt Lake City, Utah. The plaintiff alleged that the Company breached a Securities Purchase Agreement and Convertible Promissory Note. Arbitration commenced on this matter on or about July 1, 2020 and was settled on July 31, 2020. In settlement of the matter (including any amounts outstanding under the Convertible Promissory Note), the Company has issued Iliad 3,499,415 shares of the Company’s common stock. The arbitration was dismissed on August 14, 2020. 

On October 2, 2020, the Company and its subsidiary, NuGenerex Distribution Solutions, LLC, was named as a defendant in an action brought by AVEM Medical, LLC, formerly known as Medisource Partners, LLC and Pantheon Medical – Foot & Ankle, LLC in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, Civil Division. The complaint alleges that the Company breached an Asset Purchase Agreement by issuing fewer shares to the seller than what the agreements contemplated.  AVEM claims entitlement to an additional $312,000 in Company stock, and Pantheon claims entitlement to an additional $576,800 in Company stock. The Company has filed a motion to dismiss the case for lack of subject matter jurisdiction, and it intends to vigorously defend the case wherever it is ultimately litigated. The Company intends to vigorously defend the case, and nothing is accrued at this time.

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.

 

Commitments

 

Intellectual Property

 

In connection with the Company’s acquisition of Olaregen, intellectual property was acquired that had a valuation of $650,000 prior to being acquired and revalued. This initial $650,000 valuation represented the initial payment remitted by Olaregen in accordance with the $4 million signed commitment agreement entered into with Activation Therapeutics, Inc. The remaining $3.35 million balance is to be paid in quarterly installments equal to 10% of quarterly net sales generated by Activation Therapeutics assuming the Exellagen average selling price per unit exceeds $800. In the event that the average selling price per unit is less than $800 per unit, cost of goods sold shall be excluded from the computation of net sales.

 

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Acquisitions

 

ALTuCELL

 

On November 22, 2019, the Company entered into a Stock Purchase Agreement (“SPA”) for the purchase of 51% of the outstanding capital stock of GH Care, Inc. DBA ALTuCELL, Inc.(“ALTuCELL”).

 

Under the SPA, in exchange for the ALTuCELL Stock, Generex will issue to ALTuCELL 2,240,000 shares of Generex common stock with an attributed value of $4 million to be issued at the market price of the day at closing, but no less than $0.89 per share. The Company will also pay $2.5 million in cash of which $212,000 has already been paid. In addition to stock and cash at closing, Generex has agreed to pay up to an aggregate of $3,500,000 to ALTuCELL upon ALTuCELL’s attainment of certain milestones.

On January 27, 2020, Generex and ALTuCELL executed an Amendment Agreement to the SPA (the “Amendment”). Under the Amendment, closing will occur within 30 days of the full execution of the Amendment, subject to the conditions to closing under the SPA. The parties agreed that Generex will pay the $2.5 million closing payment from certain specifically identified sources. If ALTuCELL chooses to cancel the transaction as a result of delays due to forces beyond the control of Generex, including government regulatory delays or extended reviews by regulators that delay approvals of corporate actions, or by natural disasters or other unforeseen events beyond the control of Generex, ALTuCELL, agrees to return all payments made by Generex. As of October 31, 2020, Generex has advanced $212,000 to ALTuCELL. As of the date of this filing, the acquisition did not close, however, both companies are negotiating the terms of the extension.

 

Olaregen

 

On November 24, 2019, the Company amended the Stock Purchase Agreement with Olaregen. The Company was obligated to pay in full $11,600,000 to Olaregen by November 30, 2019, in connection with the purchase of Olaregen capital stock (the “Olaregen Note”). Effective November 24, 2019, the deadline was extended to January 31, 2020. On February 14, 2020, the Company agreed to exchange 4,250,000 shares of Generex Common Stock and 1,065,000 shares of NGIO for the remaining outstanding shares of Olaregen with a waiver of any penalties and accrued interest on the outstanding Olaregen Note. As a result, Olaregen become wholly owned by the Company.

 

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Regentys

 

On November 25, 2019, the Company amended the Stock Purchase Agreement with Regentys originally on January 7, 2019. Effective November 25, 2019, the remaining three payments of $2,039,001, $2,000,000, and $3,000,000 were all payable on or before December 30, 2019. The Company is negotiating the terms of a new extension and there has been no demand for payment at this time.

 

MediSource – Pantheon

 

On August 1, 2019, the Company, through its wholly owned subsidiary NDS, closed on Asset Purchase Agreements (the “APAs”) for the purchase of substantially all the operating assets of MediSource and Pantheon which provided the Pantheon Earn-out and MediSource Earn-out based about the EDITDA achieved by Patheon and MediSource. Neither earn-out was achieved nor anticipated for the remainder of the earn-out period and therefore the liability for contingent consideration was relieved.

 

On July 20, 2020, Travis Bird terminated his consulting agreement with the Company and Travis Bird caused the operations of MediSource and Pantheon to curtail. As of this filing, no resolution and/or settlement has been reached and there is no guarantee that these operations will resume. This event has led to the full impairment of goodwill and intangibles of MediSource and Pantheon for the fiscal year ended July 31, 2020.

 

Agreements

 

Research and Development Agreements

 

On November 20, 2018, the Company entered into a clinical trial agreement with NSABP Foundation, Inc. (“NSABP”) under which NSABP will conduct clinical research using the Company’s AE37 peptide immunotherapeutic vaccine in combination with pembrolizumab (Ketruda®) for the treatment of metastatic triple negative breast cancer. The Company has agreed to pay NSABP an amount not to exceed $2,118,461 based on NSABP achieving various milestones.

 

The Company recognized $0 and $251,765 as research and development related to the clinical trial agreement with NSABP for the three-month periods ended October 31, 2020 and 2019, respectively.

 

On June 2, 2020, the Company entered into a Laboratory Services Agreement and Statement of Work Agreement with Cellular Technology Limited (“CTL”). The Agreement calls for CTL to provide certain laboratory testing and analysis. These services provided by CTL to Generex are part of the development of a potential vaccine for COVID-19 based upon NGIO Ii-Key vaccine technology. NGIO is a majority owned subsidiary of Generex. Generex/NGIO will own the intellectual property generated by CTL’s work.

 

Pursuant to this agreement, Generex will pay to CTL a fee for work plan completion an amount not to exceed $939,478. As of October 31, 2020, $562,063 is accrued under this agreement.

 

COVID-19 Collaboration Agreement

 

On October 5, 2020, the Company entered into a Distribution and Licensing Agreement (the “Agreement”) with Bintai Healthcare SDN BHD, a subsidiary of Bintai Kinden Corporation Berhad of Malaysia (“Bintai”) for the exclusive rights to distribute, sell, develop and commercialize the Generex Ii-Key-SARS-CoV-2 coronavirus vaccine (the “Vaccine”) in Malaysia and South East Asia countries, with right of first refusal to commercialize the Vaccine within New Zealand, Australia and the Global Halal markets (the “Territory”). The Agreement, among other things, consists of Bintai providing 100% funding for U.S. clinical development, manufacturing and commercial registration of the Vaccine for the Territory and paying Generex the following fees:

 

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a.$2,625,000 – Pre-Commercialization Stage Fees (inclusive for intellectual property rights, regulatory fees, and legal fees)
b.$10,000,000 – Commercialization Stage Fees

 

The Company has received $2,000,000 as refundable advance related to this distribution and licensing agreement for the three-month ended October 31, 2020. If the Company fails to secure FDA approvals within 6 months of execution of the agreement, or a reasonable time thereafter, the advance must be returned to Bintai.

 

On October 30, 2020, Generex Biotechnology Corporation and its majority owned subsidiary NuGenerex Immuno-Oncology, Inc., (collectively “Generex”) signed a Framework Agreement on Cooperative Development of Coronavirus Peptide Vaccine with Beijing Youfeng International Consulting Co., Ltd, Chinese Centre for Disease Control and Prevention National Institute for Viral Disease Control and Prevention (NIVDC) and Beijing Guoxin Haixiang Equity Investment Partnership (Limited Partnership) (collectively referred to as “China Partners”) to jointly develop and industrialize the Generex Ii-Key-SARS-CoV-2 coronavirus peptide vaccine (the “Vaccine”) in the People’s Republic of China (“China”). The agreement, among other things, consists of the China Partners providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex fees that shall be negotiated and agreed upon in subsequent agreements.

 

Employee Compensation and Settlement Agreements

 

During the three months ended October 31, 2020, the Company awarded executives and employees bonus compensation of $7,005,416 to be paid in approximately $1 million in cash and $6 million in stock. The cash portion is to be paid out before December 31, 2020 and the stock portion is expected to be issued by January 31, 2021.

 

Payable to Foundation

On February 1, 2007, the Company entered into a clinical study agreement with the Henry M. Jackson Foundation (the “Foundation” for the clinical research and development of AE37 for the treatment of breast cancer). The Company agreed to pay the foundation total compensation of $2,700,000 payable at various intervals over the term of the agreement.

 

On September 9, 2013, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with the Foundation, under which the Company n acknowledged that they were in arrears on its payment and interest obligations to the Foundation in the amount of $1,315,817. Pursuant to the Forbearance Agreement, the Company and the Foundation agreed that in exchange for deferring the overdue payments the Company would among other matters, pay the foundation (i) the final $200,000 upon completion of the study and acceptance of all study documents, (ii) a royalty of 5% of net third party sales and (iii) the original forbearance amount will continue to bear interest at 1.5% per month, compounded. The Foundation may terminate the Forbearance Agreement by providing the Company written notice should the Company, among other matters, fail to make payments due under the Forbearance Agreement. The foundation has not provided the study documents to the Company.

 

The Foundation has not notified the Company that it is in default of any of its obligations under the Forbearance agreement.

 

Effective August 1, 2015, the Company capitalized all outstanding unpaid interest on the outstanding balance. For the period ended October 31, 2020 and 2019, the Company recorded interest expense in the amount of $238,759 and $199,685, respectively, in the statements of operations. As of October 31, 2020 and July 31, 2020, the Company has recorded accrued interest of $4,149,900 and $3,911,141, respectively.

 

 19 

 

 

 

Note 4 – Inventory

 

Inventory consists of the following components:

   October 31,  July 31,
   2020  2020
Raw materials  $182,722   $182,722 
Finished goods   535,902    559,534 
Total Inventory  $718,624   $742,256 

 

Note 5 – Property and Equipment

 

Property and equipment, net consisted of the following:

   October 31,  July 31,
   2020  2020
Computers and technological assets  $50,205   $53,314 
Machinery and equipment   317,751    329,977 
Furniture and fixtures   18,725    18,725 
Leasehold Improvements   —      16,596 
    386,681    418,612 
Less accumulated depreciation   (211,168)   (204,944)
   $175,513   $213,668 

 

Depreciation expense related to property and equipment for the three months ended October 31, 2020 and 2019 was $30,831 and $48,847, respectively. Additionally, the Company disposed of $7,324 worth of fixed assets during the three months ended October 31, 2020.

 

Note 6 – Goodwill and Intangible Assets 

The goodwill was recognized as a result of the acquisitions of Veneto, Regentys and Olaregen in fiscal year 2019. Goodwill was $34,489,342 as of October 31, 2020 and July 31, 2020.

Intangible assets consist of the following at:

   Estimated  October 31,  July 31,
   Useful Lives  2020  2020
In-Process Research & Development     $6,302,427   $6,302,427 
Non-compete agreements  3 years   1,210,000    1,210,000 
Developed software/technology  5 years   131,000    131,000 
Intellectual Property  5 years   2,459,000    2,459,000 
Patents  20 years   51,274    51,274 
       10,153,701    10,153,701 
Less accumulated amortization      (1,019,517)   (788,175)
      $9,134,184   $9,365,526 

 

Intangible assets are amortized on a straight-line basis over the useful lives of the assets. The Company is currently not amortizing the in-process research and development until it becomes commercially viable and placed in service. At the time when the intangible assets are placed in service the Company will determine a useful life. As of October 31, 2020, the in-process research and development (“IPR&D”) of $6,302,427 in the aggregate was a combination of $2,911,377 obtained through the acquisition of HDS and $3,391,050 obtained through the acquisition of Regentys. None of the research and development of the underlying IPR&D have been abandoned, nor was it determined to be impaired by management as a result of COVID-19. On March 20, 2020, the Company was recently awarded a Blanket Purchase Agreement (BPA) contract from the National Strategic Acquisition Center (SAC). The VA’s National Contract and National BPA programs are used by VA medical centers, related facilities, specific State Veterans Homes, and other Federal facilities to procure select products based on clinical evidence, patient outcomes, and economic cost to the VA hospitals. The SAC awarded Olaregen’s Excellagen will expedite the purchasing of Excellagen at over 165 VA medical centers across the U.S. and Puerto Rico. This approval process was critical to the Company’s ability to determine that IPR&D associated with Olaregen, valued at $2,459,000, no longer has an indefinite life subject to amortization. The Company determined Olaregen’s IPR&D useful life to be 5 years.

 

Amortization expense amounted to $231,342 and $154,426 for the three months ended October 31, 2020 and 2019, respectively.

 20 

 

 

The estimated amortization expense remainder of the current fiscal year and for the next five years and thereafter is as follows:

 

Year Ending July 31,  Amount
For the nine months ended July 31, 2021  $692,555 
2022   654,190 
2023   520,564 
2024   500,914 
2025   458,202 
Thereafter   5,332 
 Total  $2,831,757 

  

Note 7 – Notes Payable 

 

On October 26, 2018, Generex entered into a Securities Purchase Agreement with an investor pursuant to which the Company sold its Note Due October 26, 2019 (“Note”) in the principal amount of $682,000The purchase price of the Note was $550,000 from which Generex was required to pay the $15,000 fee of the investor’s counsel. The remaining $147,000 of principal amount represents original issue discount. The Note does not bear any stated interest in addition to the original issue discount. On January 26, 2019, the note went into default and since that date has an effective interest rate is 24% per annum.

 

In May 2019, the Company consummated a Stock Purchase Agreement entered into January 14, 2019 to which the Company sold a $2,000,000 promissory note bearing interest at 7% per annum originally due and payable on August 1, 2019. The notes remain active and interest has continued to accrue while new terms of the note are in process of being negotiated.

In August 2019, the Company borrowed $1,000,000 from an investor, bearing 10% interest per annum, with an original issue discount of $150,000. This note is due in one year from the date of issuance.

In August 2019, the Company entered into Securities Purchase Agreements to which the Company sold convertible note, bearing 10% interest per annum, in the principal amount of $1,100,000. The purchase price was $1,000,000 and the remaining 100,000 of principal amount represents original issue discount. Subject to certain ownership limitations, the Notes will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price determined as follows: 80% of the lowest trading price of the common stock on the ten days prior to conversion. The embedded beneficial conversion feature in these Notes meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $521,383 and was recorded as a discount of the Notes. In August 2020, this note was fully converted into common stock leaving no balance as of October 31, 2020.

In December 2019, the Company entered into Securities Purchase Agreements with an investor pursuant to which the Company sold a convertible note bearing interest of 12% per annum in the principal amount of $2,200,000 and due in 18 months. The purchase price of the note was $2,000,000 and the remaining $200,000 of principal amount represents original issue discount. Subject to certain ownership limitations, the note is convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price of 95% of the lowest stock five trading days prior to conversion less. During the 2020 fiscal year, the Company defaulted on the note for not filing the S-1 within a required period. Thereafter the interest increased to 22% per annum and the conversion price decreased to 85% of the lowest stock five trading days prior to conversion. The embedded beneficial conversion feature in the note meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $111,508 and was recorded as a discount of the note. On February 18, 2020, the investor has filed suit and the Company is evaluating the claim and has had a preliminary settlement discussion with the plaintiff.  

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In November 2019, the Company entered into Securities Purchase Agreements pursuant to which the Company sold convertible notes bearing 10% interest per annum (the “Notes”) in the aggregate principal amount of $203,333. The purchase price of the note was $183,333 and the remaining $20,000 of principal amount represents original issue discount. Subject to certain ownership limitations, the Notes are convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price of 80% of the lowest 20 days prior to conversion. The embedded beneficial conversion feature of these notes meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $161,325 and was recorded as a discount of the notes.

On February 10, 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company sold a convertible note bearing interest at 12% per year in the principal amount of $305,000 and issued 35,000 shares of common stock. The purchase price of the note was $270,000 and the remaining $35,000 of principal amount represents $30,000 of original issue discount and $5,000 of closing costs. Subject to certain ownership limitations, the note is convertible at the option of the holder at any time into shares of our common stock at an effective conversion price equal to 80% of the lowest closing price as of the date of the notice. The embedded beneficial conversion feature of these note meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $131,703 and was recorded as a discount of the note. During the three months ended October 31, 2020, the entire note was converted into common stock.

 

On February 19, 2020, a lender made a formal demand for repayment of a note payable due on August 29, 2020 because they claim Company failed to comply with all terms of the note. On April 8, 2020, the Company signed a forbearance agreement with the lender to remove the major default penalty but increase the annual interest rate to 22%. The balance of the note was amended to $956,535 in cash which includes principal in the amount of $772,500 and approximately $184,035 of accrued interest and penalties. On July 31, 2020, a settlement was reached where the Company agreed to issue 3,499,415 shares of common stock for $1,459,676 which included $772,500 of principal and $687,176 of interest and penalties. On July 30, 2020, the note was settled to be paid in Company common stock and on August 11, 2020, the shares were issued.

As of October 31, 2020, there were two notes in default with an aggregate principal balance of $2,882,000.  The notes are accruing at default rates of interest of 22% and 24% per annum.

 

On February 28, 2020, the Company entered into a series of Securities Purchase Agreements with three investors pursuant to which the Company agreed to sell and sold convertible notes bearing interest at 9.5% per year in the aggregate principal amount of $281,600. The purchase price of the notes in the aggregate was $250,000 and the remaining $31,600 of principal amount represents original issue discount. Subject to certain ownership limitations, the notes will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price equal 80% of the lowest closing price for the ten trading days prior to the day of the notice. The embedded beneficial conversion feature of these notes meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $128,219 and was recorded as a discount of the notes.

 

On April 9, 2020, the Company issued a note to a lender for $50,000 due in year with an interest rate of 10% per annum. The funds were paid directly to one of the Company’s vendors. On May 4, 2020, the Company issued a promissory note with a purchase price of $100,000 to the same investor that matures in one year and has a stated interest rate of 10% per annum. Additionally, the Company agreed to issue 20,000 shares of restricted common stock and 20,000 stock options with an exercise price of $0.43 which was due upon execution of the note. On October 9, 2020, the Company paid $60,000 toward these notes leaving a balance of $90,000 as of October 31, 2020.

 

In April 2020, Regentys, Olaregen, NDS 2 and MediSource (collectively “the Subsidiaries”) were granted loans (the “PPP Loans”) in the aggregate amount of $499,473, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Subsidiaries to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Subsidiaries having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria.

