UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended April 30, 1999
[ ] 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
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(Exact name of registrant as specified in its charter)
Delaware 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.
[X] Yes [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.001, was 13,727,937 as of April 30, 1999.
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
INDEX
<TABLE>
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements - unaudited
Consolidated Balance Sheets -
April 30, 1999 and July 31, 1998.......................................... 3
Consolidated Statements of Operations for the three months ended
April 30, 1999 and 1998, the nine months ended April 30, 1999 and
1998, and cumulative from November 2, 1995, to April 30, 1999............. 4
Consolidated Statements of Cash Flows for the nine months ended
April 30, 1999 and 1998, and cumulative from November 1995, to
April 30, 1999............................................................ 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
(a) Reincorporation in Delaware
(b) Redemption of Series A Warrants
(c) Restatement of Certificate of Incorporation
Item 6. Exhibits and Reports on Form 8K........................................... 13
Signatures.......................................................................... 14
</TABLE>
Page 2 of 14
<PAGE>
Item I. Consolidated financial statements
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,859,362 $ 2,090,827
Restricted cash -- 106,527
Miscellaneous receivables 159,629 209,090
Other current assets 132,924 131,340
------------ -----------
Total Current Assets 4,151,915 2,537,784
Property and Equipment, Net 2,222,257 1,634,447
Deposits 68,434 82,509
Due From Related Parties 824,437 1,200,968
------------ -----------
TOTAL ASSETS $ 7,267,043 $ 5,455,708
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 520,541 $ 1,253,004
Current maturities of long-term debt 417,919 411,565
------------ -----------
Total Current Liabilities 938,460 1,664,569
Long-Term Debt, Less Current Maturities 635,084 912,817
Due to Related Parties 160,727 236,024
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares, issued and
outstanding 1,000 shares at April 30, 1999
and July 31, 1998 1 1
Common stock, $.001 par value; authorized 50,000,000 shares,
issued and outstanding 13,727,937 and 11,971,272 shares at
April 30, 1999 and July 31, 1998, respectively 13,728 11,971
Additional paid-in capital 16,324,510 9,162,329
Deficit accumulated during the development stage (10,679,456) (6,332,570)
Accumulated other comprehensive income (loss) (126,011) (199,433)
------------ -----------
Total Stockholders' Equity 5,532,772 2,642,298
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,267,043 $ 5,455,708
============ ===========
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these statements.
Page 3 of 14
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
From
November 2,
For the Three Months Ended For the Nine Months Ended 1995 (Date of
April 30, April 30, Inception) to
----------------------------- ---------------------------- April 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $ --
Operating Expenses:
Research and development 562,054 156,017 1,716,514 335,304 3,167,321
Research and development - related party 26,672 14,666 70,689 165,452 290,907
General and administrative 882,401 434,756 2,333,875 1,305,644 6,617,801
General and administrative - related party 67,387 77,343 198,817 219,298 513,145
----------- ----------- ----------- ----------- ------------
Total Operating Expenses 1,538,514 682,782 4,319,895 2,025,698 10,589,174
----------- ----------- ----------- ----------- ------------
Operating Loss (1,538,514) (682,782) (4,319,895) (2,025,698) (10,589,174)
Other (Income) Expense:
Interest income (6,868) -- (6,934) -- (6,934)
Interest expense 285 -- 33,925 -- 97,216
----------- ----------- ----------- ----------- ------------
Net Loss $(1,531,931) $ (682,782) $(4,346,886) $(2,025,698) $(10,679,456)
=========== =========== =========== =========== ============
Basic and Diluted Net Loss Per Common
Share $ (.11) $ (.07) $ (.34) $ (.21)
=========== =========== =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding 13,416,870 10,391,645 12,890,760 9,583,302
=========== =========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these statements.
