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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
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 of (IRS Employer
incorporation or organization) Identification No.)
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 filers 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 October 18, 2000, was approximately
$149,700,000.
At October 18, 2000, the registrant had 18,765,037 shares of Common Stock
outstanding.
Documents incorporated by reference: None
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 within the meaning
of Section 21E of the Securities and Exchange Act of 1934. Forward-looking
statements do not describe historical events or other facts but, rather, convey
our management's current expectations. Such statements usually are prefaced with
forward-looking words such as "may", "will", "expect", "anticipate", "believe,"
"estimate" and similar terminology. Our forward-looking statements address,
among other things:
o implementing our clinical programs and other aspects of our business
plans;
o our financing goals, plans and future needs; and
o our expectations of when regulatory approvals will be received or other
actions will be taken by parties other than us.
Management's current expectations are subject to a number of factors
and uncertainties that could cause actual results or future conditions to differ
materially from those expressed in or implied by our forward-looking statements.
Thus, we caution investors that the forward-looking statements contained in this
Report must be interpreted and understood in light of conditions and
circumstances that exist as of the date of this Report. We expressly disclaim
any obligation or undertaking to update or revise forward-looking statements
made in this Report to reflect any changes in management's expectations
resulting from future events or changes in the conditions or circumstances upon
which such expectations are based.
PART I
Item 1. Business.
Overview
Generex Biotechnology Corporation is engaged in the research and
development of drug delivery technology primarily involving the administration
of proprietary formulations of large molecule drugs to the oral (buccal) cavity
using a hand-held aerosol applicator.
More than 150 large molecule drugs (i.e., drugs composed of molecules
with a higher than specified molecular weight) have been approved for sale in
the United States or are presently undergoing clinical trials as part of the
process to obtain such approval, including various proteins, peptides,
monoclonal antibodies, hormones and vaccines. Unlike small molecule drugs, which
generally can be administered through the digestive tract (e.g., by capsule or
tablet), the skin (e.g., transdermal patches), the mucosal surfaces of the mouth
and nose, or by injection, large molecule drugs historically have been
administered only by injection. The principal reasons for this have been the
vulnerability of large molecule drugs to digestion, which has virtually ruled
out the use of capsules or pills for delivery, and the size of the molecule
itself which makes absorption through the skin or mucosa inefficient or
ineffective.
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All injection therapies involve varying degrees of discomfort and
inconvenience. With chronic and sub-chronic diseases, the discomfort and
inconvenience associated with injection therapies frequently results in less
than optimal patient acceptance of and compliance with the prescribed treatment
plan. Poor acceptance and compliance can lead to medical complications and
higher disease management costs. Also, elderly, infirm and pediatric patients
with chronic or sub-chronic conditions may not be able to self-inject their
medications. In such cases assistance is required which increases both the cost
and inconvenience of the therapy.
Our goal is to develop proprietary formulations of large molecule drugs
that can be administered through the buccal mucosa, primarily the inner cheek
walls, thereby eliminating or reducing the need for injections. We believe that
our buccal delivery technology is a platform technology that has application to
many large molecule drugs, and provides a convenient, non-invasive, accurate and
cost effective way to administer such drugs. We have identified several large
molecule drugs as primary candidates for development, but to date have focused
our development efforts on a buccal insulin product.
Between January 1999 and September 2000, we conducted Phase II clinical
trials of our buccal insulin product in the United States, Canada and Europe. In
September 2000, we entered into a Development and License Agreement with Eli
Lilly and Company to develop this product. Prior to entering into the agreement
with Lilly, we had not reached a point in our clinical program at which we were
prepared to apply for regulatory approvals to market the product in any country,
and we did not anticipate receiving any such approvals until 2003 at the
earliest. Under the terms of our agreement with Lilly, Lilly, generally, will be
responsible for conducting clinical trials and securing regulatory approvals on
a worldwide basis for all products developed under the Agreement. Lilly also
will have the exclusive right to market the products worldwide. Our principal
responsibilities under the Lilly agreement will be to continue development, as
required, of our proprietary formulation and on our RapidMist(TM) device, which
is described below.
We are a development stage company, and prior to the first quarter of
the current fiscal year had not received any revenues from operations. We have
no products approved for commercial sale by drug regulatory authorities and only
one product, our oral insulin formulation, for which we have begun the
regulatory approval process. Notwithstanding our agreement with Lilly and the
support that we expect to receive from Lilly, successful development of our
insulin product is by no means assured. In order to obtain regulatory approvals
for our insulin product, it will be necessary to demonstrate, among other
things, that:
o the product is physically and chemically stable under a range of storage,
shipping and usage conditions;
o the results of administering the product to patients are reproducible in
terms of the amounts of insulin delivered to the oral cavity and absorbed in
the bloodstream; and
o that there are no serious adverse safety issues associated with use of the
product.
2
The levels of uncertainty and risk related to the regulatory approval
process for other products that may be developed under our agreement with Lilly,
or independently of Lilly, are even greater than with our insulin product since
no other product candidate has progressed to the point of development of the
insulin product.
Buccal Delivery Technology
Our buccal delivery technology involves the preparation of a
proprietary formulation in which an active pharmaceutical agent is placed in
solution with a combination of absorption enhancers and other excipients
classified generally recognized as safe ("GRAS") by FDA when used in accordance
with specified quantity and other limitations. The resulting formulation, which
is stable at room temperature, is aerosolized with a pharmaceutical grade
chemical propellant and is administered to the patient using our proprietary
RapidMist(TM) device. The RapidMist device is a small, light weight, hand held,
easy to use aerosol applicator comprised of a container for the formulation, a
metering valve, an actuator and dust cap. Using the Device, the patient
self-administers the formulation by spraying it into the mouth. The device
contains multiple applications, the number being dependent, among other things,
on the concentration of the formulation. Absorption of the pharmaceutical agent
occurs in the buccal cavity, principally through the inner cheek walls. In the
clinical program for our insulin product, insulin absorption in the buccal
cavity has been shown to be very rapid.