 

 22 

 

 

The PPP Loans, which were in the form of a notes with dates ranging between April 17 and April 24, 2020 and mature between two and five years and bear interest at a rate of 1.00% per annum, payable in monthly payments commencing six months after loan disbursements. The notes may be prepaid by the Subsidiaries at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs and any payments of certain covered interest, lease and utility payments. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. No assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

 

On June 25, 2020, the Company entered into a Securities Purchase Agreements pursuant to which the Company sold a convertible note bearing interest at 12% per year in the principal amount of $150,000. The purchase price of the note was $145,000 and the remaining $5,000 of principal represents original issue discount. Subject to certain ownership limitations, the notes will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price equal 80% of the lowest closing price for the ten trading days prior to the day of the notice. The embedded beneficial conversion feature of these Notes meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $59,985 and was recorded as a discount of the note. During September 2020 and October 2020, the entire note was converted into common stock.

   Amount
Balance of notes payable on July 31, 2020  $11,166,359 
Increase in debt due to default   255,080 
Amortization of debt discount   174,049 
Conversions   (1,077,086)
Payments   (60,000)
Balance of notes payable on October 31, 2020  $10,458,402 

 

   As of October 31, 2020  As of July 31, 2020
Notes payable  $10,709,655   $11,591,661 
Less: debt discount   (251,253)   (425,302)
Total debt, net of discount   10,458,402    11,166,359 
Notes payable, net - noncurrent   499,839    499,656 
Notes payable, net - current  $9,958,563   $10,666,703 

 

On December 28, 2017, the Company through its then wholly owned subsidiary NuGenerex Distribution Solutions, LLC (“NuGenerex”), completed the acquisition of the assets and 100% of the membership interests of two pre-operational pharmacies, Empire State Pharmacy, LLC (“Empire Pharmacy”) and Grainland Pharmacy, LLC (“Grainland Pharmacy”), pursuant to the bills of sale for a consideration of $320,000 Promissory Note due and payable in full on June 28, 2018 bearing an annual interest rate of 3%. The note was extended by six months and set to mature with the same terms on December 28, 2018. The note remains active and interest has continued to accrue while new terms of the note are in process of being negotiated. Empire Pharmacy is not currently operating, and Grainland Pharmacy has been dissolved.

 

Pursuant to the second closing of the acquisition of certain operating assets of Veneto Holdings, L.L.C. and its affiliates, Generex’s wholly owned subsidiary agreed to assume outstanding debt of Veneto subsidiaries to Compass Bank, including obligations under a term loan and a revolving line of credit. Claiming three separate types of default, Compass Bank has demanded payment in full of amounts due under the term loan and revolving line of credit, in an aggregate amount of approximately $3,413,000. Generex believes it has defenses to such demand, including that the bank was not an intended beneficiary of the subsidiary’s agreement to assume the debt.

 

 23 

 

 

Pursuant to its acquisition of Regentys, the Company inherited convertible notes with several investors which collectively held a principal plus of $615,000 as of the date of acquisition. As of October 31, 2020, the remaining principal balance was $349,656 with an unamortized debt discount balance of $16,824. These notes have an accrued interest balance of $95,885 as of October 31, 2020.

  

Note 8 – Derivative Liability 

 

The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debentures and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.

 

Based on the various convertible notes described in Note 7, and the sale of common stock in a private investment in public equity (“PIPE”) described in Note 9, the fair value of applicable derivative liabilities on notes, warrants and change in fair value of derivative liability are as follows as of October 31, 2020:

 

    Derivative Liability - Convertible Notes   Derivative Liability - Warrants   Total
Balance as of July 31, 2020   $ 742,391     $ 574,366     $ 1,316,757  
Additions during the period     —         21,574,216       21,574,216  
Change in fair value     111,150       (4,131,002 )     (4,019,852 )
Change due to conversion / exercise     (538,084 )     (1,840,530 )     (2,378,614 )
Balance as of October 31, 2020   $ 315,457     $ 16,177,050     $ 16,492,507  

 

Note 9 - Stockholders’ Equity

 

Common Stock

 

Stock compensation expense

 

During the three months ended October 31, 2020, the Company recognized $1,210,859 of expense related to the vesting of stock options. In October 2020, the Company issued 51,130 shares of common stock to vendors for services valued at $0.215 per share, or $10,993.

 

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Sale of common stock 

 

On November 25, 2019, the Company entered an Equity Purchase Agreement with Oasis Capital, LLC (“Oasis”) to purchase up to $40,000,000 of the Company’s stock at 92% of the market price for the period of five (5) consecutive trading days immediately subject to a put notice on such date on which the Purchase Price is calculated in accordance with the terms and conditions of the agreement (subject to certain limitations) from time to time over a 36-month period. During September 2020 and October 2020, Oasis purchased 2,100,000 shares of common stock in three tranches for an aggregate price of $356,710.

 

Issuance of common stock in a PIPE deal, net of fees and exercise of warrants

 

On August 4, 2020, the Company and three institutional accredited investors (each a “Buyer” and, collectively, the “Buyers”) entered into a securities purchase agreement pursuant to which the Company sold and issued to the Buyers an aggregate of 5,102,040 shares of the Company’s common stock, par value $0.001 per share, and received net proceeds of $1,850,000 after deducting commissions and attorney’s fees of $150,000.

 

Pursuant to the Securities Purchase Agreement, the Company issued to the Buyers (i) Series A Warrants to purchase 5,102,040 shares of Common Stock in the aggregate (the “Series A Warrants”) with an initial exercise price equal to $0.392 per share (the “Series A/B Exercise Price”), (ii) Series B Warrants to purchase 15,306,122 shares of Common Stock in the aggregate (the “Series B Warrants”) with an initial exercise price equal to the Series A/B Exercise Price; (iii) Series C Warrants to purchase the number of shares of Common Stock equal to Maximum Eligibility Number (as defined therein) (the “Series C Warrants”) at an initial exercise price equal to $0.539 per share; and (iv) Series D Warrants to purchase the number of shares Common Stock equal to the Maximum Eligibility Number (as defined therein) (the “Series D Warrants” and together with the Series A Warrants, the Series B Warrants and the Series C Warrants, the “Warrants” and the Warrants together with the Common Shares and the shares of Common Stock underlying the Warrants, the “Securities”) at an exercise price equal to $0.001 per share, in each case, subject to adjustment and beneficial ownership limitations set forth therein. Subject to the satisfaction or waiver of certain conditions set forth in the Series A Warrants, the Company may force the Buyers to exercise the Series A Warrants in full on the twenty second (22nd) trading day (the “Forced Exercise Date”) after the effectiveness of the Company’s registration statement that registers all of the Common Shares and shares underlying the Warrants. The exercise price set forth in each of the Series A Warrants, the Series B Warrants and Series C Warrants is subject to adjustment on certain trigger dates as provided in each such Warrant. The holders of the Series A Warrants, Series B Warrants and Series C Warrants shall be allowed a cashless exercise if a registration statement registering the Securities is not effective within 180 days following the issuance of such Warrants. On certain interim reset dates (“Interim Reset Date(s)” and second trigger dates (“Second Trigger Date(s)”) as set forth in the Series D Warrants, the Series D Warrants will become exercisable into a number of shares of Common Stock that would have been issued on the issuance date and upon exercise of the Series A Warrants and Series B Warrants had the purchase price per share and exercise price of the Series A Warrants and Series B Warrants been equal to the applicable reset price as set forth in the Series D Warrant; or the right to use the applicable exercise price, or adjustment right (as the case may be) calculated using the Black-Scholes Option Pricing Model pursuant to the Securities Purchase Agreement. The Buyers have the potential right to have these Warrants settled in cash equal to the Black Scholes value of any remaining unexercised warrant. 

 

As a result, of an Interim Reset Date on September 28, 2020, and Second Trigger Date on October 12, 2020, the additional warrants were issued and the exercise price adjusted as follows: (i) 5,112,463 additional Series A Warrants were issued to purchase 10,214,503 in the aggregate shares of Common Stock with a “reset” exercise price equal to $0.1958 per share (the “Series A/B Reset Exercise Price”), (ii) 15,337,389 additional Series B Warrants to purchase 30,643,509 shares of Common Stock in the aggregate with a reset exercise price equal to the Series A/B Exercise Price; (iii) 9,142,973 additional Series C Warrants to purchase the number of shares of Common Stock to purchase 19,347,053 shares of Common Stock in the aggregate at a reset exercise price equal to $0.28149 per share; and (iv) the Buyers exercised 9,142,973 Series D Warrants and purchased 9,142,973 shares of Common Stock at $0.001 per share (See Note 12 – Warrants).

 

Deemed dividend related to issuance of warrants containing derivative liabilities

 

As a result of the excess warrant liability recorded relative to the total proceeds received in connection with the Securities Purchase Agreement (see Note 8), this led to a full discount ascribed to the common stock. Accordingly, the Company then immediately recorded a deemed dividend of $1,850,000 to accrete the common stock to the value received in this transaction by increasing Additional Paid-in Capital and reducing accumulated deficit by $1,850,000. As a result of the excess warrant liability for the warrants granted relative to total proceeds received in connection with pursuant to the Securities Purchase Agreement (see Note 8) it was determined to be immediately beneficial upon initial closing date and, as a result, the Company recorded a deemed dividend of $1,850,000 increasing Additional Paid-in Capital and reducing the Accumulated Deficit by $1,850,000.

 

Issuance of common stock payable

 

During the three months ended October 31, 2020 and 2019, 3,529,415 and 296,793 shares of common stock payable were issued to settle outstanding obligations, valued at $1,472,826 and $921,895, respectively. As of October 31, 2020 and July 31, 2020, the value of the remaining shares to be issued was $8,483,393 and $10,079,449, respectively.

   Common Stock Payable
Balance as of July 31, 2020  $10,079,449 
Issuance of common stock payable   (1,472,826)
Change in fair value of common stock payable   (123,230)
Balance as of October 31, 2020  $8,483,393 

 

Conversion of debt to equity

 

During the three months ended October 31, 2020 and 2019, the Company issued 5,860,255 and 1,164,190 shares of common stock for the conversion of $1,127,842 and $1,736,837 of debt, respectively. As a result of the debt conversions during the three months ended October 31, 2020 and 2019, $538,084 and $1,911,487 of derivative liabilities were reduced, respectively.

 

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Issuance of common stock for acquisitions

 

In August 2019, the Company issued 400,000 and 560,000 shares of common stock valued at $2.50 per share for the acquisition of MediSource and Pantheon, respectively.

Cancellation of shares

 

On September 12, 2019, 20,375,900 outstanding shares of common stock were cancelled by the Company held by Joe Moscato TTEE Friends of Generex Biotechnology Investment Trust U/A/D 4/2/2019, a trust formed for the benefit the Company and any 80% controlled subsidiary of the Company by several shareholders contributing in the aggregate 33,175,900 shares of the Company’s Common Stock and 8,293,975 shares of  NGIO commons shares (the “Friends of Generex Trust”), similar to the Stock Control Agreement previously entered into by the same shareholders on December 1, 2018 filed in an 8-K filed on December 3, 2019, incorporated herein by reference.

  

Non-controlling Interest

 

Regentys

 

Pursuant to the Company’s acquisition of Regentys on January 7, 2019 to acquire a 51% interest, the Company was issued 12,048,161 shares of Regentys common stock. As of January 31, 2020, Regentys had a total of 18,623,278 shares of common stock and 2,793,192 Series A voting preferred stock for a total of 21,416,470 total voting shares outstanding. As such, there are 9,368,309 of shares that belong to non-controlling interest shareholders which represents a 43.74% non-controlling interest. 

 

Olaregen

 

Pursuant to the Company’s acquisition of Olaregen on January 7, 2019 to acquire a 51% interest, the Company was issued 3,282,632 shares of Olaregen common stock from Olaregen shareholders. In May 2019, the Company issued 4,000,000 shares of common stock contributed and provided by the Friends of Generex Trust and a $2 million note payable for the acquisition of 592,683 shares of Series A Preferred Stock of Olaregen pursuant to a Stock Purchase Agreement entered into January 14, 2019 subject to the approval of the Board of Directors of Olaregen and consummated on May 10, 2019. The provided shares by the Friends of Generex Trust were already issued and outstanding and did not result in any expense of the Company. Since these shares were transferred, to the shareholders of Olaregen, by an existing shareholder to settle an obligation of the Company, the value of the shares provided by the Friends of the Generex Trust to settle the debt was reflected in the financial statements as an addition to contributed (paid-in) capital.

 

On February 14, 2020, the remaining stockholders of Olaregen exchanged all of its outstanding shares for 5,950,000 shares of Generex common stock and 2,765,000 shares of NGIO. After this transaction Olaregen became a 100% owned subsidiary.

 

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Veneto

 

On November 1, 2018, the Company completed its second closing of Veneto Holdings, L.L.C. (“Veneto”) which granted the Company Rapport Services, LLC (“Rapport”) through the ownership of the units of Class B membership interests providing control of Rapport as only the Class B Member is entitled to elect the nominees to the Board of Managers, which constitute a one percent (1%) ownership in Rapport. The remaining interests represent a 99% non-controlling interest. 

 

NuGenerex Immuno-Oncology, Inc.

 

On July 14, 2020, NGIO entered into a purchase agreement with an investor Oasis Capital, LLC (“Oasis”) pursuant to which Oasis has agreed to purchase from the Company up to $50,000,000 of common stock at 92% of the market price for the period of five (5) consecutive trading days immediately subject to a put notice on such date on which the purchase price is calculated in accordance with the terms and conditions of the agreement (subject to certain limitations) from time to time over a 36-month period. NGIO also issued to Oasis 300,000 shares of its common stock under the Oasis Capital Agreement as a commitment fee in connection with a registration statement. This transfer has been accounted through common stock and additional paid in capital which has no net effect on equity.

 

As of October 31, 2020, 400,300,000 shares of NGIO are issued and outstanding of which 36,296,849 shares belong to non-controlling interest shareholders which represents a 9.07% non-controlling interest. 

 

Note 10 – Redeemable Non-Controlling Interest

 

Pursuant to the Company’s acquisition of 51% of the outstanding capital stock of Regentys, Regentys had authorized 7,500,000 shares of redeemable Series A Convertible Preferred Stock (“Preferred Stock A”), with a par value of $0.0001 and redemption value of $0.65 per share of which 2,793,192 Preferred Stock A was outstanding as of the date of acquisition and as of January 31, 2020. Preferred Stock may be converted into common stock at the initial conversion ratio of 1:1 which ratio shall be adjusted in accordance with stock dividends, splits, combinations and other similar events, including the sale of additional shares of common or preferred stock and the holders of Preferred Stock A are entitled to vote, together with the holders of Regentys common stock, on all matters submitted to stockholders of Regentys for a vote. At any time after November 1, 2026, the holders of the Company’s Series A Preferred Stock will have the right to require the Company to redeem all or a portion of their shares for cash at a redemption price equal to its liquidation value. Accordingly, this Preferred Stock A was valued to be $4,073,898 at the time of acquisition of Regentys and reclassified as Redeemable Non-Controlling Interest outside of stockholders’ deficit on the consolidated balance sheets. 

 

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Note 11 - Stock-Based Compensation

 

Stock Option Plans

 

The Company has two stockholder-approved stock incentive plans under which shares and options exercisable, with a range of vesting between 0 and 48 months, for shares of common stock have been or may be granted to employees, directors, consultants and advisors. All remaining options under the 2006 Stock Plan have expired and no shares of common stock are reserved for issuance under the 2006 Stock Plan as amended (the 2006 Plan) and a total of 240,000,000 shares of common stock reserved for issuance under the 2017 Stock Option Plan (the 2017 Plan). As of October 31, 2020, there were 0 and 229,077,640 shares available under the 2006 Plan and 2017 Plan, respectively. The Company issues new shares of common stock from the shares reserved under the respective Plans upon conversion or exercise of options and issuance of restricted shares.

 

During 2019, the Company established a Direct Stock Purchase Plan (“2019 Plan”) pursuant to which eligible participants may acquire shares of common stock in lieu of certain cash obligations otherwise owed to participants during the 2019 calendar year. The 2019 Plan automatically terminated on December 31, 2019. There was a total of 1,680,000 shares of common stock reserved under the plan of which no shares have been issued.

The 2017 Plan (the Plan) is 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 Plan. Generally, the interpretation and construction of any provision of the Plan 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 or the value of the services provided, whichever is more readily determinable. The Black-Scholes option pricing model 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.

During August and September 2020, the Company granted 6,222,210 stock options to buy common stock, at $0.45 per share and $0.31 per share, to various officers, board members, employees and consultants.

The following is a summary of the common stock options granted, forfeited or expired and exercised under the Plan:

   Options  Weighted Average Exercise Price per Share  Weighted Average Remaining Life (Years)  Aggregate Intrinsic Value
Outstanding - July 31, 2020   8,847,025   $0.90    5.96   $508,932 
Granted   6,222,210   $0.35    9.84    —   
Forfeited or expired   (2,146,875)  $0.82    6.75    —   
Exercised   —      —      —      —   
Outstanding – October 31, 2020   12,922,360   $0.65    7.52   $130,315 

 

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The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on October 31, 2020. The market value was $0.208 based on the closing bid price for October 31, 2020.

A summary of the status of the Company’s non-vested stock options the three months ended October 31, 2020 is as follows:

 

Non-vested Options  Options  Weighted Average Grant Date Fair Value
Non-vested on July 31, 2020   4,082,767   $1.06 
Granted   6,222,210    0.35 
Expired   —      —   
Canceled   (366,667)   0.79 
Vested   (2,459,053)   0.59 
Non-vested on October 31, 2020   7,479,257   $0.64 

 

There were 5,443,103 vested common stock options under the Plan as of October 31, 2020. The compensation expense was $1,211,007 for the three months ended October 31, 2020. The Company had $3,936,129 of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan on October 31, 2020 to be recognized over an average of 2.09 years.

The Company estimated the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models requires the Company to make predictive assumptions regarding future stock price volatility, recipient exercise behavior, and dividend yield. The Company estimated the future stock price volatility using the historical volatility over the expected term of the option. The following assumptions were used in the Black-Scholes option-pricing model:

    October 31, 2020
Exercise price     $0.31 – $0.45  
Time to expiration     10 years  
Risk-free interest rate     0.16% - 0.18 %
Estimated volatility     148.3% - 148.8 %
Expected dividend     —    
Stock price at valuation date     $0.31 – $0.45  

 

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Note 12 - Warrants

 

As of July 31, 2020, the Company had 567,553 warrants outstanding. On August 4, 2020, the Company initially issued 30,612,240 warrants in the aggregate pursuant to the Private Placement (see Note 9 - Stockholders’ Equity, Sale of common stock in a private placement (PIPE), net of fees and exercise of warrants); and 29,592,825 additional warrants as a result, of an Interim Reset Date on September 28, 2020, and Second Trigger Date on October 12, 2020, and the additional warrants were issued, and the exercise price was adjusted.

 

The following is a table of warrants issued in connection with the PIPE deal during the three months ended October 31, 2020:

 

    Initial Exercise Price   Initial Warrants Issued   Additional Warrants Issued   Reset Exercise Price   Outstanding Warrants as of October 31, 2020
Series A Warrants   $ 0.392       5,102,040       5,112,463     $ 0.196       10,214,503  
Series B Warrants   $ 0.392       15,306,120       15,337,389     $ 0.196       30,643,509  
Series C Warrants   $ 0.539       10,204,080       9,142,973     $ 0.281       19,347,053  
Total Warrants from PIPE deal             30,612,240       29,592,825               60,205,065  

 

On September 28, 2020, the Interim Reset Date, 5,662,190 Series D Warrants were issued and exercised at $0.001 per share; and on October 12, 2020, the Second Trigger Date on October 12, 2020, 3,480,783 Series D Warrants were issued and exercised at $0.001 per share, for an aggregate of 9,142,973 warrants issued and exercised.

