UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 1998
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to __________________.
COMMISSION FILE NUMBER: 0-25169
GENEREX BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
IDAHO 82-0490211
------------------------------- --------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
33 HARBOR SQUARE, SUITE 202
TORONTO, ONTARIO
CANADA M5J 2G2
(Address of principal executive offices)
416/364-2551
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
[ ] Yes [X] No - subject to filing requirements since February 12, 1999
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.001, was 13,363,586 as of March 22, 1999.
Page 1 of 13
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
INDEX
PART 1: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements - unaudited
Consolidated Balance Sheets -
October 31, 1998 and July 31, 1998 ................................. 3
Consolidated Statements of Operations
for the three month periods ended October 31, 1998
and 1997, and cumulative from November 2, 1995, to
October 31, 1998 ................................................... 4
Consolidated Statements of Cash Flows
for the three month periods ended October 31, 1998
and 1997, and cumulative from November 1995, to
October 31, 1998 ................................................... 5
Notes to Consolidated Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings .................................................. 13
Item 5. Other Information .................................................. 13
Item 6. Exhibits and Reports on Form 8-K ................................... 13
Signatures ......................................................... 13
Page 2 of 13
<PAGE>
Item 1. Consolidated financial statements
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(RESTATED)
<TABLE>
<CAPTION>
October 31, July 31,
1998 1998
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $1,970,865 $2,090,827
Restricted cash -- 106,527
Miscellaneous receivables 223,199 209,090
Other current assets 132,602 131,340
---------- ----------
Total Current Assets 2,326,666 2,537,784
Property and Equipment, Net 2,117,443 1,634,447
Deposits 64,598 82,509
Due From Related Parties 1,211,687 1,200,968
---------- ----------
TOTAL ASSETS $5,720,394 $5,455,708
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 358,141 $1,253,003
Current maturities of long-term debt 394,490 411,565
---------- ----------
Total Current Liabilities 752,631 1,664,568
Long-Term Debt, Less Current Maturities 599,482 912,817
Due to Related Parties 255,496 236,024
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
issued and outstanding 1,000 at October 31, 1998 and
July 31, 1998 1 1
Common stock, $.001 par value; authorized 50,000,000 shares,
issued and outstanding 12,726,016 and 11,971,272 shares at
October 31, 1998 and July 31, 1998, respectively 12,726 11,971
Additional paid-in capital 12,133,335 9,565,836
Deficit accumulated during the development stage (7,789,881) (6,736,076)
Accumulated other comprehensive income (loss) (243,396) (199,433)
---------- ----------
Total Stockholders' Equity 4,112,785 2,642,299
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,720,394 $5,455,708
========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
November 2,
For the Three Months Ended 1995 (Date of
October 31, Inception) to
---------------------------- to October 31,
1998 1997 1998
------------ ------------ ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Operating Expenses:
Research and development 586,258 30,309 2,202,750
Research and development - related party -- 21,455 220,218
General and administrative 452,551 275,872 4,974,298
General and administrative - related party -- 71,798 314,328
------------ ------------ ------------
Total Operating Expenses 1,038,809 399,434 7,711,594
------------ ------------ ------------
Operating Loss (1,038,809) (399,434) (7,711,594)
------------ ------------ ------------
Other Income (Expense):
Interest income 66 -- 66
Interest expense (15,062) -- (78,353)
------------ ------------ ------------
Net Loss $ (1,053,805) $ (399,434) $ (7,789,881)
============ ============ ============
Basic and Diluted Net Loss Per Common
Share $ (.09) $ (.04)
============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 12,348,870 9,000,118
=========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
November 2,
For the Three Months Ended 1995 (Date of
October 31, Incepion) to
-------------------------- to October 31,
1998 1997 1998
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,053,805) $ (399,434) $(7,789,881)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 16,851 3,292 60,936
Common stock and warrants issued
for services rendered 129,728 234,000 2,317,487
Preferred stock issued for services rendered -- -- 100
Changes in operating assets and liabilities:
Miscellaneous receivables -- (55,837) (170,179)
Other current assets (20,367) 46,428 (156,944)
Accounts payable and accrued liabilities (133,808) (157,310) 1,192,138
Other, net (79,347) (10,384) 30,970
----------- ----------- -----------
Net Cash Used in Operating Activities (1,140,748) (339,245) (4,515,373)
Cash Flows From Investing Activities:
Purchase of property and equipment (449,915) (5,524) (525,688)
Change in restricted cash 105,655 -- (5,595)
Change in deposits 16,304 -- (1,297)
Change in notes receivable -- 101,953 --
Change in due from related parties (33,440) (245,070) (3,007,826)
Other, net -- -- 89,683
----------- ----------- -----------
Net Cash Used in Investing Activities (361,396) (148,641) (3,450,723)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt -- -- 993,149
Repayment of long-term debt (385,299) 502,585 (448,688)
Change in due to related parties 48,135 -- 284,159
Proceeds from issuance of common stock, net 1,819,592 -- 9,209,540
Purchase and retirement of common stock (119,066) -- (119,066)
----------- ----------- -----------
Net Cash Provided By Financing Activities 1,363,362 502,585 9,919,094
Effect of Exchange Rates on Cash 18,820 5,465 17,867
----------- ----------- -----------
Net Increase (Decrease) in Cash (119,962) 20,164 1,970,865
Cash, Beginning of Period 2,090,827 196,004 --
----------- ----------- -----------
Cash, End of Period $ 1,970,865 $ 216,168 $ 1,970,865
=========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements
have been prepared pursuant to the rules and regulations for
reporting Form 10-Q. Accordingly, certain information and disclosures
required by generally accepted accounting principles for complete
financial statements are not included herein. The interim statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's latest Annual Report on Form 10.
