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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(i) FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
(ii) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION
(iii) 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25169
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GENEREX BIOTECHNOLOGY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 82-049021
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
33 Harbour Square, Suite 202, Toronto, Canada M5J 2G2
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 416/364-2551
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent fliers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at ___________________, 1999, was $________.
At October 25, 1999, the registrant had 14,743,183 shares of Common Stock
outstanding.
Documents incorporated by reference: None
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FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and elsewhere in
this Report that are forward-looking statements. You can identify these
statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe," "estimate," and similar terminology. Forward-looking
statements address, among other things:
o implementing our clinical programs and other aspects of our business
plans;
o financing goals and plans; and
o our expectations of when regulatory approvals will be received or
other actions will be taken by parties other than us.
There may be events in the future that we are not able to accurately predict or
which we do not fully control that will cause actual results to differ
materially from those expressed or implied by our forward-looking statements.
Although we believe that our expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Our forward looking statements are made
as of the date of this Report, and we assume we are under no duty to update them
or to explain why actual results may differ.
PART I
Item 1. Business.
Generex Biotechnology Corporation is engaged in the research and development of
proprietary drug delivery technology. Our activities to date have been focused
on formulations to administer large molecule drugs by mouth. Large molecule
drugs ordinarily are not effective unless they are administered by injection.
The initial product based upon our large molecule drug delivery technology is a
liquid insulin formulation that can be administered by a spray to the oral
cavity. We believe that the drug delivery technology upon which this product is
based also can be used for other large molecule drugs.
Oral Insulin Formulation.
Background - Insulin Therapy for Diabetes: The term diabetes refers to a group
of disorders that are characterized by abnormally high levels of glucose in the
blood. The disorders that characterize diabetes involve defects in the
relationship between glucose, a type of sugar, and insulin secretion. 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 fats are broken
down into free fatty acids that stimulate glucose production by the liver.
Insulin, which is secreted by the pancreas, plays an important role in
regulating the level of glucose in the blood stream by stimulating the use of
glucose as fuel and by inhibiting the production of glucose in the liver. In a
healthy individual, a balance is maintained between insulin secretion and
glucose metabolism.
There are two types of diabetes. In Type 1 diabetes (juvenile onset diabetes or
insulin dependent diabetes), the pancreas produces no insulin, and patients
typically inject insulin three to five times per day to regulate blood glucose
levels. In Type 2 diabetes (adult onset or non-insulin dependent diabetes
mellitus), the body is resistant to the effect of insulin and the insulin
produced by the body is insufficient to properly regulate glucose levels in the
blood. In addition to insulin therapy, Type 2 diabetics take oral drugs that
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stimulate the production of insulin by the pancreas or enable the body to more
effectively use insulin.
Complications of diabetes include damage to the walls of blood vessels,
blindness, loss of circulation in arms and legs, coronary artery disease and
kidney failure. In addition, many diabetics are obese and this obesity leads to
cardiovascular disease and stroke.
There is no known cure for diabetes. The World Health Organization has
identified diabetes as the second largest cause of death by disease in North
America. In North America, total diabetes treatment costs in 1998 exceeded $130
billion, of which 50% represented direct costs such as medication, supplies and
medical care, with the balance being indirect costs such as lost wages.
Oral Insulin Research & Development. Insulin taken by mouth is usually not
absorbed because the insulin molecule is too large. As a result, substantially
all insulin used today in the treatment of diabetes is injected. Our research
and development effort has focused on finding an insulin formulation that will
be absorbed when administered by mouth.
We began with studies involving rats and dogs which showed favorable results.
Beginning in January 1998, we conducted a number of studies in Ecuador with
human subjects. Each of these studies involved a selection of between 8 and 10
patients. The principal purpose of these studies was to evaluate the
effectiveness of our oral insulin formulation in humans compared with injected
insulin and placebos. The studies were conducted over periods of from 4 to 5
days. In these studies, oral formulations containing 30, 40 and 50 units of
insulin provided glucose lowering results similar to 10 units of injected
insulin. The oral insulin formulations also provided average insulin absorption
equivalent to the injected insulin.
Concurrently with these studies, we also experimented with a number of devices
and techniques to orally "administer" our formulation. In our earliest studies
in Ecuador, the formulation was administered using a calibrated dropper. The
formulation was "swished" in the mouth and either spit out or swallowed. We
eventually decided to use a hand held aerosol sprayer to administer the
formulations.
On the basis of the test results in Ecuador and other pre-clinical data, we made
an Investigatory New Drug submission to the Health Protection Branch in Canada
(Canada's equivalent to the United States' Food and Drug Administration) in July
1998, and received permission from the Canadian regulators to proceed with
clinical trials in September 1998. We started these trials in November 1998, and
they are now in process.
We filed an Investigative New Drug Submission with the Food and Drug
Administration in October, 1998. In November 1998 we received FDA approval to
proceed with human trials. We began clinical trials in the United States in
February 1999, and they are now in process.
We expect to complete Phase II clinical trials of our oral insulin formulation
in 1999, and to begin Phase III clinical trials of the formulation in 2000. We
also expect to enter into one or more licensing or other collaborations with a
major pharmaceutical or biotechnology company before commencing Phase III
trials. The distinctions between Phase II and Phase III trials are described in
"Government Regulation" below.
Other Large Molecule Drug Projects.
We believe that the large molecule drug delivery system used in our insulin
product is appropriate for a variety of other drugs. We have had numerous and
extensive discussions of possible research collaborations with pharmaceutical
companies concerning the use of our large molecule drug delivery technology with
the prospective partner's products. These products include monoclonal
antibodies, human growth hormone, fertility hormone, and others. We have not
aggressively pursued these relationships,
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however, because we believed it was more advantageous to concentrate our
resources on developing our oral insulin formulation. We have, however, engaged
in preclinical trials of two non-insulin applications.
Government Regulation
United States: All aspects of our research, development and foreseeable
commercial activities are subject to extensive regulation by the FDA and other
regulatory authorities in the United States. United States federal and state
statutes and regulations govern, among other things, the testing, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, advertising and
promotion of pharmaceutical products. Preclinical studies and clinical trials,
and the regulatory approval process usually take several years and require the
expenditure of substantial resources. If regulatory approval of a product is
granted, the approval may include significant limitations on the uses for which
the product may be marketed.
The steps required before a pharmaceutical product may be marketed in the United
States include:
o preclinical tests;
o the submission to FDA of an Investigational New Drug application,
which must become effective before human clinical trials commence;
o human clinical trials to establish the safety and efficacy of the
drug;
o the submission of a New Drug Application to FDA;
o FDA approval of the New Drug Application, including approval of all
product labeling and advertising.
Preclinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to asses the potential
safety and efficacy of each product. The results of the preclinical tests are
submitted to FDA as part of the Investigational New Drug Application and are
reviewed by FDA before the commencement of human clinical trials. Unless FDA
objects to the Investigatory New Application Drug, the Investigational New Drug
Application becomes effective 30 days following its receipt by FDA. The
Investigational New Drug Application for our oral insulin formulation became
effective in November 1998.
Clinical trials involve the administration of the new drug to humans under the
supervision of a qualified investigator. The protocols for the trials must be
submitted to FDA as part of the Investigational New Drug Application. Also, each
clinical trial must be approved and conducted under the auspices of an
Institutional Review Board, which considers, among other things, ethical
factors, the safety of human subjects, and the possible liability of the
institution conducting the clinical trials.
Clinical trials are typically conducted in three sequential phases (Phase I,
Phase II, and Phase III), but the phases may overlap. Phase I clinical trials
test the drug on healthy human subjects for safety and other aspects, but not
effectiveness. Phase II clinical trials are conducted in a limited patient
population to gather evidence about the efficacy of the drug for specific
purposes to determine dosage tolerance and optimal dosages, and to identify
possible adverse effects and safety risks. We began Phase II clinical tests of
our oral insulin formulation in the United States in February 1999, and these
tests are now in progress.
When a compound has shown evidence of efficacy and acceptable safety in Phase II
evaluations, Phase III clinical trials are undertaken to evaluate clinical
efficacy and to test for safety in an expanded patient population at clinical
trial sites in different geographical locations. FDA and other regulatory
authorities require that the safety and efficacy of therapeutic product
candidates be supported through at least two adequate and well-controlled Phase
III clinical trials. The conduct of clinical trials in general and the
performance of the Phase III clinical trial protocols in particular are complex
and difficult.
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In the United States, the results of preclinical studies and clinical trials, if
successful, are submitted to FDA in a New Drug Application to seek approval to
market and commercialize the drug product for a specified use. FDA may deny a
New Drug Application if it believes that applicable regulatory criteria are not
satisfied. FDA also may require additional testing for safety and efficacy of
the drug.
We cannot be sure that any of our proposed products will receive required
regulatory approvals. Even if we receive regulatory approval, our products and
the facilities used to manufacture our products will remain subject to continual
review and periodic inspection by FDA.