 

A summary of the Company’s warrant activities is as follows:

 

    Number of Warrants   Weighted Average Exercise Price per Share   Weighted Average Remaining Life (Years)   Aggregate Intrinsic Value
Outstanding - July 31, 2020     567,553     $ 2.50       2.20     $ —    
Issued     69,348,038       0.19       5       7,546,985  
Exercised     (9,142,973 )     0.001       5       1,892,595  
Expired     —         —         —         —    
Outstanding – October 31, 2020     60,772,618     $ 0.24       4.99     $ 5,654,389  

  

Note 13 - Net Income Per Share (“EPS”)

 

Basic net income or loss per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per common share is the same as basic earnings per common share because, as the Company incurred a net loss during each period presented, the potentially dilutive securities from the assumed exercise of all outstanding stock options, warrants and conversion notes payables, would have an anti-dilutive effect.

 

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common shareholders because including them would have been anti-dilutive for the years ended October 31, 2020 and 2019, respectively.

   Three Months Ended October 31,
   2020  2019
Convertible debt   16,867,885    5,061,647 
Stock options   12,922,360    9,339,195 
Warrants   60,772,618    21,567,553 
Total   90,562,863    35,968,395 

 

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Note 14 – Income Taxes 

 

The Company has incurred losses since inception, which have generated net operating loss (“NOL”) carryforwards. The NOL carryforwards arise from both United States and Canadian sources. Pre-tax loss arising from domestic operations (United States) were $10,982,942 and $34,291,142 for the three months ended October 31, 2020 and the year ended July 31, 20120, respectively. Pre-tax (losses)/income arising from foreign operations (Canada) were ($6,134) and $59,049 for the three months ended October 31, 2020 and the year ended July 31, 2020, respectively.

 

As of October 31, 2020, the Company has NOL carryforwards in Generex Biotechnology Corporation of approximately $219.7 million, of which $189.5 million will expire in 2021 through 2038, and $30.3 million will not expire. Generex Pharmaceuticals Inc. has NOL carryforwards of approximately $34.4 million, which expire in 2026 through 2041. NGIO has NOL carryforwards of approximately $35.7 million which will expire in 2021 through 2038. Regentys Corporation has NOL carryforwards of approximately $6.6 million, of which $5.0 million will expire in 2033 through 2038 and $1.6 million will not expire. Olaregen Therapeutics, Inc. has NOL carryforwards of $4.1 million which will not expire. Veneto has NOL carryforwards of $10.6 million which will not expire. Some of these loss carryforwards are subject to limitation due to the acquisition of Regentys, Olaregen and NGIO and may be limited in future years due to certain structural ownership changes which have occurred over the last several years related to the Company’s equity and convertible debenture financing transactions.

 

As of October 31, 2020, the Company had no tax benefits which have not been fully allowed for, and no adjustment to its financial position, results of operations or cash flows was required. The Company has deferred tax assets of over $73 million with a full allowance equal to the to the amount of the deferred tax asset. The Company does not expect that unrecognized tax benefits will increase within the next twelve months.

 

The Company records interest and penalties related to tax matters within other expense on the accompanying consolidated statement of operations. These amounts are not material to the consolidated financial statements for the years presented. Generally, tax years 2017 to 2020 remain open to examination by the Internal Revenue Agency or other tax jurisdictions to which the Company is subject. The Company’s Canadian tax returns are subject to examination by federal and provincial taxing authorities in Canada. Generally, tax years 2012 to 2020 remain open to examination by the Canada Revenue Agency or other tax jurisdictions to which the Company is subject.

 

On March 27, 2020, the CARES Act was enacted and signed into law in the U.S. in response to the COVID-19 pandemic. One of the provisions of this law is the temporary suspension of the 80% limitation on the utilization of net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021. Additionally, the CARES Act allows The Company to carryback net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to the five previous periods if the company has taxable income in the carryback years. Neither of these modifications are expected to apply to the Company due to the sustained history of losses.

   

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Note 15 - Subsequent Events

 

The Company has evaluated subsequent events occurring after the balance sheet date through the date the unaudited condensed interim consolidated financial statements were issued.

On November 9, 2020 and November 18, 2020, the Company exercised put options pursuant to an Equity Purchase Agreement with Oasis for an aggregate of 1,750,000 shares of Generex common stock for $306,939 of net proceeds.

 

On November 13, 2020, Generex Biotechnology Corporation and its majority owned subsidiary NuGenerex Immuno-Oncology, Inc., (collectively “Generex”) signed The Ii-Key Innovative Vaccine Development Agreement (the “Agreement”) with Beijing Youfeng International Consulting Co., Ltd (“BYIC”), National Institute for Viral Disease Control and Prevention, Chinese Centre for Disease Control and Prevention (“NIVDC”) and Beijing Guoxin Haixiang Equity Investment Partnership (“BGHEIP” and together with BYIC and NIVDC, the “China Partners”) to set up a joint research team and a joint entity in China (the “Joint Entity”) that shall jointly develop and industrialize the Generex internationally patented Ii-Key innovative technology for a SARS-CoV-2 coronavirus peptide vaccine (the “Vaccine”) and other vaccines in the People’s Republic of China (“China”) and for Generex to provide the Joint Entity with an exclusive license to use its intellectual property; technical know-how, pre-clinical and clinical data and background materials, in each case, relating to Ii-Key-SARS-CoV-2 technology in the People’s Republic of China, including Hong Kong Special Administrative Region and Macau Special Administrative Region, but excluding the Islands of Taiwan (the “Licensed Territory”). The Agreement, among other things, consists of the Joint Entity providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex licensing and royalty fees as follows:

 

  1. Licensing Fee: $5,000,000 upfront fee due upon the execution of the Agreement; and then upon a successfully approved Vaccine, and an additional $20,000,000 from the net profits from the Joint Entity.

 

  2. Royalty Fee: Once the Vaccine comes on to market for the first commercial sale, then the Joint Entity shall:

 

  a. Offer Generex 20% of the equity interests in the Joint Entity; or

 

  b. Cash payments to Generex in a price equal to $2 per dose for the COVID-19 vaccine.

 

The Joint Entity shall have the perpetual sole and exclusive license to use the Generex technology within Licensed Territory. Generex shall negotiate separately with the Joint Entity with respect to the sale of such technology in other countries outside the Licensed Territory.

 

On November 13, 2020, Generex Biotechnology Corporation and its majority owned subsidiary NuGenerex Immuno-Oncology, Inc., (collectively “Generex”) signed The Ii-Key Innovative Flu Vaccine Development Agreement (the “Agreement”) with Beijing Youfeng International Consulting Co., Ltd, National Institute for Viral Disease Control and Prevention, Chinese Centre for Disease Control and Prevention (NIVDC) and Beijing Guoxin Haixiang Equity Investment Partnership (Limited Partnership) (collectively referred to as “China Partners”) to set up a joint entity in China (the “Joint Entity”) that shall jointly develop and industrialize the Generex internationally patented Ii-Key innovative technology for a Flu peptide vaccine and other vaccines (the “Vaccine”) in the People’s Republic of China (“China”). The Agreement, among other things, consists of the Joint Entity providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex a licensing fee of US$2,500,000 (minus expenses estimated at US$500,000) upon successful development of the flu vaccine and receipt of approval from NMPA for the product launch.

 

The Joint Entity shall have the perpetual sole and exclusive license to use the Generex technology within licensed territory and the licensed area.

 

On November 17, 2020, Generex signed statement of work (SOW) #2 with CTL to conduct FDA requested laboratory testing and analysis for a contracted amount of $82,780.

 

On November 19, 2020 Generex signed a work order with Polypeptide Laboratories to manufacture GMP grade Ii-Key vaccines for the COVID-19 vaccine program for a contracted amount of $273,000.

 

On November 25, 2020 Generex signed a work order with Covance to conduct preclinical animal immunogenicity studies for the Ii-Key COVID-19 vaccine program. The cost of the project is projected at $130,135. 

 

On December 7, 2020, Generex signed a contract with Patheon, by Thermo Fisher Scientific, to provide manufacturing and fill/finish services for the clinical supply of aseptically filled Ii-Key-SARS COV2 Vaccine Sterile Liquid Vials (the “Product”) for a Phase I/II study. The cost of the project, specifications for which are still in development, are expected to be in the range of $1,127,000 and $1,530,000.

 

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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-month period ended October 31, 2020 and 2019.

 

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, 2020, and the information contained in Part I, Item 1 - Financial Statements in this Quarterly Report on Form 10-Q for the three months ended October 31, 2020.

 

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, 2020 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 are based on currently available operating, financial and competitive information. These statements can be identified by introductory words such as “may,” "expects," “anticipates,” "plans," "intends," "believes," "will," "estimates" 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:

 

  the risks associated with international operations; (including pandemics and public health problems, such as the outbreak of novel coronavirus (“COVID-19”);
  our expectations concerning product candidates for our technologies;
 •   our expectations concerning funding of obligations related to potential acquisitions and generally completing acquisitions;
 •   our expectations concerning existing or potential development and license agreements for third-party collaborations, acquisitions and joint ventures;
 •   our expectations concerning product candidates for our technologies;
 •   our expectations regarding the cost of raw materials and labor, consumer preferences, the effect of government regulations on the Company’s business, the Company’s ability to compete in its industry, as well as future economic and other conditions both generally and in the Company’s specific geographic markets;
 •   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 in development may commence and when actual revenue from the product sales may be received.

 

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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 decline in our stock price; and
 •   our current lack of financing for operations and our ability to obtain the necessary financing to fund our operations and effect our strategic development plan.

 

Additional factors that could affect future results of our historical business are set forth in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended July 31, 2020. 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.

 

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Executive Summary

 

Overview of Business

 

Corporate History

Generex Biotechnology Corporation (the “Company,” “Generex,” “we,” “us” or “our”) is based in Miramar, Florida, with offices in Toronto, Canada and Wellesley, Massachusetts. The Company was originally incorporated in the state of Delaware on September 4, 1997, for the purpose of acquiring Generex Pharmaceuticals Inc., a Canadian (Province of Ontario) corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and development and other activities. The Company’s acquisition of Generex Pharmaceuticals Inc. was completed in October 1997 in a transaction in which the holders of all outstanding shares of Generex Pharmaceuticals Inc. exchanged their shares for shares of Generex common stock.

 

In January 1998, Generex participated in a “reverse acquisition” with Green Mt. P.S., Inc, (“Green Mt.”), an inactive Idaho corporation formed in 1983. As a result of this transaction, the shareholders of Generex (the former shareholders of Generex Pharmaceuticals Inc.) acquired a majority (approximately 90%) of the outstanding capital stock of Green Mt., and Generex became a wholly-owned subsidiary of Green Mt.; Green Mt. changed its corporate name to Generex Biotechnology Corporation ("Generex Idaho"), and Generex changed its corporate name to GBC - Delaware, Inc. Because the reverse acquisition resulted in GBC - Delaware, Inc. shareholders (formally Generex shareholders) becoming the majority holders of Generex Idaho, GBC Delaware, Inc. was treated as the acquiring corporation in the transaction for accounting purposes. Thus, our, GBC - Delaware, Inc. (formally Generex), historical financial statements, which essentially represented the historical financial statements of Generex Pharmaceuticals Inc., were deemed to be the historical financial statements of Generex Idaho.

 

In April 1999, we completed a reorganization in which GBC - Delaware, Inc. merged with Generex Idaho. In this transaction, all outstanding shares of Generex Idaho were converted into shares of GBC - Delaware, Inc.; Generex Idaho ceased to exist as a separate entity, and we, GBC - Delaware, Inc., changed our corporate name back to "Generex Biotechnology Corporation." This reorganization did not result in any material change in our historical financial statements or current financial reporting.

 

Following our reorganization in 1999, Generex Pharmaceuticals Inc., which was incorporated in Ontario, Canada, remained as our wholly owned subsidiary. All of our Canadian operations are performed by Generex Pharmaceuticals Inc.; Generex Pharmaceuticals Inc. is the 100% owner of 1097346 Ontario Inc., which was also incorporated in Ontario, Canada. In August 2003, we acquired NuGenerex Immuno-Oncology, Inc. (formerly Antigen Express, Inc.) (“NGIO”), a Delaware incorporated company. Antigen is engaged in the research and development of technologies and immunomedicines for the treatment of malignant, infectious, autoimmune and allergic diseases. On February 28, 2019 Generex issued a dividend of NGIO to Generex shareholders in the amount of 1 share of Antigen for every 4 shares of Generex common stock. Generex still maintains majority control of NGIO.

 

We formed Generex (Bermuda), Inc., which is organized in Bermuda, in January 2001 in connection with a joint venture with Elan International Services, Ltd., a wholly-owned subsidiary of Elan Corporation, plc, (“Elan”) to pursue the application of certain of our and Elan's drug delivery technologies, including our platform technology for the buccal delivery of pharmaceutical products. In December 2004, we and Elan agreed to terminate the joint venture. Under the termination agreement, we retained all of our intellectual property rights and obtained full ownership of Generex (Bermuda), Inc.; Generex (Bermuda), Inc. does not currently conduct any business activities. We have additional subsidiaries incorporated in the U.S. and Canada which are dormant and do not carry on any business activities.

 

On January 18, 2017, we acquired a majority of the equity interests in Hema Diagnostic Systems, LLC (“HDS”). In December 2018, we acquired the remaining interest in HDS. The company, now a wholly owned subsidiary of Generex, has been renamed NuGenerex Diagnostics, LLC (NGDx), and is managed by President Harold Haines, PhD.

 

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On October 3, 2018, our wholly owned subsidiary, NuGenerex Distribution Solutions, LLC (“NuGenerex”), entered into an asset purchase agreement (the “Veneto Asset Purchase Agreement”) with Veneto Holdings, L.L.C. (“Veneto”), pursuant to which NuGenerex purchased certain assets of Veneto and its subsidiaries (the “Assets”). The Veneto Asset Purchase Agreement contains provisions regarding payment terms, confidentiality and indemnification, as well as other customary provisions. 

 

Effective October 3, 2018, NuGenerex assigned the Veneto Asset Purchase Agreement to NuGenerex Distribution Solutions 2, LLC.  The sole member of NuGenerex Distribution Solutions 2, LLC is NuGenerex Management Services, Inc., a wholly owned subsidiary of Generex Biotechnology Corporation.

 

Also, on October 3, 2018, we acquired certain assets from Veneto (the “First Closing Assets”), primarily consisting of the operating assets of (a) system dispensing pharmacies, (b) a central adjudicating pharmacy, (c) a wholesale pharmaceutical purchasing company, and (d) an in-network laboratory. 

 

On November 1, 2018, we consummated the acquisition of Veneto assets (the “Second Closing Assets”), consisting primarily of Veneto’s management services organization business and other assets. The aggregate price for the First Closing Assets and the Second Closing Assets was $30,000,000. We issued a promissory note in the principal amount of $35,000,000 (the “New Note”) consisting of the $30,000,000 purchase price and a $5,000,000 original issue discount, as the sole consideration payable on the Second Closing Date. On January 15, 2019, the parties entered into an amendment to the Asset Purchase Agreement (the “Amendment”) restructuring payment of the New Note.

 

 On March 28, 2019, the Company entered into an amendment, a “Restructuring Agreement” with Veneto and the equity owners of Veneto to restructure the payment of the New Note that provided, in lieu of any cash payments, the Company delivered on May 23, 2019 11,760,000 shares of our common stock; plus an aggregate 5,500,000 shares of the common stock of our subsidiary, Antigen. The Veneto assets acquired by Generex included management services operations, systems, facilities, and other services.

 

On January 7, 2019, we acquired a majority interest in Regentys Corporation (“Regentys”) for an aggregate of $15,000,000, among which $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note with a fair value of $14,342,414 for a total net purchase price of $14,742,414. The total fair value of the assets acquired totaled $907,883 and goodwill of $13,834,581. Installments payable under the note were tied to specific business development objectives and dates. As of October 31, 2020, an additional $237,100 was paid for a total of $1,405,365 against the note. Regentys is developing a non-surgical treatment for inflammatory bowel diseases such as ulcerative colitis and Crohn’s disease.

 

On January 7, 2019, we acquired a majority interest in Olaregen Therapeutix Inc. (“Olaregen”) for an aggregate of $12,000,000, among which $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note with a fair value of $11,472,334 for a total net purchase price of $11,872,663. The total fair value of the assets acquired totaled $2,461,439 and goodwill of $9,411,224. As of October 31, 2020, an additional $5,800 was paid for a total of $1,422,600 of principal payments in addition to the $400,000 initial payment. Olaregen is launching an FDA-510(k) cleared wound care product.

 

On May 10, 2019, we acquired from a third party the outstanding Series A Preferred Stock in Olaregen in exchange for 4 million shares of the Company’s common stock, plus the issuance of a $2 million promissory note increasing our interest in Olaregen to approximately 62% of Olaregen’s outstanding voting shares, and an additional 900,000 shares. On August 16, 2019 further increased our interest in Olaregen to approximately 76% and on February 14, 2020 acquired the remaining interests in Olaregen and Generex owns 100% of the outstanding shares of Olaregen.

 

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On August 1, 2019, as amended on October 10, 2019, the Company, through its wholly owned subsidiary NDS, closed on Asset Purchase Agreements (the “APAs”) for the purchase of substantially all the operating assets of MediSource Partners, LLC (“MediSource”) and Pantheon Medical – Foot & Ankle, LLC (“Pantheon”). Pantheon Medical is a manufacturer of orthopedic foot & ankle surgery kits that offer physician friendly “all-in-one,” integrated surgical kits that include plates, screws, and tools required for orthopedic surgeons and podiatrists conducting foot and ankle surgeries. Generex will issue 400,000 shares of common stock in exchange for the Pantheon assets, and 560,000 shares of common stock in exchange for the MediSource assets, plus additional amounts paid as an earn-out based upon Pantheon and Medisource exceeding specified EBIDTA earnings. At closing, the Company also entered into an 18-month consulting agreement with NDS (the “Travis Bird Consulting Agreement”). As compensation, Travis Bird was to receive $250,000 of Generex common stock, as well as monthly payments equaling $97,222. The monthly payments were to be paid from any available cash from the operations of Pantheon and MediSource. Any remaining balance of such monthly payments was to consist of common stock. The agreement specified the shares are to be freely tradeable. In addition, Travis Bird will agree to fully assign and exchange any ownership rights in any new technology he develops with the Company, in exchange for a payment of $500,000 in value of common stock for each completed item submitted to the FDA.

 

On July 20, 2020, Travis Bird terminated the Consulting Agreement and Travis Bird is no longer entitled to commissions from future net sales. In total, Travis earned $1,404,915 under this agreement and has been paid $773,366, leaving a balance of $631,549 as of October 31, 2020. As a result, the operations have been curtailed and goodwill and intangibles were fully impaired.