Page 4 of 14
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
From
November 2,
For the Nine Months Ended 1995 (Date of
April 30, Inception) to
------------------------------- April 30,
1999 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(4,346,886) $(2,025,698) $(10,679,456)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 29,161 21,394 73,246
Common stock issued for services rendered 275,408 433,245 837,661
Stock options and warrants issued for
services rendered 600,000 234,000 1,084,000
Preferred stock issued for services rendered -- 100 100
Changes in operating assets and liabilities:
Miscellaneous receivables 55,227 -- (114,952)
Other current assets 146 21,252 (136,431)
Accounts payable and accrued liabilities 578 345,864 1,326,524
Other, net 67,836 (8,969) 178,153
----------- ----------- ------------
Net Cash Used in Operating Activities (3,318,530) (978,812) (7,431,155)
Cash Flows From Investing Activities:
Purchase of property and equipment (465,358) (15,713) (541,131)
Change in restricted cash 105,655 (76,047) (5,595)
Change in deposits 16,581 -- (1,020)
Change in notes receivable -- 100,453 --
Change in due from related parties 405,728 919 (2,568,658)
Other, net -- -- 89,683
----------- ----------- ------------
Net Cash Provided By (Used in)
Investing Activities 62,606 9,612 (3,026,721)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt -- 850,365 993,149
Repayment of long-term debt (391,860) -- (455,249)
Change in due to related parties (80,981) 62,046 155,043
Proceeds from issuance of common stock, net 5,691,403 -- 13,819,351
Purchase and retirement of common stock (140,873) -- (140,873)
----------- ----------- ------------
Net Cash Provided By Financing Activities 5,077,689 912,411 14,371,421
Effect of Exchange Rates on Cash
and Cash Equivalents (53,230) 5,311 (54,183)
----------- ----------- ------------
Net Increase (Decrease) in Cash
and Cash Equivalents 1,768,535 (51,478) 3,859,362
Cash and Cash Equivalents, Beginning of Period 2,090,827 196,004 --
----------- ----------- ------------
Cash and Cash Equivalents, End of Period $ 3,859,362 $ 144,526 $ 3,859,362
=========== =========== ============
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these statements.
Page 5 of 14
<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.
On April 30, 1999, the Company reincorporated in the State of Delaware.
This was accomplished by a merger of the Company with its wholly owned
subsidiary GBC-Delaware, Inc. The reincorporation will not have an effect
on the Company's capitalization, management or business operations.
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 for the nine months ended April 30, 1999 and 1998 was
$(4,273,464) and $(2,124,799), respectively.
3. Accounts Payable and Accrued Expense
Accounts payable and accrued expenses consist of the following:
April 30, July 31,
1999 1998
-------- ----------
Accounts Payable $449,055 $ 336,634
Penalty Arising from Violation of
Financing Agreement -- 738,000
Consulting Accruals 71,486 151,945
Building Purchase Liability -- 26,425
-------- ----------
Total $520,541 $1,253,004
======== ==========
Page 6 of 14
<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 GBT -
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 GBT - 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. The arbitration began on June 8, 1999 and additional
hearings are expected to be scheduled in July 1999. The Company is unable
to predict the outcome at this time, however, they do not expect that the
ultimate resolution of this matter will have a material effect on its
results of operations and financial condition.
GPI 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.
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. On May 11,
1999, the Company responded to the complaint in this action, however,
discovery has not begun.
Page 7 of 14
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Stock Redemption
Under the terms of a settlement, determined in an Ontario, Canada Court,
the Company agreed to purchase 15,357 shares from a shareholder for a
total purchase price of $140,873. The settlement was concluded in September
1998.
6. Net Loss Per Share
Basic EPS and Diluted EPS for the nine months ended April 30, 1999 and 1998
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 Nine Months Ended
April 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 33,925 $ --
Income taxes $ -- $ --
Disclosure of non-cash investing and financing activities:
Acquisition of property and equipment with collection of
related party receivables $ -- $620,725
Issuance of common stock to satisfy accrued liability $738,000 $ --
Long-term debt incurred in conjunction with acquisition
of property and equipment $ 81,492 $ --
</TABLE>
8. Subsequent Events
Subsequent events occurring after April 30, 1999 consist of the following:
The Company received a total of $1,500,004 from the sale of 272,728 shares
of common stock at a price of $5.50 per share.