To supply drug products for use in the United States, foreign and domestic
manufacturing facilities must comply with FDA's Good Manufacturing Practices.
Domestic facilities are subject to periodic inspection by FDA. Products
manufactured outside the United States are inspected by regulatory authorities
in those countries under agreements with FDA. To comply with Good Manufacturing
Practices, manufacturers must expend substantial funds, time and effort in the
area of production and quality control. FDA stringently applies its regulatory
standards for manufacturing. Discovery of previously unknown problems with
respect to a product, manufacturer or facility may result in consequences with
commercial significance. These include restrictions on the product, manufacturer
or facility, suspensions of regulatory approvals, operating restrictions, delays
in obtaining new product approvals, withdrawals of the product from the market,
product recalls, fines, injunctions and criminal prosecution.
Foreign Countries: Before we are permitted to market any of our products outside
of the United States, those products will be subject to regulatory approval by
foreign government agencies similar to FDA. These requirements vary widely from
country to country. Generally, however, no action can be taken to market any
drug product in a country until an appropriate application has been approved by
the regulatory authorities in that country. FDA approval does not assure
approval by other regulatory authorities. The current approval process varies
from country to country, and the time spent in gaining approval varies from that
required for FDA approval. In Canada, we obtained regulatory approval from the
Health Protection Branch, the Canadian equivalent of the FDA, in September 1998,
and began clinical tests in Canada in November 1998. In Ecuador, we conducted
early clinical and other studies in 1997 and the first half of 1998. Regulatory
authorities in Ecuador approved the limited non-commercial distribution of our
oral insulin formulation in September 1998.
Marketing
We have several options for marketing our products. These include selling our
drug delivery technology outright (for all applications or certain applications
only), licensing one or more companies to market products based on our
technology, or marketing directly through a sales force comprised of our own
staff and independent distributors. Our present intent is to establish joint
ventures or licensing arrangements for marketing our products. We have discussed
licensing and other terms with several potential marketing and distribution
partners for our oral insulin formulation, but have not yet reached any formal
commitments or agreements.
We plan to market oral insulin formulation in the United States under the name
Oralgen(TM), and in Canada and elsewhere under the name Oralin(TM). We expect
that the convenient size of our applicator, the stability of our oral insulin
formulation at room temperature, and the ease and pain-free nature of
self-administration of the product by patients will be the principal strengths
for marketing our formulation to patients who require insulin therapy, if and
when we obtain the necessary approvals to market the product. We also expect
that these same factors will improve patients' compliance with their prescribed
therapy, and that this improvement in patient compliance would be a significant
factor in motivating physicians to prescribe our product for insulin therapy.
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Manufacturing.
We plan to manufacture our oral insulin formulation in company-owned or
controlled facilities. Initially, we produced the formulation needed for our
clinical studies in a laboratory setting. We now have equipped a company-owned
pilot facility in Toronto, that is capable of preparing enough formulation for
approximately 500 applicators daily, and filling and shipping that number of
applicators. We believe that our pilot facility, with the addition of a second
production line, will be able to produce sufficient product for our clinical
program in the United States, Canada and South America. The cost to duplicate
the initial production line will be less than the cost for the initial line
since we will not have new design costs and the same testing and quality
assurance equipment will be used by both lines.
We also plan to equip and start up full scale manufacturing facilities in
Brampton, Ontario, and Mississauga, Ontario, both of which are company-owned and
within 25 miles from downtown Toronto. We believe that these facilities can be
placed into production in calendar year 2000. We do not foresee a need to place
these facilities into production before then.
Our present business plan is to establish a manufacturing capability in South
America to serve that market, and eventually to add additional manufacturing
capacity as and where required. We have acquired a building site in a "duty
free" zone in Ecuador for a South American manufacturing facility, but have
taken no other steps to establish any manufacturing capability outside Canada.
Our manufacturing facilities must comply with regulatory requirements of the
country in which they are located and of countries to which product produced at
the facility is exported. We believe that our pilot facility will be in
compliance with Good Manufacturing Practices before the end of calendar 1999,
and we expect to seek approval of the facility from Canada's Health Protection
Branch at that time.
Raw Material Supplies
All materials other than synthetic insulin which are required to make our oral
insulin formulation can be easily obtained. The excipients used in our
formulation are available from numerous sources. We expect to obtain the aerosol
spray applicator used to administer the product from a third party contractor
that presently is developing the device in cooperation with us. We expect that
this contractor will be a sole source of supply. We intend, however, to obtain
all necessary licenses and technical information to establish alternative
sources of supply if this proves necessary. The propellant used in our aerosol
spray applicator is a proprietary product, but is available from several
suppliers. We do not anticipate any supply difficulties in obtaining the
propellant.
There are limited sources of supply of the synthetic insulin we need. We believe
that Eli Lilly & Company and Novo Nordisk A/S together produce approximately 90%
to 95% of the world's synthetic insulin supply, and are the only sources of the
type of insulin we need that is approved for sale in the United States. The only
other company which has a significant share of the world market for synthetic
insulin is Hoescht Marion Roussel, which has a substantial share of the German
market, and limited sales elsewhere, but presently does not have an insulin
product approved for sale in the United States.
At the present time, we are using insulin obtained from retail supply sources in
our clinical trials. We have also received limited quantities of insulin from
certain insulin producers for use in clinical studies and for other
non-commercial purposes. In order to obtain wide distribution of our oral
insulin product, we will be required to secure a direct supply of insulin in
commercial quantities. We have discussed insulin supply with the leading
suppliers and certain pharmaceutical companies which do not now have a
significant share of the world insulin market or an insulin product that is
approved for sale in the United States. We do not now have a supply agreement
for commercial quantities of insulin.
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Intellectual Property
Our large molecule drug delivery technology is covered by one or more of eleven
US patent applications pending as of June 30, 1999. Two of these patents have
been allowed but have not yet issued. We have three other patent applications
pending, two of which are pending only in Canada, which cover other drug
delivery technology. At the present time, however, we are not devoting
significant resources to develop these other technologies.
Our technology is the result of original research and discoveries by Pankaj
Modi, our Vice President, Research and Development. Under an October 1996
Consulting Agreement, Dr. Modi assigned to us his entire interest in all
inventions, ideas, designs and discoveries made by him during the term of the
Agreement which relate to our actual or demonstrably anticipated business, work,
undertakings or research and development. At that time, Dr. Modi also entered
into an Assignment and Assumption Agreement with us under which he assigned to
us his interests in specific drug delivery systems and technology patents
invented/discovered/conceived by him prior to the execution of the Agreement.
This included all of his interests in three patents which he previously had
assigned to Centrum Biotechnologies, Inc., a Canadian company which was then 50%
owned by Dr. Modi. Generex Pharmaceuticals has since acquired Dr. Modi's
interest in Centrum Biotechnologies for no additional consideration.
Since joining us, Dr. Modi has developed formulations and procedures, including
our oral insulin formulation, that we believe are outside the scope of the
patents and other rights previously assigned to us and to Centrum by Dr. Modi.
At this time, however, we have not obtained any formal legal opinions that Dr.
Modi's inventions and discoveries after joining us do not infringe his earlier
patents or other patents owned by third parties.
Competition
Any product that we may develop will compete directly with products developed
and marketed by other companies. In addition, other institutions, including
pharmaceutical companies, universities, government agencies and public and
private research organizations attempt to develop and patent products which
could compete with our products. These companies and institutions also compete
with us in recruiting and retaining qualified scientific personnel. Many of our
competitors and potential competitors have substantially greater scientific
research and product development capabilities, as well as financial, marketing
and human resources, than we do.
Many pharmaceutical and biotechnology companies are engaged in various stages of
research, development and testing of alternatives to insulin therapy for the
treatment of diabetes, as well as new means of administering insulin The
potential competitive technologies include the following:
o Inhale Therapeutics has developed a technology utilizing a fine powder
form of insulin that is administered using a proprietary inhalation
device and absorbed in the deep lungs. Inhale has announced successful
results using its inhalation techniques in Phase II clinical trials,
and is now engaged in Phase III trials.
o In November 1998, Pfizer, Inc., which has a collaboration agreement
with Inhale, announced that it had entered into worldwide agreements
to co-develop and co-promote the use of inhaled insulin with Hoechst
Marion Roussel, a leading pharmaceutical-company which has been making
insulin for approximately 75 years.
o Cortecs International announced in late 1997 the results of two
insulin studies with its proprietary product in an oral insulin
capsule form and with a liquid version administered with a tube into
the stomach. Cortecs claimed that these studies showed a significant
lowering of glucose levels in Type 2 diabetic patients, and announced
its intention to conduct multiple dose studies in the future.