 

On August 16, 2019, the Company entered into a Share Exchange Agreement to purchase an additional 900,000 shares of common stock in Olaregen from other shareholders of Olaregen in exchange for 1,905,912 shares of Generex common stock and 476,478 shares of NGIO common stock which increased our interest in Olaregen to approximately 77% of the Olaregen’s outstanding voting shares. In September 2019, the Company converted all of the Series A Preferred Stock of Olaregen into common stock of Olaregen.

 

On February 14, 2020, Olaregen exchanged all of its outstanding shares for 5,950,000 shares of Generex common stock and 2,765,000 shares of NGIO. After this transaction, Generex owns 100% of the outstanding shares of Olaregen.

 

On August 25, 2020, Generex Biotechnology Corporation’s wholly owned subsidiary NuGenerex Health LLC, (“NuGenerex Health”), entered into a strategic joint venture with Worldwide Digitech, LLC (“WWDT”) by signing an Operating Agreement to form NuGenHealth LLC (“NuGenHealth”). Under the agreement profits shall be distributed equally; 50% to NuGenerex Health LLC and 50% to WWDT.

 

WWDT will provide the software powered by the HealthKOS framework and back-end support for the NuGenHealth SaaS system, while NuGenerex Health LLC shall be responsible for the day-to-day management and oversight of business operations along with operating capital totaling approximately $1,500,000.

 

On September 24, 2020, NuGenHealth, LLC, a subsidiary of Generex Biotechnology Corporation, signed a services agreement with Paradise Valley Family Medicine, P.C. an Arizona professional corporation (“PVFM”) to provide a software and services solution for patient engagement, Remote Patient Monitoring (RPM) and Chronic Care Management (CCM) services that are recommended and reimbursed by the Centers of Medicare and Medicaid Services (CMS).

 

On October 5, 2020, the Company and its parent Generex Biotechnology Corporation, (collectively “Generex”) entered into a Distribution and Licensing Agreement with Bintai Healthcare SDN BHD, a subsidiary of Bintai Kinden Corporation Berhad of Malaysia (“Bintai”) for the exclusive rights to distribute, sell, develop and commercialize the Generex Ii-Key-SARS-CoV-2 coronavirus vaccine (the “Vaccine”) in Malaysia and South East Asia countries, with right of first refusal to commercialize the Vaccine within New Zealand, Australia and the Global Halal markets (the “Territory”). The agreement, among other things, consists of Bintai providing 100% funding for U.S. clinical development, manufacturing and commercial registration of the Vaccine for the Territory.

 

On October 30, 2020, Generex Biotechnology Corporation and its majority owned subsidiary NuGenerex Immuno-Oncology, Inc., (collectively “Generex”) signed a Framework Agreement on Cooperative Development of Coronavirus Peptide Vaccine with Beijing Youfeng International Consulting Co., Ltd, Chinese Centre for Disease Control and Prevention National Institute for Viral Disease Control and Prevention (NIVDC) and Beijing Guoxin Haixiang Equity Investment Partnership (Limited Partnership) (collectively referred to as “China Partners”) to jointly develop and industrialize the Generex Ii-Key-SARS-CoV-2 coronavirus peptide vaccine (the “Vaccine”) in the People’s Republic of China (“China”). The agreement, among other things, consists of the China Partners providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex fees that shall be negotiated and agreed upon in subsequent agreements.

 

On November 13, 2020, Generex Biotechnology Corporation and its majority owned subsidiary NuGenerex Immuno-Oncology, Inc., (collectively “Generex”) signed The Ii-Key Innovative Vaccine Development Agreement (the “Agreement”) with Beijing Youfeng International Consulting Co., Ltd (“BYIC”), National Institute for Viral Disease Control and Prevention, Chinese Centre for Disease Control and Prevention (“NIVDC”) and Beijing Guoxin Haixiang Equity Investment Partnership (“BGHEIP” and together with BYIC and NIVDC, the “China Partners”) to set up a joint research team and a joint entity in China (the “Joint Entity”) that shall jointly develop and industrialize the Generex internationally patented Ii-Key innovative technology for a SARS-CoV-2 coronavirus peptide vaccine (the “Vaccine”) and other vaccines in the People’s Republic of China (“China”) and for Generex to provide the Joint Entity with an exclusive license to use its intellectual property; technical know-how, pre-clinical and clinical data and background materials, in each case, relating to Ii-Key-SARS-CoV-2 technology in the People’s Republic of China, including Hong Kong Special Administrative Region and Macau Special Administrative Region, but excluding the Islands of Taiwan (the “Licensed Territory”). The Agreement, among other things, consists of the Joint Entity providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex licensing and royalty fees as follows:

 

  1. Licensing Fee: $5,000,000 upfront fee due upon the execution of the Agreement; and then upon a successfully approved Vaccine, and an additional $20,000,000 from the net profits from the Joint Entity.

 

  2. Royalty Fee: Once the Vaccine comes on to market for the first commercial sale, then the Joint Entity shall:

 

  a. Offer Generex 20% of the equity interests in the Joint Entity; or

 

  b. Cash payments to Generex in a price equal to $2 per dose for the COVID-19 vaccine.

 

The Joint Entity shall have the perpetual sole and exclusive license to use the Generex technology within Licensed Territory. Generex shall negotiate separately with the Joint Entity with respect to the sale of such technology in other countries outside the Licensed Territory.

 

On November 13, 2020, Generex Biotechnology Corporation and its majority owned subsidiary NuGenerex Immuno-Oncology, Inc., (collectively “Generex”) signed The Ii-Key Innovative Flu Vaccine Development Agreement (the “Agreement”) with Beijing Youfeng International Consulting Co., Ltd, National Institute for Viral Disease Control and Prevention, Chinese Centre for Disease Control and Prevention (NIVDC) and Beijing Guoxin Haixiang Equity Investment Partnership (Limited Partnership) (collectively referred to as “China Partners”) to set up a joint entity in China (the “Joint Entity”) that shall jointly develop and industrialize the Generex internationally patented Ii-Key innovative technology for a Flu peptide vaccine and other vaccines (the “Vaccine”) in the People’s Republic of China (“China”). The Agreement, among other things, consists of the Joint Entity providing 100% funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and paying Generex a licensing fee of US$2,500,000 (minus expenses estimated at US$500,000) upon successful development of the flu vaccine and receipt of approval from NMPA for the product launch.

 

The Joint Entity shall have the perpetual sole and exclusive license to use the Generex technology within licensed territory and the licensed area.

 

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Historical Business

Historically, we have been a research and development company focused on the commercialization of Oral-lyn buccal insulin spray for diabetes. Additionally, through our wholly owned subsidiary NGIO, we have a deep intellectual property portfolio of immunotherapy assets relating to the “Ii-Key” technology that activates the immune response for the treatment of cancer and infectious diseases. We completed a Phase IIb clinical trial of AE37 immunotherapeutic peptide vaccine with the Ii-Key technology in over 300 women with breast cancer on November 15, 2019.

 

In 2017, we acquired HDS (now NuGenerex Diagnostics) and their diagnostic product portfolio of rapid point-of-care EXPRESS test kits and cassettes for infectious disease testing.

  

Treatment of Legacy Assets

Generex and its subsidiary companies have extensive patent portfolios, with intellectual property for composition of matter, formulation, design, and use in a number of therapeutic areas, across multiple indications. As described, we plan to build our legacy assets with the ultimate goal to spin-out such assets at the appropriate time, which have been incorporated into NuGenerex subsidiary companies in an effort to unlock the potential unrealized value of the intellectual property and commercial opportunities for these development companies in major markets for immuno-oncology, diabetes, and infectious disease testing:

 

  NuGenerex Therapeutics: Oral-lyn (Buccal Insulin) and RapidMist Buccal delivery technology
 •   NuGenerex Immuno-Oncology: Phase II AE37 + Keytruda in TNBC; Antigen Express (Ii-Key), Licensing, Partnerships, investor dividend paid (1:4) for spin-out
 •   NuGenerex Diagnostics: NGDx Express II rapid diagnostic tests for infectious disease.

We believe that these legacy diagnostics, diabetes and cancer assets are may have significant value which is not being recognized due to missteps in the clinical development process by previous management, resulting inability to raise capital necessary to fund further development. We think the products and IP portfolio retain significant value. A recently signed co-development deal with a major pharmaceutical company for AE37 in triple negative breast cancer, and a licensing deal in China for AE37 in prostate cancer illustrate the potential for AE37 immunotherapeutic vaccine. Additionally, Oral-lyn has been reformulated to enter clinical trials for Type II diabetes. The HDS EXPRESS diagnostic technology has been expanded with the new, patent pending EXPRESS II technology and a new product pipeline. We filled our first international commercial order for 40,000 units of its NGDx -Malaria PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company, and were recently granted a CE Mark Certification under the European Medical Devices Directive (MDD) for its The Express II Syphilis Treponemal Assay, a rapid point-of-care diagnostic assay for the detection of syphilis antibodies in primary and secondary syphilis. As part of the reorganization plan, we placed our legacy assets into separate subsidiaries under the NuGenerex family of companies, including NuGenerex Diagnostics, NGIO, and NuGenerex Therapeutics (Oral-Lyn and RapidMist buccal delivery technology). Our strategy is to reignite the Oral-Lyn development program with a reformulated buccal insulin spray, and to build out the diagnostics business, as detailed in the following paragraphs, however there are no assurances that we will be able to accomplish our strategic objectives.

 

NuGenerex Therapeutics

NuGenerex Therapeutics houses the legacy diabetes assets, Oral-Lyn and RapidMist buccal delivery technology. We believe that our buccal delivery technology is a platform technology that has application to many large molecule drugs and designed to provide a convenient, non-invasive, accurate and cost-effective way to administer such drugs.

 

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Buccal Delivery Technology and Products 

Our buccal delivery technology involves the preparation of proprietary formulations in which an active pharmaceutical agent is placed in a solution with a combination of absorption enhancers and other excipients classified “generally recognized as safe” ("GRAS") by the U.S. Food and Drug Administration (“FDA”) when used in accordance with specified quantities and other limitations. The resulting formulations are aerosolized with a pharmaceutical grade chemical propellant and are administered to patients using our proprietary RapidMist™ brand metered dose inhaler. The device is a small, lightweight, hand-held, easy-to-use aerosol applicator comprised of a container for the formulation, a metered dose valve, an actuator and dust cap. Using the device, patients self-administer the formulations by spraying them into the mouth. The device contains multiple applications, the number being dependent, among other things, on the concentration of the formulation. Absorption of the pharmaceutical agent occurs in the buccal cavity, principally through the inner cheek walls. In clinical studies of our flagship oral insulin product Generex Oral-lyn™, insulin absorption in the buccal cavity has been shown to be efficacious and safe.

  

Buccal Insulin Product – Generex Oral-Lyn™ 

Insulin is a hormone that is naturally secreted by the pancreas to regulate the level of glucose, a type of sugar, in the bloodstream. The term “diabetes” refers to a group of disorders that are characterized by the inability of the body to properly regulate blood glucose levels. When glucose is abundant, it is converted into fat and stored for use when food is not available. When glucose is not available from food, these facts are broken down into free fatty acids that stimulate glucose production. Insulin acts by stimulating the use of glucose as fuel and by inhibiting the production of glucose. In a healthy individual, a balance is maintained between insulin secretion and glucose metabolism.

 

According to the Centers for Disease Control (CDC), there are two major types of diabetes. Type 1 diabetes (juvenile onset diabetes or insulin dependent diabetes) refers to the condition where the pancreas produces little or no insulin. Type 1 diabetes accounts for 5-10 percent of diabetes cases (CDC). It often occurs in children and young adults. Type 1 diabetics must take daily insulin injections, typically three to five times per day, to regulate blood glucose levels. Generex Oral-lyn™ provides a needle-free means of delivering insulin for these patients.

 

According to the American Diabetes Association, in Type 2 diabetes (adult onset or non-insulin dependent diabetes mellitus), the body does not produce enough insulin, or cannot properly use the insulin produced. Type 2 diabetes is the most common form of the disease and accounts for 90-95 percent of diabetes cases, according to the American Diabetes Association. In addition to insulin therapy, Type 2 diabetics may take oral drugs that stimulate the production of insulin by the pancreas or that help the body to more effectively use insulin. Generex Oral-lyn™ provides a simple means of delivering needed insulin to this major cohort of individuals.

 

Studies in diabetes have identified a condition closely related to and preceding diabetes, called impaired glucose tolerance (IGT). People with IGT do not usually meet the criteria for the diagnosis of diabetes mellitus. They have normal fasting glucose levels but two hours after a meal their blood glucose level is far above normal. With the increase use of glucose tolerance tests the number of people diagnosed with this pre-diabetic condition is expanding exponentially. Per the 2017 Diabetes Atlas Update, published by the International Diabetes Federation (IDF), approximately 40 million people in the United States and more than 425 million people world-wide suffer from IGT. Generex Oral-lyn™ is an ideal solution to providing meal-time insulin to the millions of IGT sufferers. This therapeutic area is currently being investigated.

 

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There is no known cure for diabetes. The IDF estimates that there are currently approximately 382 million diabetics worldwide per their 2017 Diabetes Atlas Update and is expected to affect over 592 million people by the year 2035. There are estimated to be over 37 million people suffering from diabetes in North America alone and diabetes is the second largest cause of death by disease in North America.

 

A substantial number of large molecule drugs (i.e., drugs composed of molecules with a high molecular weight and fairly complex and large spatial orientation) have been approved for sale in the United States or are presently undergoing clinical trials as part of the process to obtain such approval, including various proteins, peptides, monoclonal antibodies, hormones and vaccines. Unlike small molecule drugs, which generally can be administered by various methods, large molecule drugs historically have been administered predominately by injection. The principal reasons for this have been the vulnerability of large molecule drugs to digestion and the relatively large size of the molecule itself, which makes absorption into the blood stream through the skin inefficient or ineffective. The RapidMist technology provides a recognized and proven drug delivery system for the delivery of large molecules directly into the blood stream with the attendant advantages.

   

Oral-lyn History

In May 2005, we received approval from the Ecuadorian Ministry of Public Health for the commercial marketing and sale of Generex Oral-lyn™ for treatment of Type 1 and Type 2 diabetes. We have successfully completed the delivery and installation of a turnkey Generex Oral-lyn™ production operation at the facilities of PharmaBrand in Quito, Ecuador. The first commercial production run of Generex Oral-lyn™ in Ecuador was completed in May 2006. While Ecuador production capability may be sufficient to meet the needs of South America, it is believed to be insufficient for worldwide production for future commercial sales and clinical trials.

 

On the basis of the test results in Ecuador and other pre-clinical data, we made an Investigational New Drug (“IND”) submission to Health Canada (Canada's equivalent to the FDA) in July 1998, and received permission from the Canadian regulators to proceed with clinical trials in September 1998. We filed an IND application with the FDA in October 1998 and received FDA approval to proceed with human trials in November 1998.

 

We began our clinical trial programs in Canada and the United States in January 1999. Between January 1999 and September 2000, we conducted clinical trials of our insulin formulation involving approximately 200 subjects with Type 1 and Type 2 diabetes and healthy volunteers. The study protocols in most trials involved administration of two different doses of our insulin formulation following either a liquid Sustacal meal or a standard meal challenge. The objective of these studies was to evaluate our insulin formulation's efficacy in controlling post-prandial (meal related) glucose levels. These trials demonstrated that our insulin formulation controlled post-prandial hyperglycemia in a manner comparable to injected insulin. In April 2003, a Phase II-B clinical trial protocol was approved in Canada. In September 2006, a Clinical Trial Application relating to our Generex Oral-lyn™ protocol for late-stage trials was approved by Health Canada. The FDA’s review period for the protocol lapsed without objection in July 2007.

 

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In late April 2008, we initiated Phase III clinical trials in North America for Generex Oral-lyn™ with the first subject screening in Texas. Other clinical sites participating in the study were located in the United States (Texas, Maryland, Minnesota and California), Canada (Alberta), European Union (Romania, Poland and Bulgaria), Eastern Europe (Russia and Ukraine),) and Ecuador. Approximately 450 subjects were enrolled in the program at approximately 70 clinical sites around the world. The Phase III protocol called for a six-month trial with a six-month follow-up with the primary objective to compare the efficacy of Generex Oral-lyn™ and the RapidMist™ Diabetes Management System with that of standard regular injectable human insulin therapy as measured by HbA1c, in patients with Type-1 diabetes mellitus. 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. We do not currently plan to expend significant resources on additional clinical trials of Oral-lyn™ until after such time that we secure additional financing. However, we have undertaken a formulation enhancement project with the University Health Network at the University of Toronto and the University of Guelph, Ontario to increase the amount of insulin reaching the blood stream. We believe that the preliminary results from an animal study are encouraging.

 

In the past, we engaged a global clinical research organization to provide many study related site services, including initiation, communication with sites, project management and documentation; a global central lab service company to arrange for the logistics of kits and blood samples shipment and testing; an Internet-based clinical electronic data management company to assist us with global data entry, project management and data storage/processing of the Phase III clinical trial and regulatory processes. In the past, we have contracted with third-party manufacturers to produce sufficient quantities of the RapidMist™ components, the insulin, and the raw material excipients required for the production of clinical trial batches of Generex Oral-lyn™.

 

Future Plans

We have reformulated the original Oral-Lyn buccal insulin as a new patentable Oral-Lyn 2 that requires only 2 - 3 pre-prandial (before meal) sprays for the treatment of Type II diabetes. The reformulated Oral-lyn 2 was made possible by new techniques in protein chemistry and pharmaceutical formulation science, that with minimal changes in the production process and content of the components, allow the development of a new and improved, concentrated insulin formulation for improved diabetes management.

 

NuGenerex has engaged the University of Toronto’s Center for Molecular Design and Pre-formulations (CMDP) through the University Health Network with the goal of enhancing the Oral-lyn™ 2 formulation to make it more attractive to patients and prospective commercialization partners by increasing the bioavailability of insulin in the product and reducing the number of sprays required to achieve effective prandial metabolic control for patients with diabetes. Under the supervision of NuGenerex consultant Dr. Lakshmi P. Kotra, B.Pharm. (Hons), Ph.D., of CMDP, preliminary efforts succeeded in increasing the insulin concentration in the product by approximately 400 - 500% as confirmed by a variety of in vitro testing procedures, while preserving the solubility, stability, biologic activity, and potency of the insulin in the formulation.

 

NuGenerex subsequently entered into a Research Services Agreement with the University of Guelph pursuant to which Dr. Dana Allen, DVM, MSc. and Dr. Ron Johnson, DVM, Ph.D. of the Ontario Veterinary College of the University of Guelph conducted a study of the relative bioavailability of the enhanced formulation in dogs in the University’s Comparative Clinical Research Facility. The University had previously conducted the studies of the original formulation of Generex Oral-lyn™ for proof of concept, safety, and toxicity.

 

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In the new studies, the enhanced NuGenerex Oral-lyn 2 formulation was compared with the original formulation in a blinded, parallel controlled study involving fasted, awake, healthy mature beagle dogs. Each dog received three sprays of either the enhanced formulation or the original formulation. Each dog was observed with assessments of serum insulin and glucose measured over a two-hour period. There were no adverse events observed in any of the animals.