Page 8 of 14
<PAGE>
GENEREX BIOTECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Subsequent Events (Continued):
On May 8, 1999, the Company announced that it exercised its right to redeem
all outstanding Series A Redeemable Common Stock Warrants which were
exercisable at $5.00 per share. The effective date of the redemption was
June 4, 1999. Subsequent to June 4, 1999, the warrants ceased to be
exercisable and the sole right of the holder who did not exercise their
warrant(s) was to receive $.025 per warrant upon surrender of the warrant
certificate to the Company. For 496,547 newly issued shares and the
surrender of warrant certificates, the Company received the following:
Cash $1,941,875
Services Rendered 67,158
Promissory Notes Receivable 473,702
----------
$2,482,735
In addition to the above, the Company received 323,920 previously
outstanding shares, valued for this purpose at $7.8125 per share, and
surrender of warrant certificates in exchange for 506,125 newly issued
shares.
Page 9 of 14
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
When used in this discussion, the words "expect(s)", 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.
On April 30, 1999, the Company completed a reorganization in which the
Company merged into Generex Delaware for the purpose of changing the Company's
state of incorporation from Idaho to Delaware (see Part II, Item 5(a) below).
This reorganization did 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 by 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 using a hand-held aerosol spray applicator. The
formulation, which includes insulin and various excipients (i.e., non-active
pharmaceutical ingredients) to facilitate the absorption of insulin molecules
through the mucous membranes in the mouth and upper gastro-intestinal tract, is
sprayed into the mouth and back of the throat, where absorption occurs. This
product, which the Company intends to market in the United States under the name
Oralgen(TM) and in Canada and elsewhere under the name Oralin(TM), is presently
undergoing Phase II clinical trials in the United States and Canada.
Page 10 of 14
<PAGE>
Results of Operations - Three months ended April 30, 1999 and 1998
The Company has been in the development stage since its inception and has
not generated any operating revenues to date. Through April 30, 1999, the
Company accumulated an operating deficit of $10,679,456 as a result of research
and development and general and administrative expenses incurred during the
development stage.
The Company's accumulated operating deficit at April 30, 1999, includes a
net loss of $1,531,931 for the quarter then ended. In the corresponding quarter
of the prior year the Company's net loss was $682,782. The principal reason for
the increase in the Company's net loss in the quarter ended April 30, 1999,
versus the quarter ended April 30, 1998, was an increase in research and
development expenses (to $588,726 from $170,683), and in general and
administrative expenses (to $949,788 from 512,099).
The increase in research and development expense in the current period is
attributable primarily to the conduct of Phase II clinical trials of the
Company's oral insulin formulation in Canada and the United States.
The increase in general and administrative expenses in the quarter ended
April 30, 1999, compared to the prior year was primarily a result of the
addition of new administrative personnel in the current fiscal year, increased
legal and accounting expenses related in part to the Company's registration of
its Common Stock under Section 12(g) of the Securities and Exchange Act and
compliance with the reporting requirements of such Act, participation in
industry seminars and exhibitions, and increases in executive compensation.
Results of Operations - Nine months ended April 30, 1999 and 1998
The Company's net loss for the nine months ended April 30, 1999, was
$4,346,886, compared to a loss of $2,025,698 in the corresponding period of the
preceding fiscal year. The principal reasons for the increase in the Company's
net loss in nine month period ended April 30, 1999, was an increase in research
and development expenses (to $1,787,203 from $500,756) and an increase in
general and administrative expenses (to $2,532,692 from $1,524,942).
The increase in research and development expense in the nine months ended
April 30, 1999, reflects the increases in such expenses in the third quarter
which are discussed above, and a substantial increase (to $1,198,177 from
$330,073) in research and development expenditures in the six months ended
January 31, 1999 versus the corresponding 1998 period. The increase in research
and development expense in the first half of the current fiscal year reflected
costs incurred in preparation for the Company's US and Canadian clinical trial
programs, development work associated with the Company's oral insulin
applicator, preparation of the Company's IND to FDA, support of the clinical
testing conducted in Ecuador, and personnel costs associated with starting up
the Company's pilot manufacturing facility in Toronto which supports the
clinical programs.
The increase in general and administrative expenses the first nine months
of the current year are primarily the result of the increase in such expenses
during the second quarter as discussed above, plus a one time expense associated
with the severance of a former executive.