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the fiscal year
1999; in the Company's opinion, all adjustments necessary for a fair
presentation of these interim statements have been included and are
of a normal and recurring nature.
2. Comprehensive Income/(Loss)
Effective August 1, 1998, the Company adopted the provisions of
Statement No. 130, Reporting Comprehensive Income, which modifies the
financial statement presentation of comprehensive income and its
components. Adoption of this statement had no effect on the Company's
financial position or operating results.
Comprehensive loss, which includes net loss and the change in the foreign
currency translation account during the period, for the three months ended
October 31, 1998 and 1997 was $(1,097,768) and $(63,355), respectively.
3. Accounts Payable and Accrued Expense
Accounts payable and accrued expenses consist of the following:
October 31, July 31,
1998 1998
-------- ----------
Accounts Payable $182,656 $ 336,633
Penalty Arising from Violation of
Financing Agreement -- 738,000
Consulting Accruals 149,060 151,945
Building Purchase Liability 26,425 26,425
-------- ----------
Total $358,141 $1,253,003
======== ==========
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Pending Litigation
Sands Brothers & Co., Ltd. (Sands), a New York City-based investment
banking and brokerage firm, initiated arbitration against the Company
under New York Stock Exchange rules in September 1998. This claim is
based upon a claim that Sands has the right to purchase, for nominal
consideration, approximately 1.5 million shares of the Company's
common stock. This claim is based upon an October 1997 letter
agreement which purportedly confirmed the terms of an agreement
appointing Sands as the exclusive financial advisor to Generex
Pharmaceuticals, Inc. (GPI) and granting Sands the right to receive
shares representing 17 percent of the outstanding capital stock of
GPI on a fully diluted basis. Following the acquisition of GPI by GBC
- Delaware, Inc., Sands' claimed a right to receive shares of GPI
common stock that would, allegedly, now apply to the Company's common
stock. Sands also claims that it is entitled to additional shares of
the Company as a result of the GBC - Delaware, Inc.'s acquisition of
GPI (approximately 460,000 shares), and $144,000 in fees under the
terms of the purported Agreement.
Sands has never performed any services for the Company, and the Company and
GPI have denied that the individual who is alleged to have entered into the
purported agreement between Sands and GPI, had the authority to act on GPI's
behalf, and accordingly, is defending against Sands' claim primarily on the
basis that no agreement has ever existed between GPI and Sands.
During a series of hearings before a NYSE arbitration panel commencing June
8, 1999, Sands amended its claim to include, in the alternative, an
entitlement in the form of an order of specific performance with regard to
the issuance of the warrant as discussed in the October 1997 letter.
By an award dated September 24, 1999, the panel awarded Sands $12,000 plus
$2,070 in interest, a declaratory judgment that the Company is required to
issue Sands a warrant for 1,530,020 shares in accordance with the October
1997 letter, and denied all other relief and split the $22,800 in forum fees
equally between Sands and the Company. The award must be confirmed by a
court of appropriate jurisdiction. The Company intends to seek relief from
the award by requesting, among other things, a New York State court to
vacate the award on various legal grounds. However, the ultimate legal and
financial liability of the Company, including a range of possible losses
with respect to the award cannot be estimated at this time. Therefore, no
provision has been recorded in the accompanying financial statements.
Furthermore, it is management's belief that the final outcome is not
reasonably likely to have a material adverse effect on the Company's
consolidated financial position.