 

In the dogs given the enhanced Generex Oral-lyn formulation (5X), there was a greater than 20-fold increase in serum insulin at 15 minutes (excluding one dog who had little response at any time point; (with dog included it was greater than 5-fold)) and almost 500% greater absorption of insulin over the two-hour test period compared to dogs given the original formulation (1X). There was a 33% decrease in serum glucose at 30 minutes in dogs treated with the enhanced Generex Oral-lyn™ formulation, compared to a 12% increase in serum glucose in dogs treated with the original formulation.

 

The results of the dog studies coupled with the positive findings from the in vitro work provide support and confidence to move forward with the remaining clinical and regulatory work necessary to achieve FDA approval of the enhanced NuGenerex Oral-lyn formulation through a 505(b)2 NDA.

  

The combined results provide evidence that the enhanced NuGenerex Oral-lyn 2 will be able to be used by people with either type 1 or type 2 diabetes mellitus as a safe, simple, fast, flexible, and effective alternative to pre-prandial insulin injections with dosing of only two to four sprays required before meals.

 

The Oral-lyn Safety Database contains information on 1,496 subjects. Eight hundred sixty-nine (869) subjects were exposed to Oral-lyn, while 627 served as Control subjects and were exposed to commercially available oral antihyperglycemics, injected insulin, or Oral-lyn placebo. There were 695 subjects in pK/pD studies (368, Oral-lyn; 327, Control) and 801 subjects in efficacy trials (501, Oral-lyn; 300, Control).

 

Two hundred seventy-two (272) Oral-lyn subjects reported at least one adverse event (132 in pK/pD studies; 140 in efficacy studies) while 278 Control subjects reported at least one adverse event (111 in pK/pD studies; 167 in efficacy studies). With respect to adverse events by Maximum Severity there appeared to be no significant differences between Oral-lyn and the Control groups in either the Efficacy or the pK studies.

 

In summary, there appear to be no indications of any significant unexpected adverse events. The expected events of hypoesthesia oral, throat irritation, dry throat, and cough were for the most part mild and could be consistent with the Oral-lyn therapy especially during the learning phase of administration. There was an indication of overlap of some of these events with multiple event terms in the constellation of upper respiratory tract infection that appeared to be balanced across therapy groups.

 

Our strategy is to revitalize our diabetes program by advancing the reformulated buccal spray Oral-lyn 2 for the treatment of Type II diabetes, and to integrate Oral-Lyn 2 therapy into our end-to-end solution for disease management through our MSO model.

 

Beyond Oral-lyn 2 for Type II diabetes, we will advance the RapidMist buccal delivery technology with additional small and large molecule drugs which will benefit from an alternative route of administration.

 

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NuGenerex Immuno-Oncology (NGIO, formerly Antigen Express)

NuGenerex Immuno-Oncology is a public company, majority owned by Generex that is focused on the modulation of the immune system and activation of T cells to treat cancer. To that end, we are developing immunotherapeutic products and vaccines based on our proprietary, patented platform technology, Ii-Key. The Ii-Key is a peptide derived from the major histocompatibility complex (“MHC”) Class II associated invariant chain (Ii) that regulates the formation, trafficking, and antigen-presenting functions of MHC class II complexes, essential for the activation of T cells in the immune response.

 

The patented NGIO Ii-Key technology uses synthetic peptides that mimic antigenic protein regions from a virus or tumor biomarker that are chemically linked to the 4-amino acid Ii-Key to ensure robust immune system activation. In particular, the Ii-Key ensures potent activation of CD4+ T cells, which in turn facilitates antibody production to ward off infection. This Ii-Key modification can be applied to any protein fragment of any pathogen to increase the potency of immune stimulation.

 

NGIO was created not only to advance the Ii-Key core technology, but also to expand our portfolio in the field of immunotherapy, infectious disease vaccines and personalized medicine through partnerships and acquisitions.

 

NGIO has developed a number of Ii-Key Hybrid peptides for the immunotherapeutic targeting of tumor associated antigens (TAAs) in cancer and for vaccines against infectious diseases.

 

AE37 – Ii-Key/HER2/neu Hybrid Immunotherapeutic Vaccine

Our most advanced immunotherapy vaccine is AE37, an Ii-Key-Hybrid molecule that contains the HER2/neu antigenic peptide linked to the Ii-Key to enhance immune stimulation against HER2, which is expressed in numerous cancers, including breast, prostate, and bladder cancers. We have completed a Phase I clinical trial of AE37 in breast cancer: A phase Ib safety and immunology study of AE37 and GM-CSF in 16 breast cancer patients who had completed all first-line therapies and who were disease-free at the time of enrollment to the study (Holmes et al. Results of the first phase I clinical trial of the novel Ii-Key hybrid preventive HER-2/neu peptide (AE37) vaccine. J Clin Oncol 2008;26:3426-33). Furthermore, we completed a Phase IIb trial of AE37 in the prevention of cancer recurrence in women who were at high risk of recurrence after undergoing successful primary standard of care breast cancer therapies and were disease free at time of enrollment.

 

The final results of the Phase IIb clinical trial of AE37 +/- GM-CSF vaccine for the prevention of recurrence of breast cancer have been published in the peer-reviewed journal, Breast Cancer Research & Treatment. In the AE37 arm of this trial, the investigators found that patients with advanced stage, HER2 under-expression, and TNBC may benefit from AE37 vaccination, and those with both advanced stage and HER2 under expression have a significant clinical benefit to AE37 vaccination, demonstrating earlier DFS plateau that was maintained for up to the ten years of follow-up. The study showed that AE37 induces CD4+ T helper cell stimulation which is required for the effective generation of long-term cell-mediated immunity, and postulates that the AE37 vaccine may have more of an immunoadjuvant effect to augment a vaccine-induced CD8+ T-Lymphocyte (CTL) response. Further, AE37 is able to directly stimulate the HLA-DR alleles with epitopes present in the HER2 protein, increasing interferon gamma (IFN-γ) and CD4+ T-helper (Th1) cells which in turn assist in strong in vivo autologous lysing of tumor cells by CD8+ cells. Thus, the addition of the Ii-Key in AE37 specifically enhances immune responses via the MHC class I pathway. Additionally, the study shows that the Ii-Key acts as an immune system adjuvant, activating both the CD4+ response and the CD8+ response against the HER2 antigenic epitope to which it is attached. The authors point out the benefit of such a complete immune response that combines CD8+ and CD4+ activation may not only induce an immediate cell mediated cytolytic response versus tumor cells but may also induce T-Helper cell mediated long-term immunity to protect against tumor recurrence.

 

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Based on the results from this trial, NuGenerex has entered into a collaborative agreement with Merck Sharpe & Dohme B.V. (Merck) and the National Surgical Adjuvant Breast and Prostate Program (NSABP) to conduct a Phase II trial to evaluate the safety and efficacy of AE37 in combination with the anti-PD-1 therapy, KEYTRUDA (pembrolizumab) in patients with metastatic triple-negative breast cancer. The trial is scheduled to begin enrolling patients in the second quarter of 2019. As the clinical trial continues, NGIO will be obligated to pay NSABP, pursuant to the Clinical Trial Agreement, additional amounts during each completed phase in the increments and at the times set forth in the agreement up to $2,118,461 upon NASBP achieving certain milestones in four primary phases: Start-Up Activities, Accrual and Treatment Period, Follow-up Period and Primary Endpoint. As of October 31, 2020, we have incurred $591,459 of expenses against this commitment.

 

In addition to the breast cancer program, NuGenerex has conducted a Phase I clinical trial in prostate cancer, enrolling thirty-two HER-2/neu+, castrate-sensitive, and castrate-resistant prostate cancer patients to demonstrate safety and strong immunological response to AE37. The results of a three-year follow-up analysis revealed that vaccinated patients had immune memory to the HER-2/neu epitope of the Ii-Key-HER-2 vaccine, AE37, and these patients had improved clinical outcomes as compared to the control group. These results demonstrate the ability of ii-Key vaccines to generate targeted, long-lasting immune responses against target epitopes of tumor biomarkers.

 

We are advancing AE37 for the treatment of prostate cancer through a licensing and research agreement with Shenzhen BioScien Pharmaceuticals Co., Ltd., for which NuGenerex has received a $700,000 upfront payment which was recognized as revenue during the Company’s fiscal year ended July 31, 2018, with additional future milestone and royalty payments.

 

In exchange for exclusive rights to AE37 for prostate cancer in China, Shenzhen is financing and conducting the Phase II trials in the European Union and Phase III trials globally under ICH guidelines, with NuGenerex retaining the rights to all clinical data for regulatory submissions and commercialization in the rest of the world outside China. 

 

Since the start of the COVID-19 pandemic, NGIO has been working to develop an Ii-Key vaccine against the new coronavirus SARS-CoV-2 using the company’s proprietary and patented Ii-Key immune system regulation technology.

 

Generex has signed an exclusive licensing deal with our partners at EpiVax who have identified such protein fragments or epitopes to generate Ii-Key-SARS 2 peptide vaccines. The peptides and Ii-Key are made from naturally occurring amino acids, ensuring an excellent safety profile for Ii-Key vaccines. We have manufactured the Ii-Key epitopes at laboratory scale and have conducted testing of their immune regulating activities in a blood screening program using convalescent blood and serum samples from COVID-19 recovered patients.

 

The blood screening program is being conducted through a research grant to the University of California San Diego and the Scripps Institute that provides convalescent COVID-19 patient samples and antibody testing, and a commercial contract laboratory, CTL that is conducting the T cell assays of immune modulation. This work will support the filing of an IND with the FDA for human clinical trials.

 

Generex signed a Licensing & Distribution Agreement with Bintai Kinden Corporation of Malaysia for the development and commercialization of the Ii-Key-SARS-CoV-2 coronavirus vaccine. Under the terms of the Agreement, Bintai will have an exclusive license to distribute the Ii-Key-SARS-CoV-2 vaccine in Southeast Asia, including Malaysia (pop. 32.4 million), Vietnam (pop. 95.5 million), Indonesia, (pop. 69.4 million) and the Philippines (pop. 106.7 million). Additionally, Bintai was given an option, which they have exercised for distribution in Australia (pop. 25.5 million) and New Zealand (pop. 4.8 million) using its extensive connections to secure contracts in the region. The Licensing & Distribution agreement for Australia and New Zealand is currently being finalized.

 

In exchange for the license and distribution exclusivity, Bintai has paid an up-front licensing fee of $2.625 million and has committed to funding 100% of the commercial development costs for the Ii-Key-CoV-2 vaccine including laboratory and pre-clinical work, GMP manufacturing in the U.S., U.S. and global Phase I, Phase II, and Phase III clinical trials, and all clinical and regulatory work required for approval

 

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The company has signed a potential $50 million Licensing and Development Agreement with the China CDC, Beijing Guoxin Haixiang Equity Investment Partnership, and Beijing Youfeng International Consulting Co., Ltd for the Ii-Key vaccine platform technology from NuGenerex Immuno-Oncology (NGIO). The agreement incorporates the first Ii-Key platform project for the development and commercialization of the Ii-Key-SARS-CoV-2 coronavirus vaccine in China, with a $5 million upfront licensing fee, 100% funding for manufacturing, development and commercial registration, and the first $20 million of profit on sales of Ii-Key- SARS-CoV-2 vaccine in China, plus royalty payments for COVID vaccine sales in China with the potential to reach several billion dollars. The Agreement incorporates provisions to advance the development of other Ii-Key vaccines for infectious diseases and cancer under separate contracts that are currently being finalized. Under the terms of the platform deal, Generex will receive a licensing fee of up to $50 million for the exclusive use of the Ii-Key vaccine platform for infectious disease and cancer in China and its territories. For each product developed using the Ii-Key technology under the platform license, Generex will receive an upfront payment, full funding for product development, regulatory approval, and commercialization in China, a success fee upon product approval, and a royalty to be determined on a case-by-case basis.

Generex has signed a worldwide Licensing and Development Agreement with a consortium of partners in China to utilize the Ii-Key vaccine platform technology from Generex subsidiary NuGenerex Immuno-Oncology (NGIO) for developing a vaccine against the G4 EA H1N1 swine influenza that is rapidly emerging in China. Under the terms of the deal, Generex will receive an upfront payment of $2.5 million to initiate the Ii-Key vaccine development work to identify swine flu epitopes for a new Ii-Key vaccine. The partnership will provide full funding for product development, regulatory approval, and commercialization worldwide. The current plan is to incorporate the Ii-Key-H1 vaccine into the seasonal influenza vaccine to create a Complete Vaccine across influenza strains. Upon commercialization, Generex will receive a royalty on sales of the influenza vaccine.

 

Future Plans

NGIO has been established to not only to advance the NuGenerex Immuno-Oncology core technology, but also to expand our portfolio in the field of immunotherapy and personalized medicine through partnerships and acquisitions. As part of our strategy, we spun-out NuGenerex Immuno-Oncology as a separate, public entity to unlock the true value of the Ii-Key technology for our stockholders as it creates a pure play in immunotherapy, which will foster investment and collaboration.

 

NGIO, has 750,000,000 authorized shares of common stock, 400,300,000 of which are outstanding, and prior to the stock dividends completed by Generex, were held by Generex. Generex has completed two stock dividends of such shares. On February 25, 2019, the Company distributed an aggregate of 15,089,271 (approximately 3.8%) of such shares to Generex stockholders. Pursuant to this dividend, our shareholders received 1 share of NGIO for every 4 shares of our stock held by the stockholders. On February 24, 2020, Generex completed a second distribution under which Generex distributed an aggregate of 19,026,262 NGIO shares to Generex shareholders. Under this second dividend, shareholders received 2 shares of NGIO stock for every 5 shares of Generex held by the shareholders. Generex’s current ownership of NGIO stock is 364,003,151 shares (approximately 90.93%). As of October 31, 2020, NGIO reported total assets of $20,039 consisting of prepaid expenses and cash. The Company believes that NGIO’s most valuable asset is its internally developed intellectual property. However, the internally developed intellectual property has not met the criteria for capitalization and accordingly, the Company has not recorded any such costs on its balance sheet.

 

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Generex owns 364,003,151 of the aggregate 400,300,000 outstanding NGIO shares, or approximately 90.93% of NGIO’s outstanding shares. Generex may, in the future, sell some of its shares of NGIO, but Generex does not currently anticipate that its ownership level of NGIO will fall below 51%.

 

On March 12, 2020, NGIO filed a Form 10 with the Securities and Exchange Commission, which has become effective and NGIO is subject to Exchange Act reporting requirements. In the near future, NGIO intends to file an application to have its common stock listed on the NASDAQ Capital Market.

 

We plan to finalize the public offering in 2021 and have applied for listing to a national stock exchange for NGIO in 2020.

  

NuGenerex Diagnostics (formerly Hema Diagnostic Systems LLC)

Our wholly owned subsidiary, NuGenerex Diagnostics is in the business of developing, manufacturing, and distributing rapid point-of-care in-vitro medical diagnostics for infectious diseases. These are commonly referred as rapid diagnostic tests (“RDTs”). We manufacture and sell RDTs based upon our own proprietary EXPRESS platforms as well as standard “cassette” devices.

 

Since its founding, NuGenerex Diagnostics has been developing and continues to develop an expanding line of RDTs for infectious disease diagnosis. These include products for human immunodeficiency virus (HIV), tuberculosis, malaria, hepatitis B, hepatitis C, syphilis, and others. These assays are all qualitative in nature and provide a simple positive or negative result directly at the clinical site. They can be used for definitive diagnosis, triage or in combination with other assays depending on which disease is being considered.

 

Each device incorporates a test strip containing reagent lines (stripes) that have been impregnated with specific antigens or antibodies that detect the target molecules specific to an infectious disease. The test strips are incorporated into our proprietary EXPRESS platforms which are easy-to-use and user-friendly diagnostic devices. There are two EXPRESS platforms: the EXPRESS and the EXPRESS II. The EXPRESS II is an upgraded version of the original EXPRESS and its use involves fewer operator steps, making it of higher clinical utility value. The Express II platform is designed to be used in a broad range of clinical and laboratory medical settings and for direct use by consumers in the home. It is simple to use, with fewer steps of operation than other rapid point-of-care tests. A single drop of blood taken by a simple finger stick is added directly to the device and the assay is activated by placing a pod of buffer solution onto the device. Results can be read in as early as 5 minutes, and no longer than 30 minutes. The accuracy of the Express II Syphilis Treponemal Assay is equal to or better than standard laboratory assays for syphilis antibodies with sensitivities and specificities of over 99%.

 

We believe that each system delivers its own advantages which enhance the use, application and performance of each diagnostic. This ease of use in the EXPRESS delivery systems is designed to ensure that our RDTs perform efficiently and effectively providing the most accurate and repeatable test results available while, at the same time, minimizing the transference of a potentially infected blood sample. The EXPRESS and cassette diagnostic kits for infectious disease testing are designed for use in resource-poor countries throughout the world, especially in sub-Saharan Africa, where the World Health Organization coordinates population screening for infectious diseases. We recently filled our first international commercial order for 40,000 units of its NGDx -Malaria PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company.

 

NuGenerex Diagnostics was recently granted a CE Mark Certification under the European Medical Devices Directive (MDD) for its The Express II Syphilis Treponemal Assay, a rapid point-of-care diagnostic assay for the detection of syphilis antibodies in primary and secondary syphilis. The assay is based upon NuGenerex Diagnostic’s innovative patent pending point-of-care diagnostic platform, the Express II. The accuracy of the Express II Syphilis Treponemal Assay is equal to or better than standard laboratory assays for syphilis antibodies with sensitivities and specificities of over 99%.

 

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With the receipt of the CE Mark Certification for its rapid point-of-care Express II Syphilis Treponemal Assay, we believe NuGenerex Diagnostics is well situated to enter into this growing syphilis testing market and will now pursue marketing efforts in Europe and, in parallel, begin plans for the filing of a 510k application with the United States FDA for marketing clearance in the United States. To this end, NuGenerex Diagnostics is fully qualified as a diagnostic test developer and manufacturer under FDA Good Manufacturing Procedures (GMP) and is certified by the International Standards Organization for the manufacture of medical devices under ISO 13485-2016 regulations.

 

NuGenerex Diagnostics has just begun a new initiative which revolves around the development of quantitative rapid diagnostic assays. These assays allow laboratory personnel and clinicians to assess the absolute amount of specific target molecules in blood or serum samples as opposed to “yes” or “no” results of qualitative RDTs. The first assay to be developed is a multiplex biomarker test for the diagnosis of sepsis and the potential differentiation of infectious sepsis from systemic immune response syndrome (SIRS).

 

We maintain an FDA registered facility in Miramar, Florida and are certified under both ISO9001 and ISO13485 for the Design, Development, Production and Distribution of the in-vitro devices. Approval of our HIV rapid test has been issued by the United States Agency for International Development (USAID). Additionally, some of our products qualified for and carry the European Union “CE” Mark, which allows us to enter into CE Member countries subject to individual country requirements. Currently, we have two malaria rapid tests approved under World Health Organization (WHO) guidelines. This process allows expedited approval of rapid tests, reducing the current 24 -30-month process down to approximately 6-9 months. WHO approval is necessary for our products to be used in those countries which rely upon the expertise of the WHO, as well as for non-governmental organizations (“NGO”) funding for the purchase of diagnostic products. NuGenerex Diagnostics had planned to initiate the development of rapid testing for COVID-19, but due to lack of funding has not been able to initiate this development as planned.