In September 2000, we entered into a Development and License Agreement
with Eli Lilly and Company to develop and market an insulin product based upon
our buccal delivery technology. As noted above, however, we believe that our
buccal delivery technology is a platform technology that has application to a
large number of large molecule drugs in addition to insulin. Fentanyl, morphine,
estrogen and heparin are among the compounds that we have identified as
candidates for product development. We expect to begin development of three
products involving large molecule drugs other than insulin in the current fiscal
year.
Buccal Insulin Product
Insulin is a hormone that is naturally secreted by the pancreas to
regulate the level of glucose, a type of sugar, in the bloodstream. The term
diabetes refers to a group of disorders that are characterized by the inability
of the body to properly regulate blood glucose levels. When glucose is abundant,
it is converted into fat and stored for use when food is not available. When
glucose is not available from food, these fats are broken down into free fatty
acids that stimulate glucose production by the liver. Insulin acts 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 major types of diabetes. Type 1 diabetes (juvenile onset
diabetes or insulin dependent diabetes) refers to the condition where the
pancreas produces little or no insulin. Type 1 diabetes accounts for 5-10
percent of diabetes cases. It often occurs in children and young adults. Type 1
diabetics must take daily insulin injections, typically three to five times per
day, to regulate blood glucose levels.
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In Type 2 diabetes (adult onset or non-insulin dependent diabetes
mellitus), the body does not produce enough insulin, or cannot properly use the
insulin produced. Type 2 diabetes is the most common form of the disease and
accounts for 90-95 percent of diabetes cases. In addition to insulin therapy,
Type 2 diabetics may take oral drugs that stimulate the production of insulin by
the pancreas or that help the body to more effectively use insulin.
If not treated, diabetes can lead to blindness, kidney disease, nerve
disease, amputation, heart disease and stroke. Each year, from 12,000 to 24,000
people lose their sight because of diabetes. Diabetes is also the leading cause
of end-stage renal disease (kidney failure), accounting for about 40% of new
cases. In addition, about 60-70 percent of people with diabetes have mild to
severe forms of diabetic nerve damage, which, in severe forms, can lead to lower
limb amputations. Diabetics are also 2 to 4 times more likely to have heart
disease, which is present in 75 percent of diabetes-related deaths, and are 2 to
4 times more likely to suffer a stroke.
There is no known cure for diabetes. The World Health Organization
estimates that there are currently over 1.5 billion diabetics worldwide. It is
further estimated that this number will almost double by the year 2025. There
are estimated to be 17 million people suffering from diabetes in North America
alone, approximately 5 million of whom are undiagnosed, and diabetes is the
second largest cause of death by disease in North America.
We conducted the first clinical trials of our buccal insulin
formulation with human subjects in Ecuador in January 1998. We ultimately
conducted a number of studies in Ecuador in 1998, each of which 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 experimented with a number of
devices and techniques to "administer" our formulation to the buccal cavity. In
our initial studies in Ecuador, we administered our formulation with a
calibrated dropper. The patient "swished" the formulation in the mouth to bring
the formulation into contact with the inner cheek walls, and then either spit
out or swallowed the formulation. Because of risks of contamination associated
with a delivery system that was not closed, and the need for precise dosage
control, we decided to use a hand held aerosol sprayer to administer our
formulation following the initial trials in Ecuador.
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 filed an
Investigative New Drug Submission with the Food and Drug Administration in
October 1998, and received FDA approval to proceed with human trials in November
1998.
4
We began our Phase II clinical trial programs in Canada and the United
States in January 1999. The distinctions between various stages of the clinical
process required for regulatory approval of a new drug product in the United
States (e.g., Phase II versus Phase III trials) are described in "Government
Regulation" below. Between January 1999 and September 2000 we conducted Phase II
clinical trials of our insulin formulation involving approximately 200 Type 1
and Type 2 diabetic patients and healthy volunteers. The study protocol in most
trials involved administration of two different doses of our insulin formulation
following either a liquid sustacal meal or a standard meal challenge. The
objective of these studies was to evaluate our insulin formulation's efficacy in
controlling post-prandial (meal related) glucose levels. These trials
demonstrated that our insulin formulation controlled post-prandial hyperglycemia
in a manner comparable to injected insulin.
As noted above, in September 2000 we entered into a Development and
License Agreement with Eli Lilly and Company covering an insulin product based
upon our buccal delivery technology. Under this agreement, Lilly is responsible
for conducting clinical trials and securing regulatory approvals for this
product on a worldwide basis. The agreement with Lilly also gives Lilly the
right to develop a number of non-insulin products based upon our buccal delivery
technology depending on the success of the initial insulin product.
Other Large Molecule Drug Projects
We have had numerous discussions of possible research collaborations
with pharmaceutical companies concerning use of our large molecule drug delivery
technology with compounds other than insulin. These compounds include monoclonal
antibodies, human growth hormone, fertility hormone, and others. Fentanyl,
morphine, estrogen and heparin are among the compounds that we have identified
as candidates for product development.
Prior to entering into our agreement with Lilly covering the insulin
product, we had not aggressively pursued development opportunities apart from
insulin because we believed it was more advantageous to concentrate our
resources, particularly our financial resources, on developing the insulin
product. While the insulin product remains our first priority, we believe that
Lilly's involvement will relieve us of most of the costs associated with
conducting the clinical program for the insulin product. We also raised
approximately $30 million of additional equity capital in the last quarter of
our fiscal year ended July 31, 2000, and in the first quarter of the current
year. Based on this funding, and the financial structure of the Lilly agreement,
we believe we now have sufficient financial resources to aggressively pursue
development of additional products. We expect to begin development of three
products involving large molecule drugs other than insulin in the current fiscal
year.