Generex Pharmaceuticals, Inc., is also contesting a claim for
wrongful dismissal in the amount of approximately $300,000 plus
special damages, interest and costs. The Company believes that the
plaintiff was never employed by the Company or any of its
subsidiaries and that the case is without merit.
An action was also commenced against GPI and other companies and
individuals seeking approximately $3,965,000 for allegedly causing
certain adverse consequences of a plaintiff's particular investment
in a company. GPI's only involvement was that at one time there was
interest on its part in buying certain assets from this company. GPI
failed to file a Statement of Defense to the Statement of Claim and
GPI was noted in default on October 1, 1996. An application has been
filed to set aside that default notice, however that application has
been adjourned indefinitely.
With respect to all litigation as additional information concerning the
estimates used by the Company become known, the Company reassesses its
position both with respect to accrued liabilities and other potential
exposures. Estimates that are particularly sensitive to future change relate
to legal matters, which are subject to change as events evolve and as
additional information becomes available during the administration and
litigation process.
5. Stock Redemption
Under the terms of a settlement, determined in an Ontario, Canada Court, the
Company agreed to purchased 15,357 shares from a shareholder. The total
purchase price of $140,873 included $119,066 which was charged against
additional paid in capital for the stock redemption and $21,807 which was
recorded as litigation settlement expense which represents the excess paid
over the fair value at the time of settlement. The settlement was concluded
in September 1998.
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Net Loss Per Share
Basic EPS and Diluted EPS for the three months ended October 31, 1998
and 1997 have been computed by dividing the net loss for each
respective period by the weighted average shares outstanding during
that period. All outstanding warrants have been excluded from the
computation of Diluted EPS as they are antidilutive.
7. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
For the Three Months Ended
October 31,
-----------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash paid during the year for:
Interest $ 15,062 $ --
Income taxes $ -- $ --
Disclosure of non-cash investing and financing activities:
Issuance of common stock to satisfy accrued liability $738,000 $ --
Long-term debt incurred in conjunction with acquisition
of property and equipment $ 81,011 $ --
</TABLE>
8. The Company's consolidated financial statements as of October 31, 1998 and
July 31, 1998 and for the three months ended October 31, 1998 have been
restated to reflect: (1) founders shares issued for services provided, (2)
an additional charge to reflect the fair value of warrants issued in
exchange for services rendered, (3) addition expense incurred in
conjunction with stock redemption and (4) correction of an error in
calculating accumulated other comprehensive income (loss).
The effect of these restatements are as follows:
As Previously As
Reported Restated
------------- ------------
For the year ended July 31, 1998
--------------------------------
Balance Sheet:
Additional paid-in capital 9,162,329 9,565,836
Deficit accumulated during the
development stage (6,332,570) (6,736,076)
For the three months ended October 31, 1998
-------------------------------------------
Balance Sheet:
Additional paid-in capital 11,705,958 12,133,335
Deficit accumulated during the
development stage (7,779,797) (7,789,881)
Accumulated other comprehensive
income (loss) 173,897 (243,396)
Consolidated Statements of Operations:
General and administrative 428,660 452,551
Net loss (1,029,934) (1,053,805)
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Subsequent Events
Subsequent events occurring after October 31, 1998 consist of the
following:
The Company entered into a consulting agreement with an
individual. As part of the consultant's compensation, the Company
granted the consultant options to purchase 50,000 shares of the
Company's common stock at an exercise price of $8.00 per share
under the 1998 stock option plan.
The stock option plan adopted in January 1998 was not submitted
for shareholder approval and terminated on February 1, 1999. A new
plan, substantially identical to the terminated plan, has been
adopted. All options granted under the previous plan are not
affected by the termination.
For consideration of financial consulting services provided, the
Company issued warrants to purchase 150,000 shares of common stock
at $10 per share.
The Company received a total of $1,775,600 from the sale of 423,852
shares of common stock at prices ranging from $4.00 to $6.00.
For consideration of legal services provided, the Company issued 5,000
shares of common stock at $6 per share.
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Subsequent Events (Unaudited)
In February 1999, MQS, Inc., a former consultant to the Company,
commenced a civil action against the Company in the United States
District Court for the District of New Jersey claiming that
242,168 shares of the Company's Common Stock, and $243,066 are due
to it for services which it rendered through December 22, 1998.
MQS also claims compensation on a quantum merit basis for the
value of its services, and for punitive damages. The Company has
not yet responded to the Complaint in this action.