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o Aradigm Corporation has announced a joint development agreement with
Novo Nordisk A/S to jointly develop a pulmonary delivery system to
administer insulin by inhalation. Aradigm began Phase II testing in
the second half of 1998. Novo Nordisk is one of the two leading
manufacturers of insulin in the world, the other being Eli Lilly &
Company.
o Dura Pharmaceuticals and Eli Lilly & Company announced in September
1998 that they are collaborating to develop pulmonary delivery
technology for insulin products based upon proprietary technology of
Spiros Development Corporation.
o Endorex Corporation has announced receipt of a patent for a technology
for the oral administration of vaccines which it licenses from the
Massachusetts Institute of Technology. According to that announcement,
the patent covers a vaccine delivery system which Endorex is
developing through a joint venture with Elan Pharmaceutical
Technologies, a company which specializes in drug delivery
technologies and systems.
In addition to other delivery systems for insulin, there are numerous
products which have been approved for use in the treatment of Type 2
diabetics in place of or in addition to insulin therapy. These
products include the following:
o Glucophage(R) is a proprietary product of Bristol-Myers Squibb Company
that is used to improve diabetic patients' ability to control glucose
without increasing serum insulin levels. It is believed to work, at
least in part, by reducing glucose output from the liver.
o Arcabose(R) is a proprietary product sold in the United States by
Bayer Corporation. The product is sold in Europe under the tradename
Glucobay(TM). Acarbose(R) reduces blood glucose levels primarily after
meals by slowing down the digestion of carbohydrates and lengthening
the time it takes for carbohydrates to convert to glucose.
o Rezulin(R) is a proprietary product sold by Warner Lambert for use as
the sole therapy or part of a combination therapy for Type 2 diabetes.
The product is believed to work in part by increasing the body's
sensitivity to insulin.
o Prandin(TM) is a proprietary product sold by Novo Nordisk and
Schering-Plough Corporation which has been approved by the FDA for
certain diabetic patients. The product is believed to act via calcium
channels to stimulate insulin secretion.
Virtually all of our competitors and potential competitors have greater research
and development capabilities, experience, manufacturing, marketing, sales,
financial and managerial resources than we now have. Our competitors may develop
competing technologies, and obtain regulatory approval for products more rapidly
than we do. This may allow them to obtain greater market acceptance of their
products. Developments by others may render some or all of our proposed products
or technologies uncompetitive or obsolete.
We expect that competition among products approved for sale to treat diabetes
will be based, among other things, on product safety, efficacy, ease of use,
availability, price, marketing and distribution. We believe that the principal
advantage of our oral insulin formulation will be ease of use which will result
in greater patient compliance. Our product, however, may be more expensive and
more difficult to obtain than other diabetes treatments.
Environmental Compliance
Our manufacturing, research and development activities involve the controlled
use of hazardous materials and chemicals. We believe that our procedures for
handling and disposing of these materials comply with
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all applicable government regulations. However, we cannot eliminate the risk of
accidental contamination or injury from these materials. If an accident
occurred, we could be held liable for damages, and these damages could severely
impact our financial condition. We are also subject to many environmental,
health and workplace safety laws and regulations, particularly those governing
laboratory procedures, exposure to blood-borne pathogens, and the handling of
hazardous biological materials. Violations and the cost of compliance with these
laws and regulations could adversely affect us. However, we do not believe that
compliance with the United States, Canadian or other environmental laws will
have a material effect on us in the foreseeable future.
Research and Development Expenditures
A substantial portion of our activities to date have been in research and
development. In the period from inception to July 31, 1999, our expenditures on
research and development were $3,689,818. These included $1,853,108 in the year
ended July 31, 1999, $876,404 in the year ended July 31, 1998, and $727,479 in
the year ended July 31, 1997.
Employees
On September 30, 1999, We had 22 full-time employees, including our executive
officers and other individuals who work for us full time but are employed by
management companies that provide their services. Eleven of these employees are
executive and administrative, six are scientific and technical personnel who
engage primarily in development activities and in preparing formulations for
testing and clinical trials. Five of our employees are engaged in corporate and
product promotion, public relations and investor relations. We believe our
employee relations are good. None of our employees is covered by a collective
bargaining agreement.
Item 2. Properties.
Our executive and principal administrative officers occupy approximately 5,000
square feet of office space in the Business Centre at 33 Harbour Square in
downtown Toronto, Ontario, Canada. We own the Business Centre, which comprises
approximately 9100 square feet of usable space. The space in the Centre that is
not used by us is leased to third parties. Under the terms of our purchase of
this space, however, net rental income from third parties' leases was retained
by the seller through January 31, 1999.
We also have commenced limited production of our oral insulin formulation for
clinical purposes at a pilot manufacturing facility in Toronto. This facility,
which we own, consists of approximately 3600 square feet of laboratory,
manufacturing and storage space. At this time, we are using approximately
two-thirds of the usable space. On a single shift, we believe the facility has
the capacity to prepare the oral insulin formulation for approximately 500
applicators per day, and to fill and ship those applications. We are not
producing at those levels at this time, however, because there is no need to do
so. We also believe that we can increase production at this facility to
approximately 1000 applicators per day by outfitting and equipping the remaining
space at this facility, and installing a second production line, at a cost of
approximately $300,000.
We have a purchase money mortgage on our executive facility in Toronto. The
amount of this mortgage is $800,000 CAD (approximately $550,000 US) and is
payable in full in March 2000. We have a mortgage of $125,000 CAD (approximately
$86,000 US) on our pilot manufacturing facility which is due in September 2000.
Both of these mortgages require only the payment of interest prior to their due
date.
We also own an 11,625 square foot building in Brampton, Ontario, which is
approximately 25 miles outside Toronto; a 13,500 square foot building in
Mississauga, Ontario, which is about 20 miles from downtown Toronto; and a
commercial building site in Ecuador. We have begun the preliminary work to equip
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and start-up the Brampton and Mississauga facilities to produce our oral insulin
formulation. We believe that we can place these facilities in operation by the
end of calendar year 2000. At this time, we do not expect to need manufacturing
capabilities beyond our pilot facility before the end of the year 2000.
Item 3. Legal Proceedings.
Sands Brothers & Co. Ltd., a New York City-based investment banking and
brokerage firm, initiated an arbitration against us under New York Stock
Exchange rules on October 2, 1998. Sands alleged that it had the right to
receive, for nominal consideration, approximately 1.6 to 2.5 million shares of
our common stock. This claim was based upon an October 1997 letter agreement
which purported to confirm an agreement appointing Sands Brothers as the
exclusive financial advisor to Generex Pharmaceuticals, Inc., our subsidiary. In
exchange for agreeing to act in that capacity, the letter agreement purports to
grant Sands the right to acquire 17% of Generex Pharmaceuticals common stock for
nominal consideration. Following our acquisition of Generex Pharmaceuticals,
Sands claimed right to receive shares of Generex Pharmaceuticals common stock
applies to our common stock since outstanding shares of Generex Pharmaceuticals
were converted into our shares in the acquisition. Sands' claims also included
additional shares as a fee related to that acquisition, and $144,000 in monthly
fees due under the terms of the purported agreement.
On October 1, 1999, we were informed that the arbitration panel that heard this
case had awarded Sands $14,070 and issued a declaratory judgment to the effect
that we are required to issue to Sands a warrant to purchase 1,530,020 shares of
our common stock pursuant to and in accordance with the terms of the October 9,
1997 letter agreement. While we plan to take action in court to set the award
aside, the grounds upon which courts will overturn an arbitration award are
limited, and our ultimate legal and financial liability, including a range of
possible losses with respect to the award, cannot be estimated at this time.
We are also involved in the following proceedings:
o In February 1997, a claim of wrongful dismissal by a former employee
seeking damages of $450,000 (CAD) was brought in Ontario Court in
Toronto, Ontario (Lorne Sparks v. Generex Pharmaceuticals, Inc.). This
case was tried without a jury in October 1999, and a decision is
expected in calendar 1999.
o In June 1996, "Generex Inc." was named as an additional defendant in a
pending action in The Court of Queen's Bench of Alberta, in Calgary,
Alberta (Elbourne, et al. v. Acepharm, Inc., et al.). In this action
the plaintiffs seek injunctive relief relating to the ownership and
control of Acepharm, damages for an alleged reduction in the value of
their shares in Acepharm, Inc. (approximately $680,000 U.S.), and
punitive damages (approximately $3.4 million U.S.). In one paragraph,
plaintiff's amended Statement of Claim identifies Generex
Pharmaceuticals and mis-identifies it as a subsidiary of another
corporation. Except for this paragraph, there is no reference to us in
the amended Statement of Claim. The specific acts alleged in the
amended Statement of Claim to have violated plaintiffs' interests and
caused it injury are ascribed to other defendants, and occurred prior
to Generex Pharmaceuticals' incorporation in November 1995. We believe
that we were made a party to this case because Generex Pharmaceuticals
had expressed interest in acquiring certain assets of Acepharm, and
the plaintiffs wished to prevent the sale. Because of the dispute over
management, ownership and control of Acepharm, Inc., and because
Acepharm's assets are unrelated to its business plans and goals,
Generex Pharmaceuticals has long since abandoned any interest in
purchasing such assets.