Page 11 of 14
<PAGE>
Liquidity and Capital Resources
The Company has financed its development stage activity primarily through
private placements of equity securities. In the nine months ended April 30,
1999, the Company received cash proceeds of approximately $5.5 million in
additional equity capital, net of expenses relating to the issuance of such
shares and $140,873 to redeem certain outstanding shares. As a result, at April
30, 1999, the Company's stockholders' equity had increased to approximately
$5.53 million versus approximately $2.64 million at July 31, 1998,
notwithstanding its net loss during the nine months ended April 30, 1999.
At April 30, 1999, the Company had cash on hand of approximately $3.86
million. Based on the Company's projections of its cash needs at that time, its
cash on hand was sufficient to fund development activities over the remainder of
the current fiscal year at the levels then planned. In the current fiscal
quarter, the Company has received approximately $3.7 in additional equity
capital through an institutional private placement completed in May 1999, and
the exercise of outstanding warrants in May and June 1999.
Implementation of the Company's business plan will require the
availability of sufficient funds to complete development of its oral insulin
formulation and to carry on other research and development activities. While the
Company has been able to raise capital for its development activities in the
past, it does not have sufficient cash to complete its development plans, and
does not 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 the Company is unable to raise additional capital
as needed, it 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.
The Company believes that its cash on hand is sufficient to complete the
Phase II clinical programs for its oral insulin formulation in the United States
and Canada, but that additional funds will be required to carry out a Phase III
clinical program. The Company expects that a substantial portion of Phase III
costs will be obtained through licensing income, and future marketing partners'
contributions to clinical program costs and/or equity investments. The Company
does not, however, have any licensing agreements or contractual arrangements for
other funding at the present time.
Transactions with Affiliates
A portion of the Company's research and development and administrative
expenses in the current year and in prior periods have resulted from
transactions with affiliated persons. "Research and development - related party"
and "General and administrative - related party" expenses reported by the
Company represent compensation and expense reimbursements paid to management or
consulting companies owned by officers and directors of the Company through
which such officers' and directors' services are provided to the Company. A
number of the Company's capital transactions also have involved affiliated
persons. Although these transactions are not the result of "arms-length"
negotiations, the Company does not believe that this fact has had a material
impact on the Company's results of operations or financial position.
Page 12 of 14
<PAGE>
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.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Certain legal proceedings in which the Company is involved have been
disclosed in a Form 10 Registration Statement which became effective on February
12, 1999, and post-effective amendment (Amendment No. 1) to the Form 10 which
was filed on February 24, 1999. Reference is made to that disclosure and to the
disclosure contained in Item 1 of the Company's Quarterly Reports on Form 10-Q
for prior quarters in the current fiscal year.
Certain developments have occurred in the following legal proceedings
since the date of the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1999:
(a) In the arbitration initiated by Sands Brothers & Co. Ltd., a New York
Stock Exchange arbitration panel conducted a hearing June 8-10, 1999. A second
hearing is expected to be scheduled in July 1999, and the Company now expects
this matter to be resolved in the current quarter or in the first quarter of the
fiscal year which begins August 1, 1999.
(b) In the litigation commenced in February 1999 by MQS, Inc., the
Company filed its Answer to the Complaint and a Counterclaim based upon breach
of contract on May 11, 1999. Discovery is expected to begin in this action in
July 1999.
Item 5. Other Information
(a) Reincorporation in Delaware. Effective April 30, 1999, the Company
merged with its wholly-owned Delaware subsidiary, GBC-Delaware, Inc. The purpose
of the merger was to change the Company's state of incorporation from Idaho to
Delaware. The merger did not materially affect the Company's historical
financial statements or future financial reporting. A copy of the Agreement and
Plan of Merger pursuant to which the merger was effected is attached as Exhibit
2-1 to this Report.
Page 13 of 14
<PAGE>
(b) Redemption of Series A Warrants. During May and June, 1999, the
Company issued a total of 1,002,672 shares of Common Stock upon the exercise of
Series A Redeemable Common Stock Purchase Warrants. The warrants were issued in
a 1998 private placement, and were called for redemption by the Company on May
11, 1999. The warrant exercise price ($5.00 per share) was paid (i) in cash,
(ii) in previously-owned shares of Common Stock valued for this purpose at
$7.8125 per share, and (iii) in certain cases, through the cancellation of
indebtedness and the issuance of promissory notes. A total of 388,375 shares
were issued for cash ($1,941,875), 506,125 shares were paid for by the surrender
of 323,920 previously owned shares ($2,530,626), 98,172 shares were sold
partially in consideration of services rendered ($67,158.30) and partially
through the issuance of a two-year promissory note ($423,701.70), and 10,000
shares were sold in consideration of a short term promissory note in the amount
of $50,000.