Government Regulation
Our research and development activities, and the eventual manufacture
and marketing of our products, are subject to extensive regulation by the Food
and Drug Administration in the United States and comparable regulatory
authorities in other countries. Among other things, extensive regulation puts a
burden on our ability to bring products to market. While these regulations apply
to all competitors in our industry, many of our competitors have extensive
5
experience in dealing with FDA and other regulators while we do not. Also, other
companies in our industry do not depend completely on products which still need
to be approved by government regulators, as we now do.
If requisite regulatory approvals are not obtained and maintained, our
business will be substantially harmed. In many if not all cases, we expect that
our development partners will control or participate extensively in the
regulatory approval process once a development agreement is in place. The
following discussion summarizes the principal features of food and drug
regulation in the United States and other countries as they affect our business.
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. The regulatory approval process, including
clinical trials, usually takes several years and requires 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; and
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 assess 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.
6
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 insulin formulation in the United States in January 1999. In September 2000,
we entered into a Development and License Agreement with Lilly to develop and
market an insulin product based on our buccal delivery technology. Under the
Agreement, Lilly is responsible for conducting clinical trials, securing
regulatory approvals and marketing on a worldwide basis. Lilly will also have
the option to develop a number of additional products depending upon the success
of the initial insulin product.
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.
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 FDA approval. Even if approved by FDA, our products and the
facilities used to manufacture our products will remain subject to 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 the FDA. These
requirements vary widely from country to country. Generally, however, no action
7
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. We obtained regulatory
approval to begin clinical trials in Canada in November 1998. In Ecuador,
regulatory authorities approved the limited non-commercial distribution of our
oral insulin formulation in September 1998.
Marketing
We intend to rely on collaborative arrangements with one or more other
companies which possess strong pharmaceutical marketing and distribution
resources to perform these functions. Accordingly, we will not have the same
control over marketing and distribution that we would have if we conducted these
functions ourselves.
With respect to our insulin product, Eli Lilly and Company has
exclusive, worldwide marketing rights to the product. Except for our agreement
with Lilly with respect to our oral insulin product, we do not have any
agreements with any other companies for marketing or distributing our products.
Manufacturing
To date, we have produced our oral insulin formulation only under
laboratory conditions on a small scale. We are in the process of completing and
obtaining regulatory approvals for a pilot manufacturing facility in Toronto in
the same commercial complex in which our original laboratory is located. We
believe that these facilities, when placed in operation, will be capable of
producing our insulin product at levels necessary to supply our needs for late
stage human clinical trials of the product and for initial commercial sales
outside the United States. However, we have not yet actually produced product at
those levels.
Under our agreement with Lilly, Lilly may select us, but is not
required to select us, to manufacture products developed under that agreement.
In order to qualify for consideration in this role, we will have to satisfy
Lilly that we can supply such products at the requisite levels of quality, cost
and reliability in compliance with all applicable regulatory requirements. We
have no experience in resolving the staffing, manufacturing, regulatory and
quality control problems that are likely to come up in developing and running a
large scale manufacturing operation. Our failure to solve problems of this
nature would lead to loss of any opportunity to manufacture products developed
under our agreement with Lilly, and could delay or prevent our ability to bring
other products to market and inhibit sales after a product comes to market. In
any event, we will need to significantly increase our manufacturing capability
in order to manufacture any product in commercial quantities.
We own facilities in Brampton, Ontario, and Mississauga, Ontario, both
within 25 miles from downtown Toronto, that were purchased with the intention of
improving and equipping them for manufacturing. We believe we can place these
facilities into production of our insulin product or other products within 12 to
18 months lead time.
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Raw Material Supplies
The excipients used in our formulation are available from numerous
sources in sufficient quantities for clinical purposes, and we believe that they
will be available in sufficient quantities for commercial purposes when
required, although we have not yet attempted to secure a commercial supply of
any such products.
Components suitable for our RapidMist device are available from a
limited number of potential suppliers, as is the chemical propellant used in the
device. We believe that the components which now comprise the device will be
utilized with the commercial version of our insulin product irrespective of what
manufacturing arrangements are ultimately chosen by Lilly, i.e., whether or not
we perform the formulating and filling function. We have secured supply
arrangements with the manufacturers of all components and the propellant that we
presently use in our RapidMist device for commercial quantities of such
components and propellant. All such suppliers are prominent, reputable and
reliable suppliers to the pharmaceutical industry. Because we now have a single
supplier for each of these components and propellant, however, we are more
vulnerable to supply interruptions than would be the case if we had multiple
suppliers for each component. We do not believe that the risk of a single source
of supply for proprietary raw materials or device components is unusual in the
pharmaceutical industry.
Lilly will supply the pharmaceutical compounds that are used in
products developed under our agreement with Lilly. We expect that similar
arrangements will be made with future development and marketing partners under
licensing and development agreements covering other products.
Intellectual Property
Our long-term success will substantially depend upon protecting our
technology from infringement, misappropriation, discovery and duplication. The
first patent applicable to our large molecule delivery technology was issued in
the US on January 25, 2000. We also have thirteen patent applications pending in
the US and foreign jurisdictions, one Canadian patent and one Canadian patent
application for which there is no US counterpart which cover our drug delivery
technologies, and an indirect interest in three drug delivery patents held by
another company which is fifty (50%) percent owned by us.
We also rely on trade secrets and other unpatented proprietary
information. We seek to protect this information, in part, by confidentiality
agreements with our employees, consultants, advisors and collaborators. These
agreements may be breached, however, in which case the remedies available to us
may not adequately compensate us for our loss. Furthermore, trade secrets
protection does not protect us against a competitor's independent development of
the same technology.
Our technology is primarily 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 his agreement which relate to our actual or demonstrably anticipated
9
business, work, undertakings or research and development. That agreement, as
amended and supplemented, remains in place. Dr. Modi also assigned to us his
interests in specific drug delivery systems and technology patents
invented/discovered/conceived by him prior to the execution of his consulting
agreement. This included all of his interests in three patents that he
previously had assigned to Centrum Biotechnologies, Inc., a Canadian company
which was then 50% owned by Dr. Modi. We have 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 not covered by the claims of patents previously
assigned to Centrum.