We deny any wrongdoing relative to any of the matters upon which
plaintiff's claims in this action are based. We failed, however, to
file a Statement of Defense to those claims on a timely basis, and
plaintiffs caused a notice of default to be entered against us. We
intend to apply to the court to have
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the notice of default set aside, and to permit us to file a Statement
of Defense. Certain discovery proceedings required by the court prior
to our filing this application are expected to be completed this
month. Our application will be filed promptly thereafter. We may not
succeed in setting aside the notice of default, however, in which case
we would be precluded from contesting liability, but would be
permitted to contest the amount of damages, if any, which plaintiffs
incurred as a result of our actions or of actions for which we are
legally responsible. We believe that plaintiffs have suffered no loss
or injury based on any action of ours or for which we were
responsible, and have made no provision in our financial statements
for any loss which might be incurred in this litigation.
o In February 1999, MQS, Inc., a former consultant, commenced a civil
action against us in the United States District Court for the District
of New Jersey claiming that 242,168 shares of our Common Stock and
$243,065.50 are due to it for services which it rendered through
December 22, 1998. MQS also claims that we have used proprietary
technology of MQS in developing our aerosol applicator and in
formulating our oral insulin product for aerosol application. We filed
our answer to MQS's claims in May 1998, in which we deny that MQS is
entitled to the relief that it seeks, or that MQS supplied any
proprietary technology to us in the course of its engagement or
otherwise. We also have filed a counterclaim against MQS for breach of
contract. We are unable to predict the outcome of this litigation at
this time.
We maintain product liability coverage for claims arising from the use of our
products in clinical trials, etc., but do not have any insurance which covers
our potential liability in any of the legal proceedings described above.
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matters to a vote of stockholders in the last quarter of
the year ended July 31, 1999.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
"Bid" and "asked" prices for our common stock have been quoted on the Nasdaq OTC
Electronic Bulletin Board since February, 1998. The OTC Bulletin Board also
publishes prices at which shares are actually sold, as reported to it by
brokerage firms. Prior to February 1998, there was no public market for the
common stock. The table below sets forth the high and low inter-dealer bid
quotations for our common stock for certain periods, as furnished by the NASDAQ
OTC Bulletin Board from the beginning of trading on February 5, 1998. The high
and low bid price quotations for our common stock on October 19, 1999, were
$5.25 and $4.9375, respectively, and the "closing" bid price was $5.00. These
are "inter-dealer" quotations, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.
High Low
---- ---
1998
----
First quarter $ 6.375 $5.75
Second quarter $ 9.00 $6.00
Third quarter $ 8.125 $5.75
Fourth quarter $18.875 $7.375
1999
----
First Quarter $13.75 $7.00
Second Quarter $ 9.375 $6.5625
Third Quarter $8,0625 $5.50
Fourth Quarter (through
October 19, 1999) $5,8125 $4.75
At October 19, 1999, there were 1,048 holders of record of our common stock.
Outstanding Warrants and Options
Placement Warrants to purchase 256,364 shares were issued as compensation to two
broker dealers, Coleman & Company Securities, Inc. and GIA Securities, Inc., and
certain of their employees in connection with our entering into an investment
banking relationship with Coleman Securities and a private placement of common
stock managed by Coleman Securities in April and May 1999. The Placement
Warrants are exercisable at prices ranging from $5.50 to $7.50 per share. The
weighted average exercise price is $6.18 per share. The Placement Warrants
expire in February and April 2004.
We have other outstanding warrants and options which are exercisable for the
number of shares and prices indicated below:
o 7,937 shares at a price of $21.82 per share expiring September 6,
2002.
o 500,000 shares at a price of $2.50 per share expiring March 31, 2003.
o 50,000 shares at a price of $8.00 per share expiring November 13,
2003.
o 150,000 shares at a price of $10.00 per share expiring November 17,
2003.
11
Shares Saleable Under Rule 144
At October 21, 1999, we had outstanding 12,015,844 shares that were "restricted
securities" as defined in SEC Rule 144. Of these shares, 636,364 shares have
been registered for sale in this offering. Of the remaining restricted shares, a
substantial majority currently are saleable under Rule 144 upon the seller's
compliance with the manner of sale and other conditions and limitations of that
Rule. Rule 144 also requires that specified information concerning Generex must
be available at the time any such sale is made. Restricted shares that are not
currently saleable generally will become so one year after the date we issued
the shares. Generex is subject to the reporting requirements of the Securities
Exchange Act of 1934 and, so long as it complies with those reporting
requirements, it satisfies Rule 144 "public information" requirements.
Recent Sales of Unregistered Securities
Sales of unregistered securities in the past fiscal year which occurred on or
prior to February 12, 1999, are set forth in Item 10 of our Registration
Statement on Form 10, as amended on February 24, 1999. The information
pertaining to such sales that is set forth in Item 10 of the Form 10, as amended
February 24, 1999, is incorporated herein by reference.
In the period from February 13, 1999 until June 21, 1999, the Company has
offered and sold Common Stock and other securities in the transactions described
below in reliance upon exemptions from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof, and Rule 506, Regulation D
thereunder. No "public solicitation", as that term is defined in Rule 502(c),
was employed by or in connection with the sale of securities in reliance upon
Section 4(2) and Rule 506. All purchasers were, to the Company's reasonable
belief, accredited investors who purchased for investment. All disclosures
required under Rule 502(d) were made by us, and all other conditions to the
availability of the Rule 506 exemption were, to our knowledge and belief,
complied with by us.
In order to assure that resale restrictions applicable to restricted securities
are complied with, we have placed a legend evidencing the restrictions on all
certificates representing the shares, and has issued "stop transfer"
instructions to our transfer agent to prevent unapproved transfers.
The transactions were as follows:
(a) On February 15, 1999 and March 6, 1999, we issued an aggregate of 22,000
shares of common stock to three purchasers. These were additional sales in the
Rule 506, Regulation D offering described in Paragraph (h) of Item 10 of our
Registration Statement on Form 10. The purchasers of these shares were:
Paul Busch -- 6,000 shares at $5.00 per share cash;
Partners of the Toronto law firm of Brans Lehun Baldwin -- 5,000 shares
issued for services rendered by the law firm and valued at $6.00 per share;
Joseph Chicco -- 11,000 shares at $6.00 per share cash.
(b) Between April 27, 1999 and May 24, 1999, we offered and sold a total of
636,365 shares at a price of $5.50 per share. Coleman Securities and GIA
Securities acted as our agents in the placement of the shares, and received
commissions of 10% and warrants to purchase common stock as described below. The
investors in this private placement were as follows:
12
Investor Number of Shares
- -------- ----------------
Cranshire Capital, L.P. 177,274
Keyway Investments Ltd. 154,545
ICN Capital Ltd. 59,092
Gilford Partners, L.P. 18,182
Howard Horberg 22,727
Steve Levy 22,727
Headwaters Capital 90,909
Aries Domestic Fund, L.P. 27,000
Aries Domestic Fund II, L.P. 272
Aries Master Fund 63,637
(c) In connection with entering into an investment banking relationship with
Coleman & Company Securities, Inc. and as compensation to Coleman Securities and
GIA Securities, Inc. in connection with the private placement of common stock
described in paragraph (b) above, we issued the following warrants to purchase
common stock to these broker dealers and their employees:
o 50,000 Warrants at $6.00 per share expiring 02/16/04
o 100,000 Warrants at $6.00 per share expiring 04/06/04
o 50,000 Warrants at $7.50 per share expiring 04/06/04
o 56,364 Warrants at $5.50 per share expiring 04/26/04
We also issued warrants to purchase 7,274 shares at $5.50 per share to two
finders who introduced the Company to one of the investors in the private
placement.
(d) Between May 11, 1999 and June 4, 1999, we sold a total of 1,002,672 shares
to holders of previously outstanding Series A Redeemable Common Stock Purchase
Warrants (27 holders) at $5.00 per share upon the exercise of such warrants. The
warrants had been issued in the "units" offering described in Item 10, Paragraph
(c) of our Registration Statement on Form 10, and the holders exercising these
warrants were purchasers in the "units" offering. The purchase price of these
shares was paid in cash, in previously owned shares of our common stock valued
for this purpose at $7.8125 per share, by cancellation of indebtedness or by
promissory note, as follows: 388,375 shares were issued for cash ($1,941,875);
506,125 shares were paid for by the surrender of 323,920 previously owned shares
($2,580,625); 98,172 shares were sold partially in consideration of cancellation
of indebtedness ($66,978.30) and partially through the issuance of a two-year
promissory note ($423,701.70); and 10,000 shares were sold in consideration of a
short term promissory note ($50,000).
(e) In June 1999, the Company issued 45,000 shares of Common Stock to Monetary
Advancement, Inc. as compensation for consulting services, and 6,300 shares to
Thompson Kernaghan & Company for services in connection with the warrant
redemption described in paragraph (d) above. These shares were valued at $5.50
per share for these purposes.