All shares issued on the exercise of warrants are "restricted securities"
as defined in Rule 144 under the Securities Act of 1933.
(c) Restatement of Certificate of Incorporation. On May 11, 1999, the
Company restated its Certificate of Incorporation, as amended, by integrating it
into a single document without further amendment. The action was taken without a
stockholder vote pursuant to Section 245(b) of the Delaware General Corporation
Law.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Exhibit Title
------- -------------
2-1 Agreement and Plan of Merger dated January 29, 1999
3-1 Restated Certificate of Incorporation of Generex
Biotechnology Corporation
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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.
GENEREX BIOTECHNOLOGY CORPORATION
DATE: June 14, 1999 By: /s/ E. Mark Perri
-------------------------------------
E. Mark Perri
Chairman and Chief Financial Officer
Page 14 of 14
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of the 22nd day of January, 1999, by and between GBC-Delaware, Inc., a
Delaware corporation ("Subsidiary") and Generex Biotechnology Corporation, an
Idaho corporation ("Generex").
1. MERGER. Upon the Effective Date (as hereinafter defined), Generex shall
be merged with and into Subsidiary (the "Merger"). With the Merger, the separate
existence of Generex shall cease. Subsidiary shall continue in existence and
survive the Merger as the surviving corporation under the laws of the State of
Delaware.
2. EFFECTIVE DATE. The Merger shall become effective upon compliance with
the laws of the State of Idaho and Delaware or on such later date as parties
shall agree upon, the time of such effectiveness being hereafter referred to as
the Effective Date.
3. CANCELLATION OF SECURITIES. The securities of Subsidiary outstanding
immediately prior to the Effective Date, all of which are now owned beneficially
and of record by Generex, shall be cancelled and shall cease to be issued and
outstanding shares on and after the Effective Date.
4. CONVERSION OF SHARES OF STOCK. Upon the Effective Date, each outstanding
share of common stock, $.001 par value, of Generex ("Generex Common Stock") will
be converted into one share of the common stock, $.001 par value, of Subsidiary
("Subsidiary Common Stock"); each outstanding share of Special Voting Rights
Preferred Stock of Generex ("Generex Preferred Stock") will be converted into
one share of Special Voting Rights Preferred Stock of Subsidiary ("Subsidiary
Preferred Stock"); and each outstanding warrant, option or other contractual
right to purchase shares of Generex Common Stock will convert into a warrant,
option or other contractual right of the Subsidiary to purchase the same number
of shares of Subsidiary Common Stock on the same terms and conditions previously
applicable to purchase of shares of Generex Common Stock. The conversion of
Generex Common Stock and Generex Preferred Stock into Subsidiary Common Stock
and Subsidiary Preferred Stock shall occur automatically upon the Effective Date
without necessity of further action on the part of any person. Each certificate
representing shares of Generex Common Stock and Generex Preferred Stock
outstanding immediately prior to the Effective Date will, after the Effective
Date, represent the same number of shares of Subsidiary Common Stock and
Subsidiary Preferred Stock, and shall be exchangeable for new stock certificates
of Subsidiary in accordance with such procedures as may be established by
Subsidiary.
5. TERMINATION OF MERGER; AMENDMENT. Subject to applicable law, at any time
prior to the Effective Date, the directors of Generex and the directors of
Subsidiary may amend this Agreement; provided, however, that the principal terms
may not be amended without approval of the shareholders of Generex. This
Agreement may be terminated and the Merger provided for herein abandoned by
Generex, in its sole discretion, any time prior to the Effective Date of the
Merger if any shareholder of Generex exercises dissenters rights as set forth in
Sections 30-1-1302 and 30-1-1303 of the Idaho Business Corporation Act. If this
Agreement is terminated and the Merger contemplated hereby abandoned as provided
herein, this Agreement shall
<PAGE>
become void and of no effect.
