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The Notes carry an annual interest rate of 6.0% and are convertible intoshares of the Company's Common Stock at a conversion price of $0.20 per share.In connection with the private placement of the Notes, the Company issued topurchasers of the Notes an aggregate of 75,000,000 five-year warrants topurchase shares of its Common Stock at an exercise price of $0.25 per share.The lead investor in the private placement was Pope Investments, LLC.
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Genesis intends to use a significant portion of the net proceeds from thisprivate placement to pay for the rights to manufacture and distribute a newChinese Class I drug, Ligustrazine Ferulic Acid Acetate (''LFAA''), and forthe marketing expenses associated with the launch of LFAA. LFAA is a cardiaccerebral vascular medicine that helps to reduce blood clotting and preventblood platelets from clumping together. The Company expects to receiveapproval of LFAA from China's State Food and Drug Administration in the firsthalf of calendar year 2009 and to start generating revenue from sales of thisdrug in the latter half of calendar year 2009. The Company projects thatrevenue from LFAA sales in Genesis' fiscal year 2010 (July 2009 through June2010) will be over $23 million, and that revenues from LFAA sales will be over$35 million in fiscal year 2011, and to continue to grow thereafter. TheCompany estimates that the profit margin on LFAA sales will be above 80%.
The Company also intends to use a significant portion of the net proceedsfrom the private placement to purchase manufacturing equipment and upgrade theCompany's facilities.
''We believe that this financing provides Genesis with new capital withwhich to pay the balance of what it costs to acquire and market LFAA, a drugthat we believe has the potential to significantly enhance our future growthand profitability,'' said Mr. Cao Wubo, Chairman and CEO of GenesisPharmaceuticals Enterprises. ''We are investing in our future growth anddevelopment while working to increase Company value for our shareholders.''
According to a make good arrangement entered into in connection with theprivate placement of the Notes, Mr Cao Wubo agreed to put 150,000,000 sharesof his common stock into escrow. 60,000,000 of those shares will betransferred to the private placement investors in the event that either theCompany's 2008 earnings before taxes are less than $26.7 million and/or theCompany's fully diluted earnings per share are less than $0.04 and 90,000,000of such shares will be transferred to the private placement investors in theevent that the Company's 2009 earnings before taxes are less than $38.4million and/or the Company's fully diluted earnings per share are less than$0.058 (or $0.056 if the 20,000,000 shares of common stock held in escrow inconnection with the Company's November private placement have been releasedfrom escrow).
Neither the Notes, the warrants nor the shares of common stock issuableupon conversion of the Notes and the exercise of the warrants issued in thisprivate placement have been registered under the Securities Act of 1933, asamended, and may not be offered or sold by the investors in the United States,except pursuant to an effective registration statement or an applicableexemption from the registration requirements. Genesis PharmaceuticalsEnterprises, Inc. has agreed to file a registration statement covering theresale by the investors of the shares of common stock issuable upon conversionof the Notes and exercise of the warrants issued in this private place