We cannot be sure that any of our pending patent applications will be
granted, or that any patents which we own or obtain in the future will fully
protect our position. Our patent rights, and the patent rights of biotechnology
and pharmaceutical companies in general, are highly uncertain and include
complex legal and factual issues. We believe that our existing technology and
the patents which we hold or have applied for do not infringe any one else's
patent rights, and that they will provide meaningful protection against others
duplicating our proprietary technologies. We cannot be sure of this, however,
because of the complexity of the legal and scientific issues that could rise in
litigation over these issues. Furthermore, patent applications are maintained in
secrecy in the United States until the patents are approved, and in most foreign
countries for a period of time following the date from which priority is
claimed. Thus, we cannot be sure that any technology that we currently are
developing is not covered already by a third party's pending patent
applications.
We presently are involved in litigation with a former consultant in
which the former consultant has claimed that we misappropriated proprietary
information belonging to the consultant in developing our insulin product. We
also have been threatened with litigation by an individual named as a
co-inventor of a patented buccal delivery technology in which we now hold a 50%
interest. We do not believe that any of our existing or planned products or
technology incorporates or infringes upon any intellectual proprietary interests
of these claimants.
Competition
We expect that products based upon our buccal delivery technology and
any other products that we may develop will compete directly with products
developed by pharmaceutical companies, universities, government agencies and
public and private research organizations.
Products developed by our competitors may provide for the delivery of
substantially the same active pharmaceutical ingredient as our products using
different methods of administration (e.g., pulmonary rather than buccal) or use
a different active pharmaceutical agent to treat the same medical condition or
indication as our product. For example, a number of 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. Many of our competitors and
potential competitors in both categories have substantially greater scientific
research and product development capabilities, as well as financial, marketing
and human resources, than we do.
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Where the same or substantially the same active ingredient is available
using alternative delivery means, we expect that competition among products will
be based, among other things, on product safety, efficacy, ease of use,
availability, price, marketing and distribution. When different active
pharmaceutical ingredients are involved, these same competitive factors will
apply to both the active agent and the delivery method.
We consider other drug delivery companies to be direct competitors for
the cooperation and support of major drug and biotechnology companies that own
or market proprietary pharmaceutical compounds, as well as for the ultimate
patient market. Among drug delivery companies, those that are known to be
developing delivery systems for insulin and other pharmaceutical agents that we
have identified as product candidates using our technology are of primary
concern. Within this category, we consider Inhale Therapeutics, Inc. to be our
principal competitor for our insulin product.
Inhale Therapeutics, Inc. is developing a customized insulin
formulation that is processed into a fine, dry powder and administered to the
deep lung using a proprietary inhalation device developed for this purpose.
Inhale has announced successful results using its inhaled product in Phase II
clinical trials, and is now engaged in Phase III trials. Inhale is developing
its insulin product in collaboration with Pfizer, Inc., which in turn has
announced agreements to co-develop and co-promote the use of inhaled insulin
with Aventis, a leading pharmaceutical company which presently manufactures
insulin for sale primarily in Europe. Inhale is also developing pulmonary
products with large molecule drugs other than insulin, and has stated that it is
investigating the use of its inhalation technology with small molecule drugs.
Aradigm Corporation, which has announced a joint development agreement
with Novo Nordisk A/S to jointly develop a pulmonary delivery system for insulin
by inhalation, also may be considered a direct competitor of ours in the insulin
area. Novo Nordisk is one of the two leading manufacturers of insulin in the
world, the other being Eli Lilly and Company. Aradigm began Phase II testing of
its inhalation product in the second half of 1998.
Other companies have announced development efforts relating to
alternative (to injection) means of delivering insulin or other large molecule
drugs, including Dura Pharmaceuticals which announced a collaboration with Eli
Lilly and Company in 1998 to develop a pulmonary method of administering
insulin, and Endorex Corporation which has announced receipt of a patent
covering an oral vaccine delivery technology that it is developing with Elan
Pharmaceutical Technologies.
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 may be considered
competitive with insulin products.
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 all
11
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, 2000, our expenditures
on research and development were $7,166,254. These included $3,476,436 in the
year ended July 31, 2000, $1,853,108 in the year ended July 31, 1999, and
$876,404 in the year ended July 31, 1998.
Employees
At September 30, 2000, we had 25 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. Sixteen of our
employees are executive and administrative, five are scientific and technical
personnel who engage primarily in development activities and in preparing
formulations for testing and clinical trials, and four 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.
We will continue to need qualified scientific personnel and personnel
with experience in clinical testing, government regulation and manufacturing. We
may have difficulty in obtaining qualified scientific and technical personnel as
there is strong competition for these people from other pharmaceutical and
biotechnology companies as well as universities and research institutions. Our
business could be materially harmed if we are unable to recruit and retain
qualified scientific, administrative and executive personnel to support our
expanding activities, or if one or more members of our limited scientific and
management staff were unable or unwilling to continue their association with us.
We do not have fixed term agreements with any of our key management or
scientific staff, other than Dr. Pankaj Modi. The fact that we have a fixed term
contract with Dr. Modi, however, does not guarantee his continued availability.
We also use non-employee consultants to assist us in formulating
research and development strategy, in preparing regulatory submissions, in
developing protocols for clinical trials, and in designing, equipping and
staffing our manufacturing facilities. These consultants and advisors usually
have the right to terminate their relationship with us on short notice. Loss of
some of these key advisors could interrupt or delay development of one or more
of our products or otherwise adversely affect our business plans.
12
Item 2. Properties.
Our executive and principal administrative offices 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. Rental income is accounted for as a
reduction of our occupancy costs.
We also own a laboratory facility in Toronto that we have used for
limited production of our oral insulin formulation for clinical purposes, and
are in the process of completing a pilot manufacturing facility for our insulin
product in the same commercial complex. Our laboratory facility is approximately
2,650 square feet, and our pilot manufacturing facility, which also will include
laboratory facilities is approximately 3,200 square feet. We expect to receive
regulatory approvals for both facilities in the current calendar year.