  

We maintain current U.S. Certificates of Exportability that are issued by two FDA divisions-CBER and CDRH. CBER (Center for Biologicals Evaluation and Research) is the FDA regulatory division that oversees infectious disease diagnostic devices, including our HIV, Hepatitis B and Hepatitis C EXPRESS and EXPRESS II kits. The other division, Center for Devices and Radiological Health (CDRH), is responsible for the oversight of other HDS devices which include Tuberculosis, Syphilis, and the remaining product line. Our HDS facility maintains FDA Establishment Registration status and is in accord with GMP (Good Manufacturing Practice) as confirmed by the FDA.

 

We do not currently have FDA clearance to sell our products in the United States. We intend to submit selected devices to the FDA under a Pre-Market Approval Application (PMA) or through the 510K process. The 510K would require the appropriate regulatory administrative submissions as well as a limited scientific review by the FDA to determine completeness (acceptance and filing reviews); in-depth scientific, regulatory, and Quality System review by appropriate FDA personnel (substantive review); review and recommendation by the appropriate advisory committee (panel review); and final deliberations, documentation, and notification of the FDA decision. The PMA process is more extensive, requiring clinical trials to support the application. We expect to apply to the FDA for clearance of our first RDT (Express II Syphilis Treponemal Assay) for FDA 510K approval in early 2020. We anticipate the FDA process will be completed within 9 months after submission. During this timeline, we will be preparing documentation for additional rapid tests to undergo either the FDA PMA or 510k process. 

 

We plan to use the NuGenerex Diagnostics subsidiary to build a multi-faceted diagnostics business focused on personalized medicine. To that end, we are exploring opportunities in multiplex assays for point-of-care infectious disease testing, pharmacogenomic testing for medication management, and biomarker analysis for personalized cancer treatment, including immunotherapy. 

 

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The “New” Generex & The NuGenerex Family of Subsidiary Companies

Through reorganization and acquisition, we are building the family of NuGenerex subsidiary companies to provide end-to-end solutions for physicians and patients. We have acquired 100% of Olaregen Therapeutix Inc. (“Olaregen”), a regenerative medicine company that has recently launched Excellagen wound conforming gel, which is FDA-cleared for the management of 17 wound healing indications, and Regentys Corporation (“Regentys”), a clinical-stage development company with regenerative medicine technology for the treatment of inflammatory bowel diseases Additionally, upon funding, NDS plans to launch a new software as a service (SaaS) business called DME-IQ that enables orthopedic surgeons to manage in house programs for orthopedic durable medical equipment, including inventory controls, insurance adjudication, and patient billing. We plan to roll out beyond our Arizona Startup of NugenHealth, LLC an RPM and CCM offering to our broader MSO network. Together, under the banner of these subsidiary companies offer a range of products and services to meet the needs of our proprietary distribution channels. Cross selling of products and services will enhance the revenue opportunities for the entire family of NuGenerex subsidiaries. Our management continues to search for value added services we can offer to physician relationships.

 

NuGenerex Health, LLC

Generex is in the process of building the final link in our corporate mission to provide physicians, hospitals, and all healthcare providers with an end-to-end solution for patient centric care from rapid diagnosis through delivery of personalized therapies, streamlining care processes, minimizing expenses, and delivering transparency for payers.

 

In the future, and once the specialty practices are operational, NuGenerex Health plans to form an HMO to serve patients with Chronic Special Needs Plans (C-SNP) and Dual-Eligible Special Needs Plans under Medicare Advantage and Medicare Part B and Part D. In doing this, Generex intends to partner with an experienced HMO developer. Following the roadmap established by this partner in building some of the most successful HMO companies in recent history, NuGenerex plans to generate significant membership growth by developing patient centric engagement programs and building on our strong provider relationships.

 

Contemplated Product Positioning and HMO Plan Design

Medicare Advantage Prescription Drug Plan (MAPD) HMO for individuals who have both Medicare Part A and Part B. This plan caters to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits at a low plan premium amount.

 

Chronic Special Needs Plan (CSNP) HMO for individuals in addition to having Medicare Part A and Part B are faced with the burden of living with diabetes or a cardiovascular disorder. This plan is offered to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits at a low plan premium amount.

 

Dual Eligible Special Needs Plan (DSNP) HMO for individuals that have both Medicare Part A and Part B and medical assistance through their state of residence. This plan is offered to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits with no monthly plan premium.

 

NuGenerex Health D-SNP HMO Full will cover all Medicare-covered benefits at zero cost-sharing. In addition to the base supplemental products, the plan also offers routine foot care, and transportation.

 

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Services and Products

NuGenHealth, LLC

 

NuGenerex Health LLC, entered into a strategic joint venture with Worldwide Digitech, LLC (“WWDT”) by signing an Operating Agreement to form NuGenHealth LLC. Under the agreement profits shall be distributed equally; 50% to NuGenerex Health LLC and 50% to WWDT. WWDT will provide the software powered by the HealthKOS framework and back-end support for the NuGenHealth SaaS system, while NuGenerex Health LLC shall be responsible for the day to day management and oversight of business operations.

 

On September 24, 2020, NuGenHealth, LLC signed a services agreement with Paradise Valley Family Medicine, P.C. an Arizona professional corporation (“PVFM”) to provide a software and services solution for patient engagement, Remote Patient Monitoring (RPM) and Chronic Care Management (CCM) services that are recommended and reimbursed by the Centers of Medicare and Medicaid Services (CMS).

 

This services agreement allows us to launch the NuGenHealth Software as a Service (SaaS) business for Remote Patient Monitoring (RPM) and Chronic Care Management (CCM), reimbursable services from CMS, to facilitate patient care coordination and healthcare collaboration. Once the inaugural system is implemented at PVFM, we plan to expand the NuGenHealth SaaS system to other practices and chronic care patient populations to rapidly grow revenues for the company. These practices and patient populations can form the foundation that enables NuGenerex Health to establish a new HMO.

NuGenerex Distribution Solutions

We established NuGenerex Distribution Solutions in 2018 as the foundational piece in the transformation of the Company into an integrated healthcare holding company that provides end-to-end solutions for physicians and patients. The NDS model repositions the physician-owned Management Services Organization (MSO) model with a group purchasing model that is positioned to procure our new products and services that can be delivered directly to physician partners, cutting out the middle-man. NDS will also continue to provide inventory selection and management, as well as management services for legal and regulatory compliance, accounting, HR, IT and customer support services through the physician networks.

 

NDS’s corporate mission benefits the medical community by providing cost effective ancillary services that ultimately deliver better outcomes and enhance the doctor-patient relationship. NDS will make available numerous best of class products and services using a patient centric approach that enables ancillary service providers, physicians, and patients to better coordinate healthcare services from diagnosis through treatment and follow-up.

NDS Expansion

The NuGenerex physician network has operated in five states and is configuring a roll out which will be compliant and reduce healthcare costs through better outcomes. Those organizations which join us in our new partnership model will be aligned solely with our shareholders and will receive discount codes to procure our products such as Excellagen.

 

DME-IQ

NDS is planning to launch DME-IQ, a novel software as a service (SaaS) solution for physicians to manage in-office distribution of durable medical equipment (DME). DME-IQ supports the development and management of compliant and profitable in-office DME programs. DME-IQ focuses on several key areas which include negotiating on behalf of the physicians with key vendors to decrease the COGS (Cost of Goods Sold), increasing insurance collections by providing oversight of the coding during the billing process, providing the necessary personnel to manage the appeals processes, and ensuring compliance with state and federal regulations.

 

DME-IQ will automate and provide the orthopedic practices with a proprietary, tablet-based software package that immediately verifies patient benefits and eligibility. This unique system manages DME inventory, collects patient copays and deductibles, and links patient information with the DME products and necessary patient forms all in one easy to use platform.

  

The DME Market

 

The US market for DME is large and growing, a result of several factors including the rising prevalence of chronic diseases requiring long-term care, the rapidly growing geriatric population, and the trend toward home healthcare services. Chronic disorders such as diabetes, diabetic foot & pressure ulcers, chronic pain, and cancer that require long-term patient care and postoperative recovery are driving demand for DME. According to a 2018 market report by Grand View Research, Inc., the US DME market is expected to reach $70.8 billion by 2025, growing at a 6.0% CAGR during the forecast period.

 

DME-IQ tracks and maintains DME inventory to ensure an adequate supply and product mix for orthopedic patient populations, and the system facilitates insurance claim submissions and adjudication to help achieve optimal reimbursements. With the DME-IQ system, the practice gains control of their DME program from an operations and financial perspective, while patients gain access to a wider variety of DME products that are custom fitted for their needs.

 

The explosion of high deductible insurance plans has resulted in a dramatic increase of patient out-of-pocket payments for care, and the subsequent requirement that physicians spend more time as collection agents rather than doctors. DME-IQ provides practice workflow solutions for DME with custom, tablet-based software that removes the administrative burden from the practice, facilitating patient eligibility review, collection of patient co-pay and deductibles, centralized insurance adjudication, DME product procurement, and other support services that allow physician practices to increase revenue and service quality. The launch of DME-IQ advances the mission of NDS to provide physicians with end-to-end solutions for patient centric care.”

 

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NuGenerex Regenerative Medicine

Olaregen Therapeutix, Inc.

Our majority-owned subsidiary, Olaregen Therapeutix, Inc. is a regenerative medicine company focused on the development, manufacturing and commercialization of products that fill unmet needs in the current wound care market. We aim to provide advanced healing solutions that substantially improve medical outcomes while lowering the overall cost of care.  Olaregen’s first product, Excellagen® (wound conforming matrix) is a topically applied product for dermal wounds and other indications. Excellagen is a FDA 510(k) cleared device for of a broad array of dermal wounds, including partial and full thickness wounds, pressure ulcers, venous ulcers, diabetic ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds (donor sites/ grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence), trauma wounds (abrasions, lacerations, second-degree burns and skin tears) and draining wounds, enabling Olaregen to market Excellagen in multiple vertical markets. Since acquisition, Excellagen® became commercially viable.

 

The Wound Care Market

The total global wound care industry is expected to reach $22.01 billion by 2022, according to Markets and Markets; the bioactive wound care market (i.e. skin substitute) is valued at $7.8 billion; there are 6.5 million patients in the U.S. with chronic wounds (NIH estimate) in the U.S.

 

Olaregen Highlights:

  Received FDA 510(k) clearance on October 3, 2013, for 17 indications
  Obtained intellectual properties and global rights of Excellagen® except China, Russia and CIS
  Received patent on October 10, 2017
  Has a unique Healthcare Common Procedure Coding System (HCPCS) Code - Q4149
  Clinical data show significant tissue growth and positive wound closure (PDGF)
  Ease of use – No grafting
  Low cost provider with high profit margins;
  Low execution risk (seasoned management team with product launch experience)
  No development risk (over $20 million invested and completed)
  No regulatory risk (FDA cleared)

  

Excellagen is an advanced, wound care management platform:

 

  Formulated fibrillar Type I bovine collagen (2.6%)
  High molecular weight
  Viscosity optimized for dripless wound coverage
  Flowable with no staples or sutures required
  Pre-filled, ready to use syringes
  One syringe covers up to 5.0 cm2 wound
  Refrigerated storage only with no thawing or mixing
  Treatment at only one-week intervals
  Activates human platelets
  Triggers the release of Platelet-Derived Growth Factor (PDGF)
  Accelerates granulation tissue growth in “non-healing wounds”

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Additionally, Excellagen can serve as an Enabling Delivery Platform for pluripotent stem cells, antimicrobial agents, small molecule drugs, DNA-Based Biologics, conditioned cell media and peptides. Olaregen's initial focus will be in advanced wound care including diabetic foot ulcers (DFU), venous leg ulcers and pressure ulcers. Future products focusing on innovative therapies in bone and joint regeneration comprise the current pipeline.

 

Excellagen® History

Olaregen Therapeutix Inc. acquired the intellectual properties and global rights of Excellagen® except in China, Russia and CIS, from Taxus Cardium, Inc. (OTC: CRXM), and its wholly owned subsidiaries Activation Therapeutics, Inc. and Gene Biotherapeutics, Inc.

 

On August 2018, Olaregen acquired the IP for a total consideration is $4,200,000 and is broken down as follows: 1) $650,000 upfront payment, 2) $200,000 sales credit for collagen solution, and 3) $3,350,000 payable at 10% of net sales, which is defined as total sales less allowances, including hub fees, sales concessions, co-promote fees, cost of goods sold and other charges.

   

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Regentys Corporation

Our majority-owned subsidiary, Regentys Corporation (formerly Asana Medical, Inc.) is a regenerative medicine company developing a tissue engineered therapy for the treatment of Ulcerative Colitis (“UC”). 

 

Overview

In January 2019, we acquired a majority interest in Regentys Corporation, a Florida corporation, a development-stage regenerative medicine company. Since its formation in May 2013 as Asana Medical Inc., Regentys has been developing a first-in-class tissue engineered therapies for the treatment of UC and other inflammatory bowel diseases. 

 

Ulcerative Colitis

According to an article that was published in The Lancet on December 23, 2018 named worldwide incidence and prevalence of inflammatory bowel disease in the 21st century: a systematic review of population-based studies(2018 Dec 23;390(10114):2769-2778), Ulcerative Colitis affects an estimated 3.2 million patients in Europe, the United States and Japan. It is a chronic, inflammatory disease that causes sores or ulcers in the lining of the large intestine (the colon). Immunological in nature, UC is thought to be facilitated by a variety of hereditary, genetic and environmental factors and it is increasingly being diagnosed in more urbanized areas. Symptoms, including urgency, bleeding, and diarrhea, that substantially affect quality of life.

 

Regentys™ Extracellular Matrix Hydrogel (“ECMH”)

Regentys’ initial product, ECMH™ Rectal Solution, is a first-in-class, non-pharmacologic, non-surgical treatment option for millions of patients suffering from mild to moderate ulcerative colitis.  Its product candidate is a powder that is reconstituted with saline and delivered as a liquid via enema. As ECMH reaches body temperature, it gels and coats the mucosal lining of the GI tract. 

 

 The core technology is derived from ECM, a safe and effective FDA-approved base now extensively used for surgical applications and wound treatment. ECMH acts as a bio-scaffold, separating the damaged tissue from waste flow, covering ulcerations to limit the inflammatory response, and facilitating a healing environment using endogenous (the body’s own) stem cells.

 

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Pre-Clinical Results

Published pre-clinical results in the Journal of Crohn’s and Colitis highlight the promise of Regentys technology. Animal data show the ECMH therapy can both alleviate clinical symptoms and facilitate healing in UC patients. Previous pre-clinical ECM animal data for approved products has been shown to have a high correlation with human data.

 

Competition

Currently four biologics are FDA-approved, including top-selling antibody medicines Humira® (adalimumab), Simponi® (golimumab), Remicade® (infliximab) and Entyvio® (vedolizumab), all of which act to suppress the pro-inflammatory protein, TNF-a (Tumor Necrosis Factor Alpha), a leading cause of the proliferation of ulcerative colis and other forms of IDB. However, even with these options, more than half of all UC patients do not achieve long-term remission. Moreover, 20-30% of non-responsive patients will undergo colon removal surgery in an attempt to remediate the disease.

 

Regentys Advantages

We expect our product to offer a true alternative to patients non-responsive to first line therapies such as 5-ASA. Unresponsive patients will then need to choose among therapies that alter the body’s immune system or pose long term health risks or perhaps both. Regentys’ technology is expected to enable targeted tissue healing but pose none of the health risks of more expensive market-leading biologics that generally suppress the immune system. We expect to provide our therapy at a cost less than other therapies.

 

Market

In 2023, when we expect to receive approval, the projected drug costs for UC alone are expected to exceed $7.5B globally according to a 2017 report by Allied Market Research; including other inflammatory bowel disease indications, the global market is expected to be double the UC market. Based upon the nature of IBD, and the characteristics of Regentys’ technology, management believes variations of Regentys’ core technology will also be effective in treating IBD diseases such as Crohn’s, rectal mucositis, proctitis and anal fissures.

 

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Intellectual Property

Regentys in-licensed patents and co-developed its technology platform with the University of Pittsburgh. It now holds patent rights in US and foreign jurisdictions, and has other global filings pending; as well, it has patent applications pending for similar indications predicated on its existing technology in other major global markets. 

 

Regulatory Path

The FDA has affirmed our approach to file a 510(k) de novo application on its ECM hydrogel. We have developed a protocol and has engaged a clinical research organization to manage the conduct of its first-in-human clinical trials expected to start in Q2/Q3 2020 in Australia.  Additionally, we have engaged consultants to assist in managing the trials and regulatory approval process in Australia, the US and Europe, jurisdictions in which we initially expect to undertake clinical trials and, among other markets, where it will first seek governmental approval to promote and sell medical devices. 

 

Product Development

Since 2013, we have maintained a research and development agreement with the University of Pittsburgh supplemented with personnel from the affiliated McGowan Institute of Regenerative Medicine. In February 2018, Regentys entered into a development agreement with (and has received a co-investment by) Cook Biotech, Inc., a global leader in ECM manufacturing technology (CookBio). Product batches now on hand are expected to be sufficient for additional development and testing. A larger clinical batch with finalized specifications will be generated in the coming months for use in clinical trials. There are alternate providers of development services who can assist with product development activities. Notwithstanding these options, management believes that because of the nature of ongoing development activities, and the reliance upon certain bench and manufacturing processes and ECM product expertise and technology, any interruption in the development relationship with CookBio would subject the Company to substantial expenditures of time and cost to duplicate the product.

 

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Manufacturing

Regentys has an exclusive manufacturing agreement with CookBio for the production of biomaterial and use of its proprietary technology conditioned upon the completion of final product development work. Management has negotiated an agreement with a third-party manufacturer for product components and kitting. We believe that there are alternate sources of these manufacturing and supply services. However, because of the nature of regulation in the medical device industry, and the reliance upon the collection, reporting and management of medical device manufacturing data, a change of manufacturer would substantially impact the time and cost required for clinical product production and regulatory compliance.

 

Financing

In January 2019, Regentys was acquired by Generex for an aggregate purchase price of $15,000,000, with $400,000 paid in upfront cash up-front and a promissory note of $14,600,000. Installments payable under the note were tied to specific business development objectives and dates. As October 3, 2019, an additional $850,000 was paid for a total of $1,250,000 against the note. Regentys entered into an accommodation agreement dated March 14, 2019 with Generex to provide longer time to pay. On November 25, 2019, the payment due date for the first three installments was extended to December 30, 2019 and extended on January 10, 2020 further to January 31, 2020. A Fourth Payment of $5,000,000 was due on or about February 1, 2020 (which has not been paid) and the final payment of $1,150,000 payable on or about February 1, 2021. Interest has been accruing at 4% per annum with a balance of $993,444, of which $434,567 is included in noncontrolling interest on the balance sheet as of October 31, 2020. The last payments of $115,000 and $120,000 were made on October 21, 2020 and October 30, 2020, respectively.