In February 1999, the Company entered into an agreement with an
investment banker. Under the terms of the agreement, the
investment banker will act as the Company's exclusive investment
advisor, exclusive private placement agent and exclusive
investment banker for a period of two months. If the investment
banker is successful in securing capital for the Company for an
agreed upon and stated amount during this period, the term of the
agreement will automatically be extended for a period of four
months. The Company also has the option to extend the term of the
agreement for an additional four months, if it is expressed in
writing that it is satisfied with the investment banker's
services. In conjunction with the agreement, the investment banker
received an option to purchase 100,000 shares of the Company's
common stock at an exercise price of $6.00 per share during a
five-year period. The investment banker will also receive an
additional option to purchase 50,000 shares of the Company's
common stock at an exercise price of $7.50 per share during a
five-year period for assisting in obtaining financing in an agreed
upon and stated amount. In the event of a private placement of the
Company's securities, the investment banker is entitled to (i) a
transaction fee in the amount of 10 percent of the amount raised,
(ii) a 3 percent non-accountable expense allowance and (iii)
placement agent warrants equal to 10 percent of the ownership
given to any equity raised. Finally in the event that the Company
enters into a merger, acquisition, or sale transaction with a
party introduced by the investment banker, cash compensation will
be paid based on an agreed upon formula.
On February 11, 1999, the shareholders of the Company approved the
merger of the Company into its wholly-owned subsidiary,
GBC-Delaware, Inc. The purpose of the merger is to change the
Company's state of incorporation from Idaho to Delaware. The
merger is expected to be effected in the Company's third fiscal
quarter and will not materially affect the Company's historical
financial statements or future financial reporting.
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
When used in this discussion, the words "expect(s)", "feels", "believe(s)",
"will", "may", "anticipate(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from the
possible results described in such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, and are urged to
carefully review and consider the various disclosures elsewhere in this
Prospectus which discuss factors which affect the Company's business, including
the discussion under the caption "Risk Factors".
General
The Company was incorporated in 1983 as Green Mt. P.S., Inc. In January
1998, the Company 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 its 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 of the Company formed for this
transaction (the "Reverse Acquisition"). As a result of the Reverse Acquisition,
the former shareholders of Generex Delaware acquired a majority of the Company's
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 the Company.
In February 1999, the shareholders of the Company approved a reorganization
in which the Company will merge into Generex Delaware for the purpose of
changing the Company's state of Incorporation from Idaho to Delaware (see Part
11, Item 5 below). This reorganization, which is expected to be consummated in
the Company's third fiscal quarter, will not result in any material change in
the Company's historical financial statements or current financial reporting.
The Company is engaged in the development of drug delivery systems. Its
principal business focus has been to develop a technology for the administration
of large molecule (i.e., molecules above a specified molecular weight) drugs.
Historically, large molecule drugs have been administered only by injection
because their size inhibits or precludes absorption if administered only or
oral, transdermal, transnasal or other means. The principal application to date
of the Company's large molecule drug delivery technology is a liquid insulin
formulation that is administered with a metered dose applicator developed by the
Company. 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. The Company intends to market this formulation in the United States
under the name Oralgen(TM), and in Canada and elsewhere under the name
Oralin(TM).
The Company completed pre-clinical studies and proof of concept trials of
its oral insulin formulation in early 1998. Phase 11 clinical trials were
commenced in Canada in November
Page 10 of 13
<PAGE>
1998. The Company's Phase 11 clinical program in the United States commenced in
March 1999. The Company also has received regulatory approval in Ecuador for
limited, noncommercial distribution of its oral insulin formulation to diabetic
patients. This clinical program, which is expected to involve approximately 200
patients, is scheduled to begin later this year.
Results of Operations - Three months ended October 31, 1998
The Company has been in the development stage since its inception and has
not generated any operating revenues to date. Through October 31, 1998, the
Company has accumulated an operating deficit of $7,779,797, as a result of
research and development and general and administrative expenses incurred during
the development stage.
The Company's accumulated operating deficit at October 31, 1998, includes a
net loss of $1,029,934 for the quarter then ended. In the quarter ended October
31, 1997, the Company's net loss was $399,434. The principal reason for the
increase in the Company's net loss in the quarter ended October 31, 1998, versus
the corresponding period in 1997, was an increase in research and development
expenses (to $586,258 from $51,764). The increase in research and development
expense in the 1998 period reflects the Company's preparation for Phase II
clinical trials of the Company's oral insulin formulation in Canada, development
work associated with the Company's metered dose applicator, preparation and
submission of an Investigational New Drug application to the U.S. Food and Drug
Administration, continuation and support of the Company's clinical program in
Ecuador, and personnel costs associated with starting up the Company's pilot
manufacturing facility in Toronto which supports the Company's clinical
programs. Research and development expenses in the first quarter of 1997
essentially were limited to laboratory personnel costs. The remainder of the
increased loss in the first quarter of 1998 versus the corresponding 1997
quarter was the result of an increase in general and administrative expenses
($81,010) and interest expense ($14,966, net of interest income). The increase
in general and administrative expenses in the 1998 quarter was primarily a
result of the addition of new administrative personnel and participation in a
number of industry seminars and exhibitions during the quarter.