We have first mortgages on our Toronto properties totaling $721,963 at
July 31, 2000. Our mortgages require the payment of interest, with minimal
principal reduction, prior to their due date (November 1, 2002 with respect to
$180,302, and May 25, 2005 with respect to $541,661).
At this time, we do not expect to need manufacturing capabilities
beyond our pilot facility before the end of calendar year 2001. We have
acquired, however, an 11,625 square foot building in Brampton, Ontario, which is
approximately 25 miles outside Toronto, and a 13,500 square foot building in
Mississauga, Ontario, which is about 20 miles from downtown Toronto, for
ultimate use in manufacturing. We have done preliminary work on these
facilities, but we do not expect to make a substantial investment in improving
and equipping them for manufacturing operations until our requirements in this
area are better defined.
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 1.5 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 purported to grant
Sands the right to acquire 17% of Generex Pharmaceuticals common stock for
nominal consideration. Following our acquisition of Generex Pharmaceuticals,
Sands claimed its 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
13
1,530,020 shares of our common stock pursuant to and in accordance with the
terms of the October 1997 letter agreement. On March 20, 2000, the Supreme
Court of the State of New York, County of New York, granted the petition of
Sands Brothers & Co., Ltd. to confirm the award. We have appealed this decision
to the Appellate Division of the New York Supreme Court. While the appeal will
attempt to overturn the decision to uphold the award, our ultimate legal and
financial liability, including a range of possible losses with respect to the
award, cannot be estimated at this time.
We also are involved in, or have recently settled, the following
litigations:
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.)
seeking equitable relief, damages (approximately $680,000 U.S.)
and punitive damages (approximately $3.4 million U.S.). The case
arose out of plaintiffs' unsuccessful attempt to acquire Acepharm,
Inc. In September of this year we settled this case for $100,000.
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 $243,066 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 1999, in
which we deny that MQS is entitled to the relief that it seeks, or
that any of our products or technology incorporates any proprietary
technology belonging to MQS. We also filed a counterclaim against
MQS for breach of contract.
In December 1999, we filed a motion with the court to amend our
answer and counterclaim to add additional claims against MQS,
including claims based upon unauthorized use and misappropriation
of our trade secrets and technology, and to add additional parties
as counterclaim defendants. MQS then filed a motion to amend its
complaint to add certain of our officers as individual defendants
on the claims previously made against us. We and MQS each agreed to
allow the other to amend its pleadings in the manner sought, and
the pleadings were completed in May of this year. Discovery in the
case is expected to continue into early 2001. At this time, we are
unable to predict the outcome of this litigation.
We maintain product liability coverage for claims arising from the use
of our products in clinical trials, etc., but do not have any insurance that
covers our potential liability in any of the legal proceedings described above.
Except as described above, we are not involved in any material legal
proceedings.
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, 2000.
14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
"Bid" and "asked" prices for our common stock were quoted on the Nasdaq
OTC Electronic Bulletin Board from February 1998 to May 2000. On May 5, 2000,
our common stock began trading on The Nasdaq Stock Market's National Market (the
"Nasdaq National Market"). Prior to February 1998, there was no public market
for our common stock.
The table below sets forth the high and low inter-dealer bid quotations
for our common stock for certain periods prior to May 5, 2000, as furnished by
the Nasdaq OTC Bulletin Board, and by the Nasdaq National Market beginning May
5, 2000. These are "inter-dealer" quotations, without retail mark-up, mark-down
or commissions, and may not represent actual transactions. The table also sets
forth the high and low sales prices of our common stock reported by The Nasdaq
Stock Market for these periods beginning May 5, 2000.
Interdealer Bid Quotations Sales Prices
(not actual transactions) (actual transactions)
-------------------------- -----------------------
High Low High Low
---- --- ---- ---
1998
----
First quarter $6.38 $5.75 __ __
Second quarter $9.00 $6.00 __ __
Third quarter $8.125 $5.75 __ __
Fourth quarter $18.88 $7.38 __ __
1999
----
First quarter $13.75 $7.00 __ __
Second quarter $9.375 $6.56 __ __
Third quarter $8.06 $5.50 __ __
Fourth quarter $7.56 $4.12 __ __
2000
----
First quarter $9.88 $4.62 __ __
Second quarter $13.88 $1.06 $11.38 $4.78
Third quarter $24.75 $4.00 $24.88 $7.56
Fourth quarter (through $14.69 $.03 $14.75 $10.00
October 15, 2000)
15
The closing sales price for our common stock reported on October 25, 2000, was
$10.69.
At October 26, 2000, there were 758 holders of record of our common
stock.
Dividends
We have not paid dividends on our common stock in the past and have no
present intention of paying dividends in the foreseeable future.
Recent Sales of Unregistered Securities
In the period from August 1, 1999 until July 31, 2000, we have offered
and sold common stock and other securities in a number of transactions,
including the transactions described below, in reliance upon exemptions from the
registration requirements of the Securities Act of 1933. In the transactions
described below, unless otherwise indicated, we relied upon the exemptions from
registration provided in Section 4(2) of the Securities Act, and Rule 506 of
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 these securities.
All purchasers were, to our reasonable belief, accredited investors who
purchased for investment. All disclosures required under Rule 502(d) of
Regulation 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 placed a legend evidencing the restrictions on
all certificates representing the shares, and issued "stop transfer"
instructions to our transfer agent to prevent unapproved transfers.
Transactions in the year ended July 31, 2000, and not previously
reported on a Quarterly Report on Form 10-Q were as follows:
(a) Between May 26, 2000 and July 31, 2000, we issued 19,700 shares of
our common stock upon the exercise of outstanding warrants. These shares were
registered for resale on Form S-3 (Registration No. 333-33556) and were resold
by the purchasers pursuant to that registration statement. In these
transactions, Teddy Ishak purchased 3,000 shares at $6.00 per share and Coleman
and Company Securities, Inc. purchased 16,700 shares at $7.50 per share.