  

Operations

Currently, Regentys employs four full-time contract employee and several part-time consultants. We supplement our business operations by engaging external legal (intellectual property, corporate and health care), accounting and tax professionals. We also have contracted with information services, regulatory and clinical trial companies who make available professionals to manage the information services, regulatory, clinical, and compliance aspects of the business. Upon payment of the interim note, Regentys will formally add two contract employees, additional administrative staff and a third-party provider to assist with employee payroll and benefits as well as undertake clinical trial activities suing external support.

  

NuGenerex Surgical Products

MediSource Partners & Pantheon Medical – Foot & Ankle

Due to various business complications including the termination of the Travis Brid consulting agreement and the ongoing COVID-19 pandemic, the operations of Medisource Partners and Pantheon Foot & Ankle have been curtailed until further notice.

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 Accounting for Research and Development Projects

 

Our major research and development projects are NGIO’s peptide immunotherapeutic vaccines, including COVID-19 and breast cancer vaccines.

 

On June 2, 2020, the Company entered into a Laboratory Services Agreement and Statement of Work Agreement with Cellular Technology Limited (“CTL”). The Agreement calls for CTL to provide certain laboratory testing and analysis. These services provided by CTL to Generex are part of the development of a potential vaccine for COVID-19 based upon NGIO Ii-Key vaccine technology. NGIO is a majority owned subsidiary of Generex. Generex/NGIO will own the intellectual property generated by CTL’s work.

 

Pursuant to this agreement, Generex will pay to CTL a fee for work plan completion an amount not to exceed $939,478. During the three months ended October 31, 2020, $562,063 has been incurred under this agreement.

 

During the three months ended October 31, 2020 and 2019, NGIO expensed $0 and $251,459, respectively, to NSABP for clinical trials for additional research and development relating to NGIO’s peptide immune therapeutic vaccines and related technologies. One NGIO 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 NGIO 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 NGIO’s peptide immunotherapeutic vaccines or related technologies. These uncertainties include the success of current studies net operating losses attributed to NGDx, 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. 

The following table summarizes our research and development projects in development and the next milestone in its development and estimated costs to achieve such milestone: 

List of Projects

 

Company (Subsidiary)  R&D Project  Current Milestone Target  Estimated Milestone Start Dates  Estimated Milestone Costs
NGIO  AE37 Cancer Vaccine  Phase II Clinical Trial  March 2021  $1,800,000 
NGIO  COVID-19 Vaccine  Development of Human Trials  Jan. 2021   1,700,000 
Regentys  ECM  First In-Human Clinical Trial in Australia  June 2021   2,000,000 
NGDx  Express I & II  FDA 510K Approval  Feb. 2021   750,000 
TOTAL           $6,250,000 

 

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The following is a summary of our research and development costs for the three months ending October 31, 2020:

 

   Three Months Ending October 31,
R&D Project  2020  2019
AE37 Cancer Vaccine  $127,533   $37,382 
COVID-19 Vaccine   893,645    —   
ECM   91,176    139,718 
Express I & II   57,654    138,674 
Excellagen*   —      15,760 
Excellasome®**   —      7,200 
   $1,170,008   $338,734 

 *Product in active commercialization

**No longer an active research and development project  

 

Critical Accounting Policies

 

There are no material changes from the critical accounting policies set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended July 31, 2020 filed with the SEC on November 13, 2020, except as follows:

 

Derivative warrant liability.  FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the condensed interim consolidated balance sheet at fair value. As a result, certain derivative warrant liabilities are separately valued and accounted for on our balance sheet, with any changes in fair value recorded in earnings. On our condensed interim consolidated balance sheets as of October 31, 2020 and July 31, 2020, we used the binomial lattice model to estimate the fair value of these warrants. Key assumptions of either a multinomial lattice model or a Monte Carlo model include the market price of our stock, the exercise price of the warrants, applicable volatility rates, risk-free interest rates, expected dividends, contractual exercise price reset events, and change in control timing estimate 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.

 

As reported above, the Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.

 

On January 24, 2019, the company entered into a note payable with an unrelated party at a percentage discount (variable) exercise price which causes the number to be converted into a number of common shares that “approach infinity”, as the underlying stock price could approach zero. Accordingly, all convertible instruments issued after January 24, 2019 are considered derivatives according to the Company’s sequencing policy.

 

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Results of Operations

 

Three months ended October 31, 2020 compared to three months ended October 31, 2019

 

During the three months ended October 31, 2020 and 2019, net revenues decreased $633,226 to $88,435 from $721,661, respectively. The decrease resulted primarily because there was no revenue generated by Pantheon in the three months ended October 31, 2020 while it generated $449,196 during the same period in the prior fiscal year. Additionally, there was a decrease in revenues generated by Olaregen which has been impacted by COVID-19.

 

Research and development costs in the three months ended October 31, 2020 and 2019 were $1,170,008 and $338,734, respectively. The increase of $831,274 is primarily from the clinical costs related to NGIO’s COVID vaccine for which no expenses were incurred in the prior fiscal quarter.

 

General and administrative expenses in the three months ended October 31, 2020 and 2019 were $13,008,172 and $4,787,039, respectively. The increase of $8,221,133 is primarily due to bonus compensation of $7,005,416 to be paid in approximately $1 million in cash and $6 million in stock, $500,000 in consulting fees and approximately $423,000 increase in stock compensation related to issuance of stock options to employees and consultants.

 

Interest expense in the three months ended October 31, 2020 and 2019 was $1,019,080 and $2,516,113, respectively. The decrease is primarily due to the decrease in amortization of debt discount of $1,891,786 from the previous year’s fiscal quarter, partially offset by approximately $250,000 of default interest and approximately $100,000 increase of interest on notes payable.

 

The change in fair value of derivative liabilities for the three months ended October 2020 and 2019 was a gain of $4,019,852 and a loss of $2,239,422, respectively. The $6,259,274 increase is primarily due to the change in fair value of the Series A, B, C and D Warrants issued in connection with the PIPE during the three months ended October 31, 2020, which resulted in a gain of approximately $3,900,000, compared to the loss of approximately $3,033,000 in the previous year’s fiscal quarter which resulted from the change in fair value of downside protection.

 

We had a net loss for the three months ended October 31, 2020 and 2019 of $10,989,076 and $9,312,547, respectively. The increase in net loss for the three months ended October 31, 2020 was caused by the factors described above.

 

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, securities convertible into our common stock, and investor loans. We will require additional funds to support our working capital requirements and any development or other activities. NGDx will require additional funds to support its working capital requirements and any development or other activities or will need to curtail its research and development and other planned activities or suspend operations. NGDx will no longer be able to rely on its former primary owner for necessary financing. Going forward, NGDx will rely on Generex financing activities to fund NGDx operations, development, and other activities.

 

While we raised $1,850,000 of net proceeds from a private placement and $356,710 from the sale of common stock during the three months ended October 31, 2020, the Company’s cash position is not sufficient for twelve months of operations.

 

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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.

 

In addition, management is actively pursuing financial and strategic alternatives, including strategic investments and divestitures, industry collaboration activities, and potential strategic partners. Management has sold non-essential real estate assets which are classified as Assets Held for Investment to augment the company’s cash position and reduce its long-term debt.

 

We will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of our product candidates, further clinical trials for Oral-lyn™ and to commence sales and marketing efforts if the FDA or other regulatory approvals are obtained.

 

Financings

 

The following is a summary of the financing activities that we have completed during the three months ended October 31, 2020.

 

Financing – August 4, 2020

 

On August 4, 2020, the Company and three institutional accredited investors (each a “Buyer” and, collectively, the “Buyers”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company sold and issued to the Buyers an aggregate of 5,102,040 shares (the “Common Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an aggregate price of $2,000,000 (the “Private Placement”).

 

Financing – September 25, 2020

 

On September 25, 2020, the Company sold 600,000 shares of common stock to Oasis Capital, LLC for net proceeds of $95,083.

 

Financing – October 9, 2020

 

On October 9, 2020, the Company sold 750,000 shares of common stock to Oasis Capital, LLC for net proceeds of $131,204.

 

Financing – October 21, 2020

 

On October 9, 2020, the Company sold 750,000 shares of common stock to Oasis Capital, LLC for net proceeds of $130,424.

 

Financing – November 6, 2020

 

On November 6, 2020, the Company sold 750,000 shares of common stock to Oasis Capital, LLC for net proceeds of $123,524.

 

Financing – November 17, 2020

 

On November 17, 2020, the Company sold 1,000,000 shares of common stock to Oasis Capital, LLC for net proceeds of $183,416.

 

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Cash flows for the three months ended October 31, 2020

 

For the three months ended October 31, 2020, we used $1,335,538 in cash to fund our operating activities. The use for operating activities included a net loss of $10,989,076. Changes to working capital included a decrease of $9,607,304 related to accounts payable and accrued expenses and $2,000,000 of refundable advance.

 

The use of cash was offset by non-cash expenses of $262,173 related to depreciation and amortization, $1,221,852 related to stock compensation, $174,049 of amortization of debt discount and a $4,019,852 change in fair value of derivative liabilities.

 

We had cash provided by financing activities in the three months ended October 31, 2020 of $2,155,854, most of which was from net proceeds from private placement (PIPE) of $1,850,000 and net proceeds from sale of common stock of $356,710 partially offset by payments on notes payable of $60,000.

 

Our net working capital deficiency on October 31, 2020 increased to $50.4 million from $40.1 million on July 31, 2020, which was attributed primarily to an increase in accounts payable and accrued expenses.

 

Funding Requirements and Commitments

 

In addition to our commitments under the financings described above, we have the following obligations: 

   

Olaregen and Regentys Acquisitions

 

Olaregen

 

As of January 7, 2019, the Company completed a definitive Stock Purchase Agreement and related documents relating to the Company’s purchase of 3,282,632 newly issued shares of the Olaregen common stock representing 51% percent of the issued and outstanding capital stock of Olaregen for an aggregate $12,000,000.

 

In addition to $400,000 paid to Olaregen upon signing of the LOI, the purchase price for the Olaregen shares will consist of the following cash payments:

 

$800,000 on or before January 15, 2019. The Company has paid this installment.
$800,000 on or before January 31, 2019. The Company has paid this installment.
$3,000,000 on or before February 28, 2019. As of October 31, 2020, the Company has paid $166,800 of this installment and the full balance of $3,000,000 is payable on or before January 31, 2020 per extension in amended agreement.
$1,000,000 on or before May 31, 2019. As of September 14, 2020, the Company has not paid this installment and the full balance of $1,000,000 was payable on or before January 31, 2020 per extension in amended agreement.  We have not made this payment.
$6,000,000 on or before January 31, 2020. We have not made this payment.

 

Generex issued its promissory note in the amount of $11,600,000 (the “Note’) representing its obligation to pay the above amounts. The Note is secured by a pledge of the Olaregen Shares pursuant to a Pledge and Security Agreement.  

 

On November 24, 2019, the Company and Olaregen amended the Stock Purchase Agreement and Promissory Note to extend the due date of the remaining balance of the note on or before April 30, 2020. The extension of this due date has no impact on the existing schedule of future payments or any additional terms within the Note. 

 

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Based on the Note, in the event any incremental payment is not paid when due, Olaregen has the option to increase the per share purchase price for all remaining purchased shares to $4.00 per share. Based on $1,400,000 of remitted payments and a Promissory Note balance of $10,400,000 prior to the first extension agreement on March 14, 2019, Olaregen elected the option to proportionally increase the per share purchase price to $4.00 for the remaining 2,899,658 of the total 3,282,632 shares to be acquired. This resulted in an additional $998,633 which has been accrued for the Company to remit to Olaregen pursuant to the acquisition. On February 14, 2020, the Company acquired the remaining outstanding shares of Olaregen in exchange for 4,250,000 shares of GNBT Stock and 1,065,000 shares of NGIO Stock and the penalty and outstanding interest of approximately $1,900,000 was waived.

 

As of the time of this filing, Generex owns 100% of Olaregen.

 

Regentys

 

On January 7, 2019 the Company completed a definitive Stock Purchase Agreement and related documents relating to the Company’s purchase of 12,048,161 newly issued shares of the Regentys common stock representing 51% percent of the issued and outstanding capital stock of Regentys (“Regentys Shares”) for an aggregate of $15,000,000.

   

In addition to $400,000 paid to Regentys upon signing of the LOI, the purchase price for the Regentys shares consist of the following cash payments, with the proceeds intended to be used for specific purposes, as noted:

 

  $3,450,000 to initiate pre-clinical activities on or before January 15, 2018. The balance was payable on or before December 30, 2019, but as of November 30, 2020, the Company has paid $1,662,790.

 

  $2,000,000 to initiate patient recruitment activities on or before May 1, 2019. As of October 31, 2020, the Company has not yet paid this installment and the full balance of $2,000,000 was payable on or before December 30, 2019 per extension in amended agreement.

 

  $3,000,000 to initiate a first-in-human pilot study on or before December 30, 2019.

 

  $5,000,000 to initiate a human pivotal study on or before February 1, 2020.

 

  $1,150,000 to submit a 510(k) de novo submission to the FDA on or about February 1, 2021.

 

The Company issued its promissory note in the amount of $14,600,000 (the “Note’) representing its obligation to pay the above amounts. The Note is secured by a pledge of the Regentys pursuant to a Pledge and Security Agreement.  

 

On November 25, 2019, the Company and Regentys amended the Stock Purchase Agreement and Promissory Note to extend the due date of the remaining balance of the note on or before December 30, 2019. The extension of this due date has no impact on the existing schedule of future payments or any additional terms within the Note. Regentys has not filed any notice of default as of the date of publication, and Generex continues to provide Regentys with business opportunities continuing the relationship.

 

If we obtain necessary financing, we expect to expend resources towards additional acquisitions and regulatory approval and commercialization of Generex Oral-lyn™ and further clinical development of our immunotherapeutic vaccines.

  

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In addition to our future funding requirements, commitments, and our ability to raise additional capital will depend on factors that include:

 

  the timing and amount of expenses 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 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;

 

  our ability to obtain the necessary financing to fund our operations and effect our strategic development plan; and the receptivity of the financial market to biopharmaceutical companies.

 

  our ability to obtain the necessary financing to fund our operations and effect our strategic development plan; and

 

  the receptivity of the financial market to biopharmaceutical companies.

  

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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 our 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.

 

Tabular Disclosure of Contractual Obligations

 

Generex is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material on the Company’s consolidated financial statements and financial statement disclosures.

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Generex is a smaller reporting company and not required to provide Quantitative and Qualitative Disclosures about Market Risk pursuant to Regulation S-K 305 (e).

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of October 31, 2020, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and concluded that, subject to the inherent limitations, our disclosure controls and procedures were not effective due to the existence of several significant deficiencies culminating in material weaknesses in our internal control over financial reporting because of inadequate segregation of duties over authorization, review and recording of transactions, as well as the financial reporting of such transactions.

 

We have been working and are currently working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses. We believe we have taken appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, however we cannot be certain that our remediation efforts will ensure that our management designs, implements and maintains adequate controls over our financial processes and reporting in the future or that the changes made will be sufficient to address and eliminate the material weaknesses previously identified. Our inability to remedy any additional deficiencies or material weaknesses that may be identified in the future could, among other things, have a material adverse effect on our business, results of operations and financial condition, as well as impair our ability to meet our quarterly, annual and other reporting requirements under the Securities Exchange Act of 1934 in a timely manner, and require us to incur additional costs or to divert management resources.

 

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated our internal control over financial reporting to determine whether any changes occurred during the 2020 third quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, and have concluded that there have been no changes that occurred during the first quarter of fiscal year 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

In December 2011, a vendor of the Company commenced an action against the Company and its subsidiary, Generex Pharmaceuticals, Inc., in the Ontario Superior Court of Justice claiming damages for unpaid invoices including interest in the amount of $429,000, in addition to costs and further interest. The Company responded to this statement of claim and also asserted a counterclaim in the proceeding for $200,000 arising from the vendor’s breach of contract and detinue, together with interest and costs. On November 16, 2012, the parties agreed to settle this action and the Company has agreed to pay the plaintiff $125,000, following the spinout of its subsidiary Antigen, from the proceeds of any public or private financing related to NGIO subsequent to such spinout. Each party agreed to execute mutual releases to the claim and counterclaim to be held in trust by each party’s counsel until payment of the settlement amount. Following payment to the plaintiff, the parties agree that a Consent Dismissal Order without costs will be filed with the court. If the Company fails to make the payment following completion of any post-spinout financing related to NGIO or any other subsidiaries, the Plaintiffs may take out a judgment in the amount of the claim plus interest of 3% per annum and costs fixed at $25,000 which has been accrued as of October 31, 2020.

 

On August 22, 2017, Generex received a letter from counsel for Three Brothers Trading LLC, d/b/a Alternative Execution Group (“AEXG”), claiming breach of a Memorandum of Understanding (“MOU”) between Generex and AEXG. The MOU related to AEXG referring potential financing candidate to Generex. The letter from AEXG counsel claimed that Generex’s acceptance of $3,000,000 in financing from Pharma Trials, LLC, in March 2017, violated the provisions of the MOU prohibiting Generex from seeking other financing, with certain exceptions, for a period of 60 days after execution of the MOU. AEXG has demanded at least $210,000 in cash and 84,000 warrants for Generex stock convertible at $2.50 per share, for attorney’s fees and costs.  AEXG filed a demand for arbitration and on September 25, 2018 an arbitration hearing was held with an arbitrator from the American Arbitration Association’s International Centre for Dispute Resolution. On December 3, 2018, an arbitrator awarded AEXG an aggregate of $315,695 in damages, costs and fees as well as warrants exercisable for 84,000 shares of Generex Common Stock at an exercise price of $2.50 per share.  AEXG filed a petition to confirm the arbitrator’s award in the United States District Court for the Southern District of New York. The petition includes a demand of $3,300,360 as the value of the warrants. The arbitrator did not award the specific amount of $3.5 million, but only liquidated damages in the amount of $210,000 and the value of 84,000 warrants “as of today” (the date of the award) plus attorney’s fees, certain costs, prejudgment and post-judgment interest (which continues to run on a daily basis) and arbitration fees. Generex has responded that the value of the warrants on the date of the award is $0 or some figure far less than the value calculated by AEXG. The petition to confirm the arbitrator’s award and Generex’s opposition were remanded by the Court to the arbitrator and returned for clarification. The arbitrator stated that he was unable to add any clarification, as he did not take evidence on the issue of warrant valuation. AEXG filed a petition and on April 24, 2020, the Court issued an Opinion and Order in the Litigation confirming the portions of the Arbitration Award regarding liquidated damages, pre-judgment interest, legal fees, and costs, but remanding to the Arbitrator for further proceedings the portion of the Arbitration Award relating to “the economic value today of 84,000 warrants convertible to Generex’s stock exercisable at $2.50 per share as of September 24, 2018” (the “Remanded Arbitration”). On September 18, 2020, the Court issued that AEXG recover from Generex the total sum of $384,771, which sum consists of $210,000 in liquidated damages, $93,304 in legal fees, $12,393 in arbitration fees, $3,313 in arbitration expenses, $65,762 in pre-judgment interest, and post-judgment interest at a rate established by 28 U.S.C § 1961 from September 18, 2020, until the judgment is satisfied (the “Partial Final Judgment”).  The parties settled and agreed to the terms of the Partial Final Judgment that included a payment schedule to which Generex has paid $200,000 in cash to date with the remaining balance being paid and retired in 30 days. The settlement terms do not apply, settle, or resolve in any manner the Remanded Arbitration or the issues pending therein, including, but not limited to, the economic value of the 84,000 warrants, Generex’s right to contest AEXG’s attorneys’ fees, or Generex’s right to contest the issue of who is the prevailing party for fees other than those fees awarded in the Arbitration Award. Generex continues to vigorously defend the open matters. As of October 31, 2020, the Company has accrued approximately $450,000 related to this matter.