13
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following selected financial data is derived from and should be read in
conjunction with our financial statements and related notes which appear
elsewhere in this prospectus. Our financial statements as of and for the fiscal
years ended July 31, 1999 and 1998, have been audited by Withum, Smith & Brown,
independent auditors. The financial statements as of and for the fiscal year
ended July 31, 1997, have been audited jointly by Withum, Smith & Brown and
Mintz & Partners, independent auditors.
Cumulative
From
November 2,
1995
Years (Date of
Ended July 31 Inception)
------------------------------------- to July 31,
1999 1998 1997 1999
------ ------ ------ ---------
STATEMENT OF
OPERATIONS DATA (In
thousands, except per share
data):
Revenues $ -- $ -- $ -- $ --
Net Loss $(6,240) $(4,664) $(1,379) $(12,976)
Basic and diluted net loss
per common share $ (.47) $(.46) $(.25) --
Weighted average number of
common shares outstanding 13,260 10,079 5,513 --
Cash dividends per share -- -- -- --
July 31,
--------------------
1999 1998
----- ------
BALANCE SHEET DATA (In thousands):
Working capital $5,188 $ 873
Total assets $8,890 $5,456
Total long-term debt (less
current maturities) $ 445 $ 913
Total stockholders' equity $7,310 $2,642
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
General
Generex Biotechnology Corporation was incorporated in 1983 as Green Mt. P.S.,
Inc. In January 1998, we acquired all of the outstanding capital stock of
Generex Pharmaceuticals, Inc. ("Generex Pharmaceuticals"), a Canadian
corporation formed in November 1995 to engage in pharmaceutical and
biotechnological research and other activities, and changed our corporate name
to Generex Biotechnology Corporation. The acquisition of Generex Pharmaceuticals
was effected by the merger of a recently formed Delaware corporation ("Generex
Delaware"), which had acquired all of the outstanding capital stock of Generex
Pharmaceuticals in October 1997, with a wholly-owned subsidiary which we formed
for this transaction (the "Reverse Acquisition"). As a result of the Reverse
Acquisition, the former shareholders of Generex Delaware acquired a majority of
our outstanding capital stock and, for accounting purposes, Generex Delaware was
treated as the acquiring corporation. Thus, the historical financial statements
of Generex Delaware, which essentially represent the historical financial
statements of Generex Pharmaceuticals, are deemed to be the historical financial
statements of Generex Biotechnology Corporation.
On April 30, 1999, we completed a reorganization in which we merged into Generex
Delaware to change our state of incorporation from Idaho to Delaware. This
reorganization did not result in any material change in our historical financial
statements or current financial reporting. As part of the reorganization,
Generex Delaware changed its corporate name to "Generex Biotechnology
Corporation".
We are engaged in developing drug delivery systems. Our principal business focus
has been to develop a technology to administer large molecule drugs (i.e., drugs
composed of molecules above a specified molecular weight) by the oral route.
Historically, large molecule drugs have been administered only by injection
because their size inhibits or precludes absorption if administered by oral,
transdermal, transnasal or other means.
The first product based on our large molecule drug delivery technology is a
liquid insulin formulation that is administered using a hand-held aerosol spray
applicator. The formulation, which includes insulin and various excipients
(i.e., non-active pharmaceutical ingredients) to facilitate the absorption of
insulin molecules through the mucous membranes in the mouth and upper
gastro-intestinal tract, is sprayed into the mouth and back of the throat, where
absorption occurs. This product is presently undergoing clinical trials in the
United States and Canada.
We do not expect to receive significant revenue from product sales in the
current fiscal year or in the next fiscal year. We do expect, however, to
receive licensing income, or income in the nature of licensing income (e.g.,
"signing bonuses" or "advance royalties"), next year in connection with our
entering into marketing and distribution agreements. Income from such sources,
if received, is likely to be material relative to our total cash needs. We do
not have any commitments to receive such payments at the present time.
Results of Operations
1999 Compared With 1998
We had a net loss of $6,239,602 in the year ended July 31, 1999, compared to a
loss of $4,663,604 in the preceding fiscal year. The increase in our net loss
resulted from increases in research and development expenses (to $1,853,108 from
$876,404) and in general and administrative expenses (to $4,374,523 from
$3,723,909).
15
The principal reasons for the increase in our research and development expense
in the year ended July 31, 1999, were:
o commencement of clinical trials of our oral insulin formulation in
Canada and the United States during the second and third quarters;
o preparations for our clinical program during the first quarter,
including preparation of our IND application to FDA;
o development work associated with our oral insulin applicator; and
o costs associated with starting up our pilot manufacturing facility in
Toronto which supports our clinical programs.
The principal reason for the increase in our general and administrative expense
in the year ended July 31, 1999, was an increase of $455,152 in legal and
accounting fees and expenses ($836,382 in the year ended July 31, 1999, compared
to $381,230 in the prior year). This increase was related principally to legal
and accounting services in connection with the registration of our common stock
under the Securities Exchange Act of 1934, compliance with the reporting
requirements of that Act, legal services related to patents, litigation defense
costs and increased legal activity necessitated by increased business activity.
A significant portion of our increase in general and administrative expenses
($165,611) in the past fiscal year was the result of increased travel and other
costs associated with attendance at and, in one case co-sponsorship of, industry
seminars and exhibitions.
In both of the last two fiscal years, we incurred substantial expenses for
financial advisory and other financing services that were not related to a
specific financing and, therefore, were accounted for as general and
administrative expenses. These expenses were paid primarily through the issuance
of shares of common stock and/or warrants to purchase common stock ($1,573,604
in the year ended July 31, 1999, and $1,758,166 in the prior year). We expect a
significant reduction in such expenses in the current fiscal year.
Results of Operations - Years Ended July 31, 1998, 1997 and 1996
Through July 31, 1998, we have accumulated a substantial operating deficit as a
result of research, development and general and administrative expenses incurred
at a time when we have had no revenues from operations. These expenses have
increased year to year, and increased substantially in the fiscal year ended
July 31, 1998, primarily because of large increases in general and
administrative expenses ($3,723,909 in the year ended July 31, 1998, versus
$651,545 in the prior year).
The increase in our general and administrative expenses in the fiscal year ended
July 31, 1998, was attributable primarily to:
o increase in salaries ($570,230 in the year ended July 31, 1998, versus
$77,806 in the prior fiscal year);
o professional fees ($527,941 versus $98,078);
o consulting services paid for through the issuance of securities valued
at $110,000, versus zero in the prior year; and
o settlement of a liquidated damage claim by a former lender ($738,000)
based upon our failure to become a "public company" prior to December
7, 1997.
16
Liquidity and Capital Resources
To date we have financed our development stage activities primarily through
private placements of common stock. In the year ended July 31, 1999, we issued
shares of common stock, and options and warrants to purchase common stock, as
follows:
o we sold 2,179,189 shares for gross cash proceeds of $9,740,917;
o we issued 147,884 shares valued for this purpose at $679,113, and
options and warrants valued for this purpose at $1,146,874, as
compensation for services, including financial advisory and other
financing services;
o we issued 180,000 shares to settle an accrued liability of $738,000
incurred in a financing transaction;
o we issued 506,125 shares in exchange for 323,920 previously
outstanding shares in a "cashless exercise" of outstanding warrants;
and
o we issued 94,776 shares in consideration of promissory notes in the
aggregate amount of $473,882.
As a result of our sales of common stock for cash during the year, our
stockholders' equity had increased to approximately $7.31 million at July 31,
1999, versus approximately $2.64 million at July 31, 1998, notwithstanding our
net loss during the year.
Implementing our business plan will require the availability of sufficient funds
to complete development of our oral insulin formulation and to carry on other
research and development activities. While we have been able to raise capital
for our development activities in the past, we do not have any commitments for
future financing. Thus, we face the risk that unforeseen problems with our
clinical program or materially negative developments in general economic
conditions could interfere with our ability to raise the capital we need, or
materially adversely affect the terms upon which such capital is available. If
we were unable to raise additional capital as needed, we could be required to
"scale back" or otherwise revise our business plan. Any significant scale back
of operations or modification of our business plan due to a lack of funding
could be expected to materially and adversely affect our prospects.
At July 31, 1999, we had cash on hand of approximately $5.66 million versus
$2.09 million as of the end of the preceding fiscal year. We believe that our
cash on hand is sufficient to complete the Phase II clinical programs for our
oral insulin formulation in the United States and Canada, and to fund general
and administrative expenses at current levels through the end of the current
fiscal year. Additional funds will be required, however, to carry out a Phase
III clinical program. The differences between Phase II and Phase III clinical
programs are described in Item 1 of this Report.
We expect that a substantial portion of our Phase III clinical program costs
will be obtained through licensing income and future marketing partners'
contributions to clinical program costs and/or equity investments. We do not,
however, have any licensing agreements or contractual arrangements for other
funding at the present time.