(b) In June 2000, we issued a total of 4,300 shares of common stock
valued for this purpose at $6.00 per share to four advisors in compensation for
their services, as follows: William Lehun - 892 shares; Dennis Brans - 158
shares; Michael Howlett - 1,250 shares; and Robert Savage - 2,000 shares.
(c) In January 2000, we issued a total of 8,100 shares of common stock
valued for this purpose at $5.00 per share to 20 employees as a holiday bonus.
None of the recipients of these bonuses are affiliates, and the maximum number
of shares awarded to any individual employee was 1,000 shares. We issued these
bonus shares without registration under the Securities Act in reliance upon our
counsel's opinion that no sale of shares was involved.
16
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 annual report. Our financial statements as of July 31, 2000
and 1999, and for the years ended July 31, 2000, 1999 and 1998, have been
audited by WithumSmith+Brown, independent auditors'.
Cumulative
From
November 2,
1995
(Date of
YEARS ENDED JULY 31, Inception)
--------------------------------------------------- To July 31,
2000 1999 1998 2000
--------- --------- --------- -----------
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data):
Revenues $ -- $ -- $ -- $ --
Net Loss $ (8,841) $ (6,240) $ (4,664) $ (21,817)
Basic and diluted net loss per
common share $ (.58) $ (.47) $ (.46) --
Weighted average number of
common shares outstanding 15,190 13,260 10,079 --
Cash dividends per share -- -- -- --
JULY 31,
-------------------------
2000 1999
-------- -------
BALANCE SHEET DATA (In thousands):
Working capital $ 6,073 $ 5,188
Total assets $ 10,341 $ 8,890
Total long-term debt (less current maturities) $ 713 $ 445
Total stockholders' equity $ 8,415 $ 7,310
17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
General
Corporate History. We were incorporated in Delaware in September 1997
for the purpose of acquiring Generex Pharmaceuticals, Inc., a Canadian
corporation formed in November 1995 to engage in pharmaceutical and
biotechnological research and other activities. Our acquisition of Generex
Pharmaceuticals was completed in October 1997 in a transaction in which the
holders of all outstanding shares of Generex Pharmaceuticals exchanged their
shares for shares of our common stock.
In January 1998, we participated in a "reverse acquisition" with Green
Mt. P. S., Inc., a previously inactive Idaho corporation formed in 1983. As a
result of this transaction, our shareholders (the former shareholders of Generex
Pharmaceuticals) acquired a majority (approximately 90%) of the outstanding
capital stock of Green Mt., we became a wholly-owned subsidiary of Green Mt.,
Green Mt. changed its corporate name to Generex Biotechnology Corporation
("Generex Idaho"), and we changed our corporate name to GBC Delaware, Inc.
Because the reverse acquisition resulted in our shareholders becoming the
majority holders of Generex Idaho, we were treated as the acquiring corporation
in the transaction for accounting purposes. Thus, our historical financial
statements, which essentially represented the historical financial statements of
Generex Pharmaceuticals, were deemed to be the historical financial statements
of Generex Idaho.
In April 1999, we completed a reorganization in which we merged with
Generex Idaho. In this transaction, all outstanding shares of Generex Idaho were
converted into our shares, Generex Idaho ceased to exist as a separate entity,
and we changed our corporate name back to "Generex Biotechnology Corporation".
This reorganization did not result in any material change in our historical
financial statements or current financial reporting.
Business History. We are engaged in the development of proprietary drug
delivery technology. Our principal business focus has been to develop a
technology for buccal delivery (absorption through the inner cheek walls) of
large molecule drugs, i.e., drugs composed of molecules with molecular weights
above a specified level. Large molecule drugs historically have been
administered only by injection because their size inhibits or precludes
absorption if administered by oral, transdermal, transnasal or other means.
Our first product is an insulin formulation that is administered as a
fine spray into the oral cavity using a hand-held aerosol spray applicator.
Between January 1999 and September 2000, we conducted clinical trials on this
product in the US, Canada and Europe. In September 2000, we entered into an
agreement to develop this product with Eli Lilly and Company. Under this
agreement, Lilly is responsible for conducting clinical trials of the product,
securing regulatory approvals and marketing on a worldwide basis. We will
receive certain initial fees and milestone payments, and royalty payments based
on product sales. Lilly also has the option to develop certain additional
products using our buccal delivery technology depending on the success of the
initial product.
18
Our buccal delivery technology is a platform technology that we believe
has application to a significant number of large molecule drugs in addition to
insulin. During our current fiscal year, we expect to begin development of three
additional products based on this technology that are not covered by our
agreement with Lilly.
We do not expect to receive significant revenue from product sales in
the current fiscal year or in the next fiscal year. We do anticipate licensing
income or income in the nature of licensing income (e.g., "signing bonuses" or
"advance royalties") in the current fiscal year, and received our first income
from such sources in Q1 of this year. We expect, however, to satisfy a
substantial majority of our cash needs during the current year from capital
raised through prior equity financing.
Results of Operations -- 2000 Compared With 1999
We had a net loss of $8,841,047 in the year ended July 31, 2000 (FY
2000) compared to a loss of $6,239,602 in the year ended July 31, 1999 (FY
1999). The increase in our FY 2000 net loss resulted from increases in research
and development expenses (to $3,476,436 from $1,853,108) and in general and
administrative expenses (to $5,567,520 from $4,374,523). Our net interest and
miscellaneous income in FY 2000 increased to $202,909 from a net expense of
$11,971 in FY 1999, primarily as a result of increased interest income in FY
2000.
The principal reasons for the increase in our research and development
expense in FY 2000 were:
o increased expenditures relating to clinical trials of our oral
insulin formulation primarily attributable to the expanded scope of
these trials in FY 2000 to include additional sites in the United
States and Europe, and the fact that trials did not commence in FY
1999 until the second quarter; and
o costs associated with operations of our pilot manufacturing
facility in Toronto which supports our clinical program.