 

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On June 28, 2018, the Company was named in respect of a claim by Burrard Pharmaceutical Enterprises Ltd. and Moa’yeri Kayhan for unspecified damages and other remedies issued by the Supreme Court of British Columbia. The claim is made in connection with one advanced against Burrard and Kayhan by Middle East Pharmaceutical Factory L.L.C., a foreign corporation, for fraudulent or negligent misrepresentation. Middle East alleges that it was misled by Burrard and Kayhan into believing that Burrard had rights to distribute Generex product in the Middle East. Burrard and Kayhan allege that they did have rights in that regard, which the Company denies. The matter remains at the pleadings stage and the Company is investigating the facts. 

 

On October 26, 2018, Generex entered into a securities purchase agreement with Alpha Capital Anstalt (“Alpha”) pursuant to which a note due on October 26, 2019 was called for repayment in the principal amount of $682,000.  On January 25, 2019, Generex received a letter from Alpha’s counsel stating that the note was in default because Generex’s common stock was not listed on NASDAQ within 90 days after the issuance of the note.  The letter demanded repayment in full. On February 12, 2019, the Alpha filed a lawsuit in the Supreme Court of New York, demanding the aggregate principal amount, default interest and costs. Generex does not agree with Alpha’s legal demands and continues to defend the lawsuit.

 

On March 21, 2019 Compass Bank filed suit against NuGenerex Distributions Solutions 2, L.L.C. (“NDS”) in the District Court of Dallas County, Texas requesting damages of $3,413,000. This lawsuit is directly connected to assets that were supposed to be transferred to NDS from a third party, but never were transferred. Compass Bank had a lien on those certain assets that were supposed to be transferred into the ownership of NDS, a subsidiary of Generex. NDS and Generex shall continue to defend this legal matter.

 

In May 2019 Brooks Houghton threatened litigation by way of a FINRA Dispute Resolution. Brooks Houghton, who the managing representative is Mr. Centonfanti a prior board member, was under contract to perform due diligence on the Veneto transaction, as well as other unrelated items. The Veneto transaction closed three times, each time with a reduction in price due to material negative circumstances. Brook Houghton, who was under contract to perform due diligence, claims their fee should be paid on the initial closing price not the ultimate resolution of the matter. The company offered to compensate Brooks Houghton pursuant to agreement, 3% on the most recent closing price for Veneto for which Brooks Houghton may have performed some level of work on, payable in kind, and Brooks Houghton declined the offer. Brooks Houghton is claiming $450,000 for the first closing of Veneto, $714,000 for the second closing of Veneto, $882,353 for the Regentys acquisition, and $705,882 for Olaregen. The Company shall continue to defend this legal matter. The company is awaiting service. As of October 31, 2020, the Company has accrued for the full $2,752,235 balance.

 

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On September 9, 2019 Generex and its subsidiary NuGenerex Distribution Solutions, LLC, and NuGenerex Distributions Solutions 2, LLC (jointly “NDS”) filed a litigation against Veneto, and the constituent entities, for fraud, breach of contract, and a motion for a temporary restraining order restraining the shares contemplated in the Asset Purchase Agreement (“APA”) (supra) for hiding their involvement in a massive healthcare fraud scheme, which is currently being prosecuted civilly by the federal government and filing to transfer assets specified in the APA. . Our motion for a temporary restraining order on transfer of shares we issued in connection with the acquisition of Veneto assets was denied by the Court of Chancery. Generex has continued to pursue claims against Veneto and its principals in a separate arbitration. In a related action, our transfer agent for our common stock was sued for failure to process a transfer of the shares issued pursuant to the APA. This suit was brought in the United States District Court for the Eastern District of New York. Generex was not named in the suit, but our transfer agent notified us of our obligation to indemnify them pursuant to our agreement with the transfer agent. The action against the transfer agent was dismissed with prejudice and on consent on November 25, 2019.

 

On December 2, 2019, the Company was named as a respondent in an arbitration brought by KSKZ Management, LLC before the American Arbitration Association in Texas.  The Claimant alleges that the Company breached a consulting agreement that purportedly obligated the Company to pay claimant a monthly consulting fee for three years.  Kevin Kuykendall is the manager and a member of Claimant. Claimant is seeking approximately $3,450,000 in unpaid consulting fees allegedly due.  The Company is vigorously defending itself and has filed counterclaims against Claimant. The Company believes that the likelihood of an unfavorable outcome is remote.

 

On February 18, 2020 the Company was named as a defendant in an action brought by Discover Growth Fund, LLC in the United States District Court for the District of Delaware. The plaintiff alleges that the Company breached a Purchase Agreement and Promissory Note and seeks $2,475,000 in damages. The plaintiff also filed a confession of judgment in support of its claim.  On May 4, 2020 the District Court entered judgment against the Company in the amount of $2,200,000. Counsel for Generex and Discover have engaged in settlement discussions. In addition, on August 20, 2020 the Company was named as a defendant in an action brought by Discover Growth Fund, LLC in the Court of Chancery of the State of Delaware. The complaint alleges that the Company breached a Purchase Agreement, Promissory Note and Transfer Agent Instructions and seeks to compel the Company to honor notices of conversion from Discover Growth Fund, LLC and issue it shares pursuant to the Purchase Agreement and Promissory Note.  Discover has since dropped the Delaware case without prejudice.

On May 6, 2020, the Company was named as a defendant in an action brought by Iliad Research and Trading LP in Salt Lake City, Utah. The plaintiff alleged that the Company breached a Securities Purchase Agreement and Convertible Promissory Note. Arbitration commenced on this matter on or about July 1, 2020 and was settled on July 31, 2020. In settlement of the matter (including any amounts outstanding under the Convertible Promissory Note), the Company has issued Iliad 3,499,415 shares of the Company’s common stock. The arbitration was dismissed on August 14, 2020. 

On October 2, 2020, the Company and its subsidiary, NuGenerex Distribution Solutions, LLC, was named as a defendant in an action brought by AVEM Medical, LLC, formerly known as Medisource Partners, LLC and Pantheon Medical – Foot & Ankle, LLC in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, Civil Division. The complaint alleges that the Company breached an Asset Purchase Agreement. The Company intends to vigorously defend the case.

 

Item 1A. Risk Factors.

 

Generex is a smaller reporting company defined by Rule 12b-2 of the Exchange Act and not required to provide Risk Factors.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Between August 7, 2020 and October 13, 2020, the Company converted $838,622 of principal and $41,733 of interest and $255,000 of default penalties into 5,860,255 shares of common stock.

 

Between September 24, 2020 and November 18, 2020, the Company exercised put options pursuant to an Equity Purchase Agreement with an investor for an aggregate of 3,850,000 shares of Generex common stock for $663,649 of net proceeds.

 

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Item 3. Defaults Upon Senior Securities.

 

Reference is made to Item 1 - Legal Proceedings, above for a description of claims relating to the Note held by Alpha Capital Anstalt.

 

Item 5. Other Information.

 

None 

 

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 71 hereof.

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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.

 

  GENEREX BIOTECHNOLOGY CORPORATION
  (Registrant)
     
Date: December 21, 2020 By: /s/ Joseph Moscato
    Joseph Moscato
    President and Chief Executive Officer
     
Date: December 21, 2020 By: /s/ Mark Corrao
    Mark Corrao
    Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit

Number

  Description of Exhibit
3.1   Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to 10-K filed October 9, 2015)
3.2   Certificate of Amendment to Restated Certificate of Incorporation of Generex Biotechnology Corporation (incorporated by reference to Exhibit 3(i)(f) to Registration Statement on Form S-1 (File No. 333-187656) filed on April 1, 2013)
3.3   Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2(ii) to Generex Biotechnology Corporation’s Report on Form 8-K filed December 5, 2007)
3.4   Certificate of Designation of Series A Preferred Stock
4.1   Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed August 7, 2020)
4.2   Form of Series B Warrant (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed August 7, 2020)
4.3   Form of Series C Warrant (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed August 7, 2020)
4.4   Form of Series D Warrant (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed August 7, 2020)
4.5   Registration Rights Agreement among Generex Biotechnology Corporation and each other party a signatory thereto (incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K filed August 7, 2020)
5.1   Opinion of Carmel, Milazzo & Feil LLP (to be filed by amendment)
10.1   Amendment to Asset Purchase Agreement by and between Veneto Holdings, L.L.C. and NuGenerex Distribution Solutions 2, LLC effective November 1, 2018 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 5, 2018).
10.2   Clinical Trial Agreement between NSABP Foundation, Inc. and NGIO, Inc. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 26, 2018)
10.3   Form of Stock Control Agreement among the Company, Lawrence Salvo, Stephen L. Berkman, Joseph Moscato and B-H Sanford, LLC. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 3, 2018)
10.4   Form of Agreement, Assignment and Release among the Company, Hema Diagnostic Systems, LLC and Stephen L. Berkman. (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Current Report on Form 8-K filed on December 3, 2018)
10.5   Form of Stock Pledge Agreement between Joseph Moscato and Istvan Elek dated November 25, 2018. (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Current Report on Form 8-K filed on December 3, 2018)
10.6   Stock Purchase Agreement between Regentys Corporation and Generex Biotechnology Corporation as of January 7, 2019. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 11, 2019)
10.7   Promissory Note issued by Generex Biotechnology Corporation to Regentys Corporation. (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 11, 2019)
10.8   Pledge and Security Agreement between Generex Biotechnology Corporation and Regentys Corporation. (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on January 11, 2019)
10.9   Pledge and Security Agreement between Generex Biotechnology Corporation and Regentys Corporation. (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on January 11, 2019)
10.10   Management Services Agreement among Regentys Corporation and its officers. (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on January 11, 2019)
10.11   Stock Purchase Agreement between Olaregen Therapeutix, Inc. and Generex Biotechnology Corporation as of January 7, 2019. (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on January 11, 2019)
10.12   Stock Purchase Agreement between Olaregen Therapeutix, Inc. and Generex Biotechnology Corporation as of January 7, 2019. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 11, 2019)
10.13   Promissory Note issued to Olaregen. (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 11, 2019)
10.14   Pledge and Security Agreement between Generex Biotechnology Corporation and Olaregen (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on January 11, 2019)
10.15   Amended and Restated Investor Rights Agreement of Olaregen (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on January 11, 2019)
10.16   Amendment Agreement by and between Veneto Holdings, L.L.C., Generex Biotechnology Corporation, NuGenerex Distribution Solutions 2, LLC and the members of Veneto Holdings, L.L.C. effective January 15, 2019 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 22, 2019)
10.17   Restructuring Agreement by and between Veneto Holdings, L.L.C., Generex Biotechnology Corporation,  NuGenerex Distribution Solutions 2, LLC and the members of Veneto Holdings, L.L.C. dated March 28, 2019 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 4, 2019)
10.18   Asset Purchase Agreement by and among Medisource Partners, LLC, Generex Biotechnology Corporation and NuGenerex Distribution Solutions, LLC, dated July 11, 2019 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 16, 2019)
10.19   Asset Purchase Agreement by and among Pantheon Medical - Foot & Ankle, LLC, Generex Biotechnology Corporation and NuGenerex Distribution Solutions, LLC, dated July 11, 2019 (incorporated by reference to Current Report on Form 8-K filed on July 16, 2019)
10.20   Stock Purchase Agreement by and between Generex Biotechnology Corporation and GH Care, Inc. DBA ALTuCELL, Inc., effective as of November 15, 2019 (incorporated by reference to 8-K filed November 27, 2019)
10.21   Equity Purchase Agreement between the Company and Oasis (incorporated by reference to Exhibit 10.21 to Registration Statement on Form S-1 (File No. 333-236481) filed on February 18, 2020)
10.22   Registration Rights Agreement between the Company and Oasis (incorporated by reference to Exhibit 10.22 to Registration Statement on Form S-1 (File No. 333-236481) filed on February 18, 2020)
10.23   Purchase Agreement between the Company and Discover (incorporated by reference to Exhibit 10.23 to Registration Statement on Form S-1 (File No. 333-236481) filed on February 18, 2020)
10.24   Amendment Agreement between the Company and ALTuCELL (incorporated by reference to 8-K filed January 28, 2020)
10.25   Securities Purchase Agreement between the Company and Auctus (incorporated by reference to Exhibit 10.25 to Registration Statement on Form S-1 (File No. 333-236481) filed on February 18, 2020)
10.26   Registration Rights Agreement between the Company and Auctus (incorporated by reference to Exhibit 10.26 to Registration Statement on Form S-1 (File No. 333-236481) filed on February 18, 2020)
10.27   Warrant issued by the Company to Auctus (incorporated by reference to Exhibit 10.27 to Registration Statement on Form S-1 (File No. 333-236481) filed on February 18, 2020)
10.28   Collaboration Agreement, dated February 28, 2020 among the Company, Beijing Zhonghua Investment Fund Management Co., LTD and Sinotek-Advocates International Industry Development (Shenzhen) Co., Ltd. (incorporated by reference to 8-K filed March 2, 2020)
10.29 Purchase Agreement between the Company and BHP Capital (incorporated by reference to Exhibit 10.92 to Current Report on Form 10-Q filed on March 20, 2020)
10.30 Purchase Agreement between the Company and Jefferson Street Capital (incorporated by reference to Exhibit 10.93 to Current Report on Form 10-Q filed on March 20, 2020)
10.31 Purchase Agreement between the Company and Platinum Point Capital (incorporated by reference to Exhibit 10.94 to Current Report on Form 10-Q filed on March 20, 2020)
10.32 Purchase Agreement between the Company and Group 10 Holdings (incorporated by reference to Exhibit 10.95 to Current Report on Form 10-Q filed on March 20, 2020)
10.33   Master Services Agreement, dated March 3, 2020, between the Company and EpiVax, Inc. (incorporated by reference to 8-K filed March 17, 2020)
10.34 Laboratory Services Agreement and Statement of Work Agreement between Generex Biotechnology Corporation and Cellular Technology Limited dated June 2, 2020 (incorporated by reference to 8-K filed June 8, 2020).
10.35 Clinical Trial Collaboration and Supply Agreement. Merck Sharp & Dohme B.V., Antigen Express, Inc. June 28, 2017 (incorporated by reference to 8-K filed August 1, 2017).
10.36   Clinical Trial Agreement, Phase II Study, NSABP and Antigen Express, November 20, 2018 (incorporated by reference to 8-K filed November 26, 2018)
10.37   License and Research Agreement between Antigen Express, Inc. and Shenzhen Bioscien Pharmaceuticals Co., Ltd. November 29, 2017 (incorporated by reference to 8-K filed December 11, 2017)
10.38   Purchase Agreement between the Company and Firstfire Global Opportunities Fund LLC. (incorporated by reference to Exhibit 10.38 to 10-K filed November 13, 2020)
10.39   Promissory Note dated May 4, 2020 made to Michael Caridi (incorporated by reference to 8-K filed June 22, 2020
10.40   Promissory Note dated May 4, 2020 made to Michael Caridi (incorporated by reference to 8-K filed June 22, 2020
10.41   Securities Purchase Agreement dated August 4, 2020 among Generex Biotechnology Corporation and each other party a signatory thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed August 7, 2020)
10.42   Securities Purchase Agreement dated as of June 25, 2020 between FirstFire Global Opportunities Fund, LLC and Generex Biotechnology Corporation (incorporated by reference to Exhibit 10.35 to Registration Statement on Form S-1/A filed on September 3, 2020)
10.43   Registration Rights Agreement dated as of June 25, 2020 between FirstFire Global Opportunities Fund, LLC and Generex Biotechnology Corporation (incorporated by reference to Exhibit 10.36 to Registration Statement on Form S-1/A filed on September 3, 2020)
10.44   Promissory Note dated June 25, 2020 issued to FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.37 to Registration Statement on Form S-1/A filed on September 3, 2020)
10.45   Laboratory Services Agreement (incorporated by reference to 8-K filed June 8, 2020)
10.46   Appendix A Statement of Work (incorporated by reference to 8-K filed June 8, 2020)
10.47   Note Settlement Agreement between Iliad Research and Trading, L.P. and Generex Biotechnology Corporation (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed August 11, 2020)
10.48   Joint Venture Operating Agreement to Form NuGenHealth LLC dated August 25, 2020 between Generex Biotechnology Corporation’s wholly owned subsidiary NuGenerex Health LLC and Worldwide Digitech, LLC (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed August 31, 2020)
10.49   Heads of Agreement dated September 18, 2020 between Generex Biotechnology Corporation and its majority owned entity NuGenerex Immuno-Oncology, Inc. and Bintai Kinden Corporation of Malaysia (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed September 24, 2020)
10.50   Service Agreement dated September 24, 2020 between NuGenHealth, LLC, a subsidiary of Generex Biotechnology Corporation and Paradise Valley Family Medicine, P.C. (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed September 25, 2020)
10.51   Distribution and Licensing Agreement dated October 5, 2020 between Generex Biotechnology Corporation and its majority owned entity NuGenerex Immuno-Oncology, Inc. and Bintai Healthcare SDN BHD, a subsidiary of Bintai Kinden Corporation Berhad of Malaysia (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed October 9, 2020)
10.52   Framework Agreement on Cooperative Development of Coronavirus Peptide Vaccine dated October 30, 2020 between Generex Biotechnology Corporation and its majority owned entity NuGenerex Immuno-Oncology, Inc. and Beijing Youfeng International Consulting Co., Ltd, Chinese Centre for Disease Control and Prevention National Institute for Viral Disease Control and Prevention (NIVDC) and Beijing Guoxin Haixiang Equity Investment Partnership (Limited Partnership) (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed November 5, 2020)
10.53   The Ii-Key Innovative Vaccine Development Agreement dated November 13, 2020 between Generex Biotechnology Corporation and its majority owned entity NuGenerex Immuno-Oncology, Inc. and Beijing Youfeng International Consulting Co., Ltd, National Institute for Viral Disease Control and Prevention, Chinese Centre for Disease Control and Prevention and Beijing Guoxin Haixiang Equity Investment Partnership (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed November 18, 2020)
10.54   The Ii-Key Innovative Flu Vaccine Development Agreement dated November 13, 2020 between Generex Biotechnology Corporation and its majority owned entity NuGenerex Immuno-Oncology, Inc. and Beijing Youfeng International Consulting Co., Ltd, National Institute for Viral Disease Control and Prevention, Chinese Centre for Disease Control and Prevention and Beijing Guoxin Haixiang Equity Investment Partnership (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed November 19, 2020)
21.1   Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to 10-K filed November 30, 2020)

  

* Management contract or management compensatory plan or arrangement.

** Filed herewith 

 

(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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