Transactions with Affiliates
Prior to January 1, 1999, a portion of our general and administrative expenses
resulted from transactions with affiliated persons, and a number of capital
transactions also involved affiliated persons. Although these transactions were
not the result of "arms-length" negotiations, we do not believe that this fact
had a material impact on our results of operations or financial position. Prior
to the current fiscal year, our classified payments to its executive officers as
compensation and expense reimbursements as "Research
17
and development-related party" because its executive officers received such
payments through personal services corporations rather than directly. For this
fiscal year and in the future, these payments have been and will be accounted
for as though the payments were made directly to the officers, and not as a
related party transaction. We do not foresee a need for, and therefore do not
anticipate, any related party transactions in the current fiscal year.
Year 2000 Issues
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. We have completed our assessment of
year 2000 issues and believe that the consequences of such issues will not have
a material effect on our business, results of operations or financial condition,
without taking into account any efforts by us to avoid such consequences.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. We began the
adoption of SFAS No. 130 in our first fiscal quarter ending October 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
selected information in the notes thereto. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the year of adoption, but comparative information is required in the second year
of application. We do not believe that the adoption of SFAS No. 131 has had a
material impact on our financial reporting.
In 1998, the FASB issued Statement of Financial Accounting Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 modifies the accounting for derivative and hedging activities and
is effective for fiscal years beginning after December 15, 1999. We believe that
the adoption of SFAS No. 133 will not have a material impact on our financial
reporting.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use". We believe
that the adoption of SOP 98-1 will not have a material impact on our financial
reporting.
Item 7A. Quantitative and Qualitative Disclosures About Market Price
We have neither issued nor own any long term debt instruments, or any other
financial instruments as to which we would be subject to material risks,
including market risks, related to interest rate movements.
At the present time, we maintain our cash in short term government or government
guaranteed instruments, short term commercial paper, interest bearing bank
deposits or demand bank deposits which do not earn interest. A substantial
majority of these instruments and deposits are denominated in US dollars, with
the exception of funds denominated in Canadian dollars on deposit in Canadian
banks to meet short term operating needs in Canada. At the present time, with
the exception of costs associated with the conduct of clinical trials in the
United States and professional fees, substantially all of our operating expense
obligations are denominated in Canadian dollars. We do not presently employ any
18
hedging or similar strategy intended to mitigate against losses that could be
incurred as a result of fluctuations in the exchange rates between US and
Canadian currencies.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
Generex Biotechnology Company:
We have audited the accompanying consolidated balance sheets of Generex
Biotechnology Company and Subsidiaries (a development stage company) as of July
31, 1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years then ended and the
cumulative amounts of operations and cash flows for the period November 2, 1995
(date of inception) to July 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Generex
Biotechnology Company and Subsidiaries as of July 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for the years then
ended and the cumulative amounts of operations and cash flows for the period
November 2, 1995 (date of inception) to July 31, 1999 in conformity with
generally accepted accounting principles (United States).
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage enterprise and has
suffered recurring losses and net cash outflows from operations since inception
that raise substantial doubt about its ability to continue as a going concern.
As such, the Company is dependent upon future capital infusions from existing
and/or new investors to fund operations. Management's plans with regard to these
matters are also described in Note 2. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Withum, Smith & Brown
New Brunswick, New Jersey
September 17, 1999, except for Note 7,
"Pending Litigation," paragraph 4, which
is dated October 20, 1999
19
INDEPENDENT AUDITORS' REPORTS
To the Board of Directors and Stockholders,
Generex Biotechnology Company:
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Generex Biotechnology Company and
Subsidiaries (a development stage company) for the year ended July 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Generex Biotechnology Company and Subsidiaries for the year ended
July 31, 1997 in conformity with generally accepted accounting principles
(United States).
Withum, Smith & Brown Mintz & Partners
New Brunswick, New Jersey Toronto, Ontario
October 15, 1998 October 3, 1997
20
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
July 31,
----------------------------
1999 1998
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,633,201 $ 2,090,827
Restricted cash -- 106,527
Short-term investments 232,345 --
Miscellaneous receivables 182,413 209,090
Other current assets 119,010 131,340
------------ -----------
Total Current Assets 6,166,969 2,537,784
Property and Equipment, Net 1,879,547 1,634,447
Deposits 66,159 82,509
Due From Related Parties 776,991 1,200,968
------------ -----------
TOTAL ASSETS $ 8,889,666 $ 5,455,708
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 428,874 $ 1,253,003
Current maturities of long-term debt 550,589 411,565
------------ -----------
Total Current Liabilities 979,463 1,664,568
Long-Term Debt, Less Current Maturities 444,971 912,817
Due to Related Parties 155,383 236,024
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
issued and outstanding 1,000 shares at July 31, 1999 and 1998 1 1
Common stock, $.001 par value; authorized 50,000,000 shares,
issued and outstanding 14,740,683 and 11,971,272 shares
at July 31, 1999 and 1998, respectively 14,741 11,971
Additional paid-in capital 20,903,728 9,565,836
Notes receivable - common stock (434,903) --
Deficit accumulated during the development stage (12,975,678) (6,736,076)
Accumulated other comprehensive income (loss) (198,040) (199,433)
------------ -----------
Total Stockholders' Equity 7,309,849 2,642,299
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,889,666 $ 5,455,708
============ ===========
The Notes to Consolidated Financial Statements are an
integral part of these statements.
21
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
For the Years Ended November 2,
July 31, 1995 (Date of
------------------------------------------------- Inception) to
1999 1998 1997 July 31, 1999
------------ ----------- ----------- --------------
Revenues $ -- $ -- $ -- $ --
Operating Expenses:
Research and development 1,853,108 707,520 676,145 3,469,600
Research and development - related party -- 168,884 51,334 220,218
General and administrative 4,374,523 3,409,581 651,545 8,896,270
General and administrative - related party -- 314,328 -- 314,328
------------ ----------- ----------- ------------
Total Operating Expenses 6,227,631 4,600,313 1,379,024 12,900,416
------------ ----------- ----------- ------------
Operating Loss (6,227,631) (4,600,313) (1,379,024) (12,900,416)
Other Income (Expense):
Interest income 55,190 -- -- 55,190
Interest expense (67,161) (63,291) -- (130,452)
------------ ----------- ----------- ------------
Net Loss $ (6,239,602) $(4,663,604) $(1,379,024) $(12,975,678)
============ =========== =========== ============
Basic and Diluted Net Loss Per Common
Share $ (.47) $ (.46) $ (.25)
============ =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding 13,260,260 10,078,875 5,512,840
============ =========== ===========
The Notes to Consolidated Financial Statements are an
integral part of these statements.
22
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1999
Preferred Notes
Common Stock Stock Additional Receivable
----------------------- ----------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
--------- ------- ------- ------ ---------- ---------
Balance - November 2, 1995 (Inception) -- $ -- -- $ -- $ -- $ --
Issuance of common stock for cash,
February 1996, $.0254 321,429 321 -- -- 7,838 --
Issuance of common stock for cash,
February 1996, $.0510 35,142 35 -- -- 1,757 --
Issuance of common stock for cash,
February 1996, $.5099 216,428 216 -- -- 110,142 --
Issuance of common stock for cash,
March 1996, $10.2428 2,500 3 -- -- 25,604 --
Issuance of common stock for cash,
April 1996, $.0516 489,850 490 -- -- 24,773 --
Issuance of common stock for cash,
May 1996, $.0512 115,571 116 -- -- 5,796 --
Issuance of common stock for cash,
May 1996, $.5115 428,072 428 -- -- 218,534 --
Issuance of common stock for cash,
May 1996, $10.2302 129,818 130 -- -- 1,327,934 --
Issuance of common stock for cash
July 1996, $.0051 2,606,528 2,606 -- -- 10,777 --
Issuance of common stock for cash,
July 1996, $.0255 142,857 143 -- -- 3,494 --
Issuance of common stock for cash,
July 1996, $.0513 35,714 36 -- -- 1,797 --
Issuance of common stock for cash,
July 1996, $10.1847 63,855 64 -- -- 650,282 --
Costs related to issuance of common stock -- -- -- -- (10,252) --
Founders shares transferred for services
rendered -- -- -- -- 330,025 --
Comprehensive Income (Loss):
Net loss -- -- -- -- -- --
Other comprehensive income:
Currency translation adjustment -- -- -- -- -- --
Total Comprehensive Income (Loss)
--------- ------- ----- ---- ---------- -----
Balance -July 31, 1996 4,587,764 $ 4,588 -- $ -- $2,708,501 $ --
========= ======= ===== ==== ========== =====
Deficit
Accumulated Accumlated
Other During the Total
Comprehensive Development Stockholders'
Income (Loss) Stage Equity
------------ ----------- ------------
Balance - November 2, 1995 (Inception) $ -- $ -- $ --
Issuance of common stock for cash,
February 1996, $.0254 -- -- 8,159
Issuance of common stock for cash,
February 1996, $.0510 -- -- 1,792
Issuance of common stock for cash,
February 1996, $.5099 -- -- 110,358
Issuance of common stock for cash,
March 1996, $10.2428 -- -- 25,607
Issuance of common stock for cash,
April 1996, $.0516 -- -- 25,263
Issuance of common stock for cash,
May 1996, $.0512 -- -- 5,912
Issuance of common stock for cash,
May 1996, $.5115 -- -- 218,962
Issuance of common stock for cash,
May 1996, $10.2302 -- -- 1,328,064
Issuance of common stock for cash
July 1996, $.0051 -- -- 13,383
Issuance of common stock for cash,
July 1996, $.0255 -- -- 3,637
Issuance of common stock for cash,
July 1996, $.0513 -- -- 1,833
Issuance of common stock for cash,
July 1996, $10.1847 -- -- 650,346
Costs related to issuance of common stock -- -- (10,252)
Founders shares transferred for services
rendered -- -- 330,025
Comprehensive Income (Loss):
Net loss -- (693,448) (693,448)
Other comprehensive income:
Currency translation adjustment (4,017) -- (4,017)
-----------
Total Comprehensive Income (Loss) (697,465)
------- --------- -----------
Balance -July 31, 1996 $(4,017) $(693,448) $2,015,624
======= ========= ==========
The Notes to Consolidated Financial Statements are an
integral part of these statements.