The principal reasons for the increase in our general and
administrative expenses in FY 2000 were:
o an increase of $684,344 in legal and accounting fees and expenses
(to $1,520,726 from $836,382) related primarily to legal and
accounting services in connection with reporting requirements under
the Securities and Exchange Act of 1934, litigation defense costs
and increased legal activity necessitated by increased business
activity;
o increased personnel costs of $198,122 (to $369,007 from $170,885)
related primarily to additions to our technical and administrative
staff during FY 2000; and
19
o increased travel and other costs of $93,298 (to $538,062 from
$444,764) associated with attendance at and sponsorship of industry
seminars and exhibitions and other promotional activities.
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 ($1,845,408 in FY 2000 and $1,573,604 in
FY 1999) were paid primarily through the issuance of shares of common stock
and/or warrants and options to purchase common stock. We believe that any
similar expenses incurred in the current fiscal year will not exceed the level
of such expenses in FY 2000.
Results of Operations -- 1999 Compared With 1998
We had a net loss of $6,239,602 in FY 1999, compared to a loss of
$4,663,604 in the year ended July 31, 1998 (FY 1998). 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).
The principal reasons for the increase in our research and development
expense in FY 1999 over FY 1998 were:
o commencement of clinical trials of our oral insulin formulation
during Q2 of FY 1999;
o preparations for our clinical program in Q1 of FY 1999, 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
expenses in FY 1999 versus FY 1998 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 the increase in our general and administrative
expenses in FY 1999 compared with FY 1998 ($170,198) was the result of increased
travel and other costs associated with attendance at and, in one case
co-sponsorship of, industry seminars and exhibitions.
20
In each of FY 1999 and FY 1998, 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 FY 1999 and $1,758,166 in FY 1998).
Results of Operations -- Years Ended July 31, 1998 and 1997
Through July 31, 1998, we accumulated a substantial operating deficit
as a result of research, development and general and administrative expenses.
These expenses increased year to year, and increased substantially in FY 1998,
primarily because of large increases in general and administrative expenses
($3,723,909 in FY 1998 versus $651,545 in FY 1997).
The increase in our general and administrative expenses in FY 1998 was
attributable primarily to:
o increase in salaries ($570,230 in FY 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.
Liquidity and Capital Resources
To date we have financed our development stage activities primarily
through private placements of common stock. In FY 2000, we issued approximately
1.59 million shares of common stock for cash proceeds of approximately $8.05
million (net of financing costs of approximately $606,000) and non-cash proceeds
(services) of approximately $66,288. Additionally, we granted stock options and
warrants to consultants and advisors, with a value of $1.42 million, for
services rendered. As a result of our sales of common stock for cash and our use
of stock options and warrants to pay for certain services during FY 2000, our
stockholders' equity increased to approximately $8.42 million at July 31, 2000,
versus approximately $7.31 million at July 31, 1999, notwithstanding our net
loss during the year.
At July 31, 2000, we had on hand cash and short term investments
(primarily notes of US corporations) of approximately $7.17 million versus $5.87
million at July 31, 1999. In the first quarter of our current fiscal year (from
August 1, 2000, through October 18, 2000), we received additional equity capital
of approximately $ 1.9 million from the sale of 256,504 shares of common stock
upon exercise of outstanding warrants, and approximately $22 million (net of
financing costs of approximately $1.66 million) from a private placement of
units of securities consisting of 2,151,093 shares of common stock and warrants
to purchase an additional 322,065 shares of common stock at a price of $13.20
per share. We believe that our current cash position is sufficient to meet all
21
of our working capital needs for at least the next 12 months. Beyond that, we
may require additional funds to support our working capital requirements or for
other purposes and may seek to raise funds through private or public equity
financing or from other sources. 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.
In the past we have funded most of our development and other costs with
equity financing. While we have been able to raise equity capital as required,
unforeseen problems with our clinical program or materially negative
developments in general economic conditions could interfere with our ability to
raise additional equity capital as needed, or materially adversely affect the
terms upon which such capital is available. We presently have a $50 million
equity "draw down" commitment from an investor pursuant to which, subject to
certain limitations and the satisfaction of certain conditions, we have the
right to require the investor to purchase up to $50 million of our common stock
at a 10% discount to the then current market price of the common stock. We do
not now foresee a need to draw upon this facility in the current fiscal year.
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 December 31, 1998, we classified certain payments
to executive officers for compensation and expense reimbursements as "Research
and development - related party" because the executive officers received such
payments through personal services corporations rather than directly. After
December 31, 1998, these payments have been and will continue to 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.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS 133 requires a company to measure all derivatives at
fair value and to recognize them in the balance sheet as an asset or liability,
depending on the company's rights or obligations under the applicable derivative
contract. In June 2000 the FASB issued SFAS 138 which amended certain provisions
of SFAS 133. The amendments, among other things, allow foreign-currency
denominated assets and liabilities to qualify for hedge accounting, permit the
22
offsetting of selected inter-entity foreign currency exposures that reduce the
need for third party derivatives and redefine the nature of interest rate risk
to avoid sources of ineffectivenes. We adopted SFAS 133 and the corresponding
amendments of SFAS 138 in the first quarter of the current fiscal year. Adoption
of SFAS 133, as amended by SFAS 138, is not expected to have a material impact
on our results of operations, financial position or cash flows.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenue in financial statements and requires adoption no later than the
fourth quarter of the Company's fiscal year 2001. We currently are evaluating
the impact of SAB 101 to determine what effect, if any, it may have on our
financial position and results of operations.
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 professional fees and costs associated with the conduct of
clinical trials in the United States and Europe, substantially all of our
operating expense obligations are denominated in Canadian dollars. We do not
presently employ any 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.