Liquidity and Capital Resources
The Company has financed its development stage activity primarily through
private placements of equity securities. During the quarter ended October 31,
1998, the Company received approximately $2.5 million in additional equity
capital, net of a stock redemption and expenses associated with acquiring the
capital. As a result, at October 31, 1998, the Company's stockholders' equity
had increased to approximately $4.1 million versus approximately $2.6 million at
July 31, 1998, notwithstanding its net loss during the quarter. In the quarter,
the Company also issued 39,504 shares of common stock valued at $127,664 in
payment for services, and issued 180,000 shares and repriced warrants to
purchase 7,937 shares to settle outstanding claims resulting in an accounting
charge of $740,064 as litigation expense.
At October 31, 1998, the Company had cash on hand of approximately $1.97
million, a slight decrease from approximately $2.2 million on hand at July 31,
1998. Based on the
Page 11 of 13
<PAGE>
Company's projections of its cash needs at that time, its cash on hand was
insufficient to fund development activities over the next twelve months at the
levels then planned. The Company's business plan contemplated raising additional
equity capital to satisfy its short term cash requirements, and the Company
intends to rely on its ability to raise additional equity capital as required to
continue its development activities at least through the current calendar year.
Beyond that point, the Company expects that a substantial portion of its cash
needs will be met through licensing income, and future marketing partners'
contributions to clinical program costs and/or equity investments.
Implementation of the Company's business plan will require the availability
of sufficient funds from the sources described above. While the Company has been
successful in acquiring capital for its development activities as required, it
does not have a substantial "cash cushion", nor does it have any commitments for
future financing. Thus, the Company faces the risk that unforeseen problems with
its clinical program or materially negative developments in general economic
conditions could interfere with its ability to raise additional capital or
materially adversely affect the terms upon which such capital is available. If
funds are not available as needed from these sources, or from alternative
sources, the Company will be required to "scale back" or otherwise revise its
business plan. Any significant scale back of operations or modification of the
Company's business plan required due to a lack of funding could be expected to
materially and adversely affect the Company's prospects.
Transactions with Affiliates
A portion of the Company's administrative expenses have resulted from
transactions with affiliated persons. A number of the Company's capital
transactions also have involved affiliated persons. Although these transactions
were not the result of "arms-length" negotiations, the Company does not believe
that this fact had a material impact on the Company's results of operations or
financial position. A portion of the expenses classified as "Research and
development - related party" and "General and administrative - related party"
are in the nature of executive compensation and expense reimbursements to the
Company's executive officers, each of whom receives compensation through a
personal services corporation rather than directly. Beginning with the second
quarter of the current fiscal year, the Company will not characterize these as
"related party" transactions, and will account for them in the same manner as
direct compensation and expense reimbursements to the officers in question.
Except for such expenses, the Company does not foresee a need for, and therefor
does not anticipate, any "related party" transactions after December 31, 1998.
Year 2000
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. Management of the Company
has completed its assessment of year 2000 issues and believes that the
consequences of such issues will not have a material effect on the Company's
business, results of operations or financial condition, without taking into
account any efforts by the Company to avoid such consequences.
New Accounting Pronouncements
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.
The Company believes that the adoption of SFAS No. 133 will not have a material
impact on the Company's financial reporting.
Page 12 of 13
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company has filed an Annual Report on Form 10-K for the year ended July
31, 1999. Information set forth in Item 3 of that Report is incorporated herein
by reference.
Item 5. Other Information
On February 11, 1999, the shareholders of the Company approved the merger
of the Company into its wholly-owned subsidiary, GBC-Delaware, Inc. The purpose
of the merger is to change the Company's state of incorporation from Idaho to
Delaware. The transaction was approved by a vote of 7,854,956 shares to zero.
The merger had not been effected as of the date of this Report, but is expected
to be effected in the Company's third fiscal quarter, i.e., the quarter ending
April 30, 1999. The merger will not materially affect the Company's historical
financial statements or future financial reporting.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Exhibit Title
------- -------------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
GENEREX BIOTECHNOLOGY CORPORATION
DATE: October 29, 1999 By: /s/ E. Mark Perri
-------------------------------
E. Mark Perri
Chairman and Chief
Financial Officer
Page 13 of 13
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