23
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1999
Preferred Notes
Common Stock Stock Additional Receivable
---------------------- ---------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
--------- ------ ------ ------ ---------- ---------
Balance - August 1, 1996 4,587,764 $4,588 -- $ -- $2,708,501 $ --
Issuance of common stock for cash,
September 1996, $.0509 2,143 2 -- -- 107 --
Issuance of common stock for cash,
December 1996, $10.2421 1,429 1 -- -- 14,635 --
Issuance of common stock for cash,
January 1997, $.0518 1,466 1 -- -- 75 --
Issuance of common stock for cash,
March 1997, $10.0833 12 -- -- -- 121 --
Issuance of common stock for cash,
May 1997, $.0513 4,233 4 -- -- 213 --
Issuance of common stock for cash,
May 1997, $.5060 4,285,714 4,286 -- -- 2,164,127 --
Costs related to issuance of common
stock, May 1997 -- -- -- -- (108,421) --
Issuance of common stock for cash,
May 1997, $10.1194 18,214 18 -- -- 184,297 --
Issuance of common stock for cash,
June 1997, $.0504 10,714 11 -- -- 529 --
Issuance of common stock for cash,
June 1997, $.5047 32,143 32 -- -- 16,190 --
Issuance of common stock for cash,
June 1997, $8.9810 29,579 30 -- -- 265,618 --
Issuance of common stock for cash,
June 1997, $10.0980 714 1 -- -- 7,209 --
Issuance of common stock for cash,
July 1997, $10.1214 25,993 26 -- -- 263,060 --
Costs related to issuance of common stock -- -- -- -- (26,960) --
Founders shares transferred for services
rendered -- -- -- -- 23,481 --
Comprehensive Income (Loss):
Net loss -- -- -- -- -- --
Other comprehensive income:
Currency translation adjustment -- -- -- -- -- --
Total Comprehensive Income (Loss)
--------- ------ ---- ------ ---------- -----
Balance - July 31, 1997 9,000,118 $9,000 -- $ -- $5,512,782 $ --
========= ====== ==== ====== ========== =====
Deficit
Accumulated Accumulated
Other During the Total
Comprehensive Development Stockholders'
Income (Loss) Stage Equity
------------- ----------- -------------
Balance - August 1, 1996 $(4,017) $ (693,448) $2,015,624
Issuance of common stock for cash,
September 1996, $.0509 -- -- 109
Issuance of common stock for cash,
December 1996, $10.2421 -- -- 14,636
Issuance of common stock for cash,
January 1997, $.0518 -- -- 76
Issuance of common stock for cash,
March 1997, $10.0833 -- -- 121
Issuance of common stock for cash,
May 1997, $.0513 -- -- 217
Issuance of common stock for cash,
May 1997, $.5060 -- -- 2,168,413
Costs related to issuance of common
stock, May 1997 -- -- (108,421)
Issuance of common stock for cash,
May 1997, $10.1194 -- -- 184,315
Issuance of common stock for cash,
June 1997, $.0504 -- -- 540
Issuance of common stock for cash,
June 1997, $.5047 -- -- 16,222
Issuance of common stock for cash,
June 1997, $8.9810 -- -- 265,648
Issuance of common stock for cash,
June 1997, $10.0980 -- -- 7,210
Issuance of common stock for cash,
July 1997, $10.1214 -- -- 263,086
Costs related to issuance of common stock -- -- (26,960)
Founders shares transferred for services
rendered -- -- 23,481
Comprehensive Income (Loss):
Net loss -- (1,379,024) (1,379,024)
Other comprehensive income:
Currency translation adjustment 3,543 -- 3,543
----------
Total Comprehensive Income (Loss) (1,375,481)
------- ----------- ----------
Balance - July 31, 1997 $ (474) $(2,072,472) $3,448,836
======= =========== ==========
The Notes to Consolidated Financial Statements are an
integral part of these statements.
24
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1999
Preferred Notes
Common Stock Stock Additional Receivable
------------------- ---------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
--------- ------- ------- ------ ---------- -------
Balance - August 1, 1997 9,000,118 $ 9,000 -- $ -- $5,512,782 $ --
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- -- -- -- 234,000 --
Exercise of warrants for cash, December
1997, $0.0467 234,000 234 -- -- 10,698 --
Shares issued pursuant to the January 9, 1998
reverse merger between GBC-Delaware, Inc.
and Generex Biotechnology Corporation 1,105,000 1,105 -- -- (1,105) --
Issuance of preferred stock for
services rendered, January 1998, $.001 -- -- 1,000 1 99 --
Issuance of common stock for cash,
March 1998, $2.50 70,753 71 -- -- 176,812 --
Issuance of common stock for cash,
April 1998, $2.50 60,000 60 -- -- 149,940 --
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 38,172 38 -- -- 95,392 --
Issuance of common stock for cash
May 1998, $2.50 756,500 757 -- -- 1,890,493 --
Issuance of warrants in exchange for
services rendered, May 1998, $.60 -- -- -- -- 300,000 --
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 162,000 162 -- -- 404,838 --
Issuance of common stock for cash,
June 1998, $2.50 286,000 286 -- -- 714,714 --
Exercise of warrants for cash, June 1998,
$.0667 234,000 234 -- -- 15,374 --
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 24,729 24 -- -- 61,799 --
Comprehensive Income (Loss):
Net loss -- -- -- -- -- --
Other comprehensive income:
Currency translation adjustment -- -- -- -- -- --
Total Comprehensive Income (Loss)
---------- --------- ----- ----- ---------- -----
Balance - July 31, 1998 11,971,272 $11,971 1,000 $ 1 $9,565,836 $ --
========== ======= ===== ===== ========== =====
Deficit
Accumulated Accumulated
Other During the Total
Comprehensive Development Stockholders'
Income (Loss) Stage Equity
------------- ----------- ----------
Balance - August 1, 1997 $ (474) $(2,072,472) $3,448,836
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- -- 234,000
Exercise of warrants for cash, December
1997, $0.0467 -- -- 10,932
Shares issued pursuant to the January 9, 1998
reverse merger between GBC-Delaware,Inc.
and Generex Biotechnology Corporation -- -- --
Issuance of preferred stock for
services rendered, January 1998, $.001 -- -- 100
Issuance of common stock for cash,
March 1998, $2.50 -- -- 176,883
Issuance of common stock for cash,
April 1998, $2.50 -- -- 150,000
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 -- -- 95,430
Issuance of common stock for cash
May 1998, $2.50 -- -- 1,891,250
Issuance of warrants in exchange for
services rendered, May 1998, $.60 -- -- 300,000
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 -- -- 405,000
Issuance of common stock for cash,
June 1998, $2.50 -- -- 715,000
Exercise of warrants for cash, June 1998,
$.0667 -- -- 15,608
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 -- -- 61,823
Comprehensive Income (Loss):
Net loss -- (4,663,604) (4,663,604)
Other comprehensive income:
Currency translation adjustment (198,959) -- (198,959)
----------
Total Comprehensive Income (Loss) (4,862,563)
--------- ----------- ----------
Balance - July 31, 1998 $(199,433) $(6,736,076) $2,642,299
========= =========== ==========
The Notes to Consolidated Financial Statements are an
integral part of these statements.