23
Item 8. Financial Statements and Supplementary Data
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-------
Independent Auditors' Report F- 1
Consolidated Balance Sheets
July 31, 2000 and 1999 F-2
Consolidated Statements of Operations
For the Years Ended July 31, 2000, 1999 and 1998
and Cumulative From Inception to July 31, 2000 F-3
Consolidated Statements of Changes in Stockholders' Equity
For the Period November 2, 1995 (Date of Inception)
to July 31, 2000 F-4-9
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2000, 1999 and 1998
and Cumulative From Inception to July 31, 2000 F-10
Notes to Consolidated Financial Statements F-11-29
24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
Generex Biotechnology Corporation:
We have audited the accompanying consolidated balance sheets of Generex
Biotechnology Corporation and Subsidiaries (a development stage company) as of
July 31, 2000 and 1999, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended July 31, 2000, and the cumulative amounts of operations
and cash flows for the period November 2, 1995 (date of inception) to July 31,
2000. 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 Corporation and Subsidiaries as of July 31, 2000 and 1999 and the
consolidated results of their operations, and their cash flows for each of the
years in the three-year period ended July 31, 2000, and the cumulative amounts
of operations and cash flows for the period November 2, 1995 (date of inception)
to July 31, 2000 in conformity with generally accepted accounting principles
(United States).
/s/ WithumSmith+Brown
- ---------------------
WithumSmith+Brown
New Brunswick, New Jersey
September 14, 2000 except as to Note 16(D), for which the date is September 29,
2000, and Note 16(E), for which the date is October 5, 2000
F-1
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
July 31,
------------------------------------
2000 1999
---------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,204,905 $ 5,633,201
Short-term investments 3,966,263 232,345
Miscellaneous receivables 16,138 182,413
Other current assets 99,041 119,010
---------------- --------------
Total Current Assets 7,286,347 6,166,969
Property and Equipment, Net 2,395,867 1,879,547
Patents, Net 267,369 --
Deposits 47,914 66,159
Due From Related Parties 343,773 776,991
---------------- --------------
TOTAL ASSETS $ 10,341,270 $ 8,889,666
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,204,282 $ 428,874
Current maturities of long-term debt 9,404 550,589
---------------- --------------
Total Current Liabilities 1,213,686 979,463
Long-Term Debt, Less Current Maturities 712,559 444,971
Due to Related Parties -- 155,383
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
no shares issued and outstanding at July 31, 2000 and 1999 -- --
Special Voting Rights Preferred stock, $.001 par value; authorized,
issued and outstanding 1,000 shares at July 31, 2000 and 1999 1 1
Common stock, $.001 par value; authorized 50,000,000 shares,
issued and outstanding 16,326,333 and 14,740,683 shares
at July 31, 2000 and 1999, respectively 16,327 14,741
Additional paid-in capital 30,435,066 20,903,728
Notes receivable - common stock (54,118) (434,903)
Deficit accumulated during the development stage (21,816,725) (12,975,678)
Accumulated other comprehensive loss (165,526) (198,040)
---------------- --------------
Total Stockholders' Equity 8,415,025 7,309,849
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,341,270 $ 8,889,666
================ ==============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-2
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
2000 1999 1998 July 31, 2000
------------- ------------- ------------- ---------------
Revenues $ -- $ -- $ -- $ --
Operating Expenses:
Research and development 3,476,436 1,853,108 707,520 6,946,036
Research and development - related party -- -- 168,884 220,218
General and administrative 5,567,520 4,374,523 3,409,581 14,463,790
General and administrative- related party -- -- 314,328 314,328
------------- ------------- ------------- --------------
Total Operating Expenses 9,043,956 6,227,631 4,600,313 21,944,372
------------- ------------- ------------- --------------
Operating Loss (9,043,956) (6,227,631) (4,600,313) (21,944,372)
Other Income (Expense):
Miscellaneous income 7,906 -- -- 7,906
Interest income 272,808 55,190 -- 327,998
Interest expense (77,805) (67,161) (63,291) (208,257)
------------- ------------- ------------- --------------
Net Loss $ (8,841,047) $ (6,239,602) $ (4,663,604) $ (21,816,725)
============= ============= ============= ==============
Basic and Diluted Net Loss Per Common
Share $ (.58) $ (.47) $ (.46)
============= ============= =============
Weighted Average Number of Shares of
Common Stock Outstanding 15,189,781 13,260,260 10,078,875
============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
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, 2000
Special
Voting Rights
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 (loss):
Currency translation adjustment -- -- -- -- -- --
--------
Total Comprehensive Income (Loss)
--------- -------- ------- ------ ----------- -------
Balance -July 31, 1996 4,587,764 4,588 -- -- 2,708,501 --
Deficit
Accumulated Accumulated
Other During the Total
Comprehensive Development Stockholder
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 (loss):
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.
F-4
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, 2000
Special
Voting Rights
Preferred Notes
Common Stock Stock Additional Receivable
----------------------- ------------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
--------- ------- -------- ------ ----------- ----------
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 (loss):
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
-------------- -------------- --------------
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 (loss):
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.
F-5
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, 2000
Special
Voting Rights
Preferred Notes
Common Stock Stock Additional Receivable
------------------------ ------------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
---------- ------- -------- ------ ----------- ----------
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 (loss):
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
-------------- -------------- --------------
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 (loss):
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.
F-6
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, 2000
Special
Voting Rights
Preferred Notes
Common Stock Stock Additional Receivable
----------------------- ------------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
--------- ------- -------- ------ ----------- ----------
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 Accumulated
Other During the Total
Comprehensive Development Stockholders'
Income (Loss) Stage Equity
-------------- -------------- --------------
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.
F-7
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, 2000
Special
Voting Rights
Preferred Notes
Common Stock Stock Additional Receivable
----------------------- ------------------- Paid-In - Common
Shares Amount Shares Amount Capital Stock
--------- ------- -------- ------ ----------- ----------
Issuance of common stock in exchange for
services rendered, January 1999, $5.00 392 -- -- -- 1,960 -