6. ADOPTION OF MERGER. This Agreement and Plan of Merger shall be submitted
to and approved by shareholders of Generex, in accordance with Section 30-1-1103
of the Idaho Business Corporation Act. Upon approval of Generex shareholders,
subject to Section 5 above, a Certificate of Ownership and Merger shall be
prepared by Generex pursuant to Section 253 of the Delaware General Corporation
Law and filed with the Secretary of State of the State of Delaware, and
appropriate Articles of Merger shall be prepared by Subsidiary pursuant to
Section 30-1-1105 of the Idaho Business Corporation Act and filed with the
Secretary of State of the State of Idaho.
7. MISCELLANEOUS. This Agreement (a) is for the benefit of, and may be
enforced only by, Generex and Subsidiary and their respective successors and
assigns, and is not for the benefit of, and may not be enforced by, any other
person or entity, and (b) may be executed and delivered in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the
approval and authority duly given by resolutions adopted by their respective
Boards of Directors have caused these presents to be executed by the President
or Vice President of each party hereto as the respective act, deed and agreement
of each of said corporations, as of the date first above written.
Attest: GBC-DELAWARE, INC,
a Delaware Corporation
s/Rose C. Perri By: s/Anna E. Gluskin
- --------------------------- ----------------------------
Rose C. Perri, Secretary Anna E. Gluskin, President
Attest: GENEREX BIOTECHNOLOGY CORPORATION,
an Idaho Corporation
s/Rose C. Perri By: s/Anna E. Gluskin
- --------------------------- ----------------------------
Rose C. Perri, Secretary Anna E. Gluskin, President
84168
RESTATED CERTIFICATE OF INCORPORATION
OF
GENEREX BIOTECHNOLOGY CORPORATION
Generex Biotechnology Corporation, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Generex Biotechnology Corporation. The date of
filing of its original Certificate of Incorporation with the Secretary of State
was September 4, 1997. The Corporation was originally known as Generex
Biotechnology Corporation. On January 16, 1998, in connection with the filing of
a Certificate of Merger, its name was changed to GBC - Delaware, Inc. On April
28, 1999, in connection with the filing of a Certificate of Merger, the
Corporation changed its name back to Generex Biotechnology Corporation.
2. This Restated Certificate of Incorporation was duly adopted by the
Corporation's Board of Directors in accordance with the provisions of Section
245 of the Delaware General Corporation Law and only restates and integrates,
but does not further amend, the provisions of the Corporation's Certificate of
Incorporation, as heretofore amended or supplemented. The text of the
Certificate of Incorporation of the Corporation is hereby restated without
further amendment to read as follows:
FIRST: The name of the Corporation is Generex Biotechnology Corporation.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
THIRD: The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is as follows:
(a) Fifty Million (50,000,000) shares of Common Stock having a par value
of $.001 per share;
(b) One Million (1,000,000) shares of Preferred Stock having a par value
of $.001 per share. The preferred stock may be issued in one or more
series, and may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions as shall be stated in the resolution or
resolutions providing for the issue thereof adopted by the Board of
Directors of the Corporation; and
(c) One thousand shares of the Preferred Stock designated as Special
Voting Rights Preferred Stock shall have the following preferences and
relative, participating, optional or other rights, qualifications,
limitations and restrictions:
1. Dividends. Holders of Special Voting Rights Preferred Stock
(hereinafter referred to as the "Preferred Shares" or "Shares") shall
be entitled to receive a dividend per Share which equals the dividend
declared and paid on shares of the Corporation's Common Stock as and
when dividends are declared and paid on the Corporation's Common
Stock.
2. Rights and Liquidation, Dissolution or Winding Up. In the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation available
for distribution
<PAGE>
to its shareholders, whether from capital, surplus or earnings, shall
be distributed in the following order of priority:
a. First, to the holders of any class or series of Preferred
Stock or other capital stock of the Corporation which is entitled to a
preference in liquidation and dissolution over the Shares, but only to
the extent of that preference.
b. Next, to the holders of Shares and any class or series of
Preferred Stock or other capital stock of the Corporation which is of
equal rank with the Shares with respect to sharing in the proceeds of
liquidation and dissolution of the Corporation, pari passu, but only
to the extent that such class or series of capital stock is of equal
rank. In any such distribution, holders