25
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 1999
Preferred Notes
Common Stock Stock Additional Receivable
---------------------- ----------------- Paid - Common
Shares Amount Shares Amount Capital Stock
---------- ------- ------ ------ ----------- --------
Balance - August 1, 1998 11,971,272 $11,971 1,000 $ 1 $ 9,565,836 $ --
Issuance of common stock for cash,
August 1998, $3.00 100,000 100 -- -- 299,900 --
Issuance of common stock for cash,
August 1998, $3.50 19,482 19 -- -- 68,168 --
Redemption of common stock for cash,
September 1998, $7.75 (15,357) (15) -- -- (119,051) --
Issuance of common stock for cash,
September - October 1998, $3.00 220,297 220 -- -- 660,671 --
Issuance of common stock for cash,
August - October 1998, $4.10 210,818 211 -- -- 864,142 --
Issuance of common stock in exchange
for services rendered, August -
October 1998, $2.50 21,439 21 -- -- 53,577 --
Issuance of common stock in exchange
for services rendered, August -
October 1998, $4.10 18,065 18 -- -- 74,048 --
Issuance of common stock to satisfy
accrued liability, September 1998, $4.10 180,000 180 -- -- 737,820 --
Issuance of warrants in exchange for
services rendered, October 1998, $.26 -- -- -- -- 2,064 --
Issuance of stock options in exchange for
services rendered, November 1998, $1.85 -- -- -- -- 92,500 --
Issuance of warrants in exchange for
services rendered, November 1998, $1.64 -- -- -- -- 246,000 --
Issuance of common stock for cash,
November 1998 - January 1999, $3.50 180,000 180 -- -- 629,820 --
Issuance of common stock for cash,
November 1998 - January 1999, $4.00 275,000 275 -- -- 1,099,725 --
Issuance of common stock for cash,
November 1998 - January 1999, $4.10 96,852 97 -- -- 397,003 --
Issuance of common stock in exchange for
services rendered, November 1998 -
January 1999, $4.10 28,718 29 -- -- 117,715 --
Issuance of common stock for cash,
November 1998 - January 1999, $5.00 20,000 20 -- -- 99,980 --
Issuance of common stock for cash,
November 1998 - January 1999, $5.50 15,000 15 -- -- 82,485 --
Deficit
Accumulated Accumulatec
Other During Total
Comprehensive Development Stockholders'
Income (Loss) Stage Equity
------------- ------------ ------------
Balance - August 1, 1998 $(199,433) $ (6,736,076) $2,642,299
Issuance of common stock for cash,
August 1998, $3.00 -- -- 300,000
Issuance of common stock for cash,
August 1998, $3.50 -- -- 68,187
Redemption of common stock for cash,
September 1998, $7.75 -- -- (119,066)
Issuance of common stock for cash,
September - October 1998, $3.00 -- -- 660,891
Issuance of common stock for cash,
August - October 1998, $4.10 -- -- 864,353
Issuance of common stock in exchange
for services rendered, August -
October 1998, $2.50 -- -- 53,598
Issuance of common stock in exchange
for services rendered, August -
October 1998, $4.10 -- -- 74,066
Issuance of common stock to satisfy
accrued liability, September 1998, $4.10 -- -- 738,000
Issuance of warrants in exchange for
services rendered, October 1998, $.26 -- -- 2,064
Issuance of stock options in exchange for
services rendered, November 1998, $1.85 -- -- 92,500
Issuance of warrants in exchange for
services rendered, November 1998, $1.64 -- -- 246,000
Issuance of common stock for cash,
November 1998 - January 1999, $3.50 -- -- 630,000
Issuance of common stock for cash,
November 1998 - January 1999, $4.00 -- -- 1,100,000
Issuance of common stock for cash,
November 1998 - January 1999, $4.10 -- -- 397,100
Issuance of common stock in exchange for
services rendered, November 1998 -
January 1999, $4.10 -- -- 117,744
Issuance of common stock for cash,
November 1998 - January 1999, $5.00 -- -- 100,000
Issuance of common stock for cash,
November 1998 - January 1999, $5.50 -- -- 82,500
The Notes to Consolidated Financial Statements are an
integral part of these statements.
26
Issuance of common stock in exchange for
services rendered, January 1999, $5.00 392 -- -- -- 1,960 --
Issuance of common stock for cash,
February 1999, $5.00 6,000 6 -- -- 29,994 --
Issuance of common stock in exchange
for services rendered, February 1999,
$6.00 5,000 5 -- -- 29,995 --
Issuance of common stock for cash,
March 1999, $6.00 11,000 11 -- -- 65,989 --
Issuance of common stock for cash,
April 1999, $5.50 363,637 364 -- -- 1,999,640 --
Issuance of warrants in exchange for
services rendered, April 1999, $3.21 -- -- -- -- 160,500 --
Issuance of warrants in exchange for
services rendered, April 1999, $3.17 -- -- -- -- 317,000 --
Issuance of warrants in exchange for
services rendered, April 1999, $2.89 -- -- -- -- 144,500 --
Issuance of warrants in exchange for
services rendered, April 1999, $3.27 -- -- -- -- 184,310 --
Stock adjustment 714 1 -- -- (1) --
Issuance of common stock for cash,
May 1999, $5.50 272,728 273 -- -- 1,499,731 --
Issuance of common stock in exchange for
services rendered, May - June 1999, $5.50 60,874 61 -- -- 334,746 --
Exercise of warrants for cash, June 1999,
$5.00 388,375 389 -- -- 1,941,484 --
Exercise of warrants in exchange for note
receivable, June 1999, $5.00 94,776 95 -- -- 473,787 (473,882)
Exercise of warrants in exchange for services
rendered, June 1999, $5.00 13,396 13 -- -- 66,967 --
Reduction of note receivable in exchange for
services rendered -- -- -- -- -- 38,979
Shares tendered in conjunction with warrant
exercise, June 1999, $7.8125 (323,920) (324) -- -- (2,530,301) --
Exercise of warrants for shares tendered,
June 1999, $5.00 506,125 506 -- -- 2,530,119 --
Cost of warrants redeemed for cash -- -- -- -- (3,769) --
Cost related to warrant redemption, June 1999 -- -- -- -- (135,431) --
Cost related to issuance of common stock -- -- -- -- (1,179,895) --
Comprehensive Income (Loss):
Net loss -- -- -- -- -- --
Other comprehensive income:
Currency translation adjustment -- -- -- -- -- --
Total Comprehensive Income (Loss)
---------- ------- ----- ---- ----------- ---------
Balance - July 31, 1999 14,740,683 $14,741 1,000 $ 1 $20,903,728 $(434,903)
========== ======= ===== ==== =========== =========
Issuance of common stock in exchange for
services rendered, January 1999, $5.00 -- -- 1,960
Issuance of common stock for cash,
February 1999, $5.00 -- -- 30,000
Issuance of common stock in exchange
for services rendered, February 1999,
$6.00 -- -- 30,000
Issuance of common stock for cash,
March 1999, $6.00 -- -- 66,000
Issuance of common stock for cash,
April 1999, $5.50 -- -- 2,000,004
Issuance of warrants in exchange for
services rendered, April 1999, $3.21 -- -- 160,500
Issuance of warrants in exchange for
services rendered, April 1999, $3.17 -- -- 317,000
Issuance of warrants in exchange for
services rendered, April 1999, $2.89 -- -- 144,500
Issuance of warrants in exchange for
services rendered, April 1999, $3.27 -- -- 184,310
Stock adjustment -- -- --
Issuance of common stock for cash,
May 1999, $5.50 -- -- 1,500,004
Issuance of common stock in exchange for
services rendered, May - June 1999, $5.50 -- -- 334,807
Exercise of warrants for cash, June 1999,
$5.00 -- -- 1,941,873
Exercise of warrants in exchange for note
receivable, June 1999, $5.00 -- -- --
Exercise of warrants in exchange for services
rendered, June 1999, $5.00 -- -- 66,980
Reduction of note receivable in exchange for
services rendered -- -- 38,979
Shares tendered in conjunction with warrant
exercise, June 1999, $7.8125 -- -- (2,530,625)
Exercise of warrants for shares tendered,
June 1999, $5.00 -- -- 2,530,625
Cost of warrants redeemed for cash -- -- (3,769)
Cost related to warrant redemption, June 1999 -- -- (135,431)
Cost related to issuance of common stock -- -- (1,179,895)
Comprehensive Income (Loss):
Net loss -- (6,239,602) (6,239,602)
Other comprehensive income:
Currency translation adjustment 1,393 -- 1,393
----------
Total Comprehensive Income (Loss) (6,238,209)
--------- ------------ ----------
Balance - July 31, 1999 $(198,040) $(12,975,678) $7,309,849
========= ============ ==========
The Notes to Consolidated Financial Statements are an
integral part of these statements.
27
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
For the Years Ended November 2,
July 31, 1995 (Date of
--------------------------------------------- Inception) to
1999 1998 1997 July 31, 1999
----------- ----------- ------------ --------------
Cash Flows From Operating Activities:
Net loss $(6,239,602) $(4,663,604) $(1,379,024) $(12,975,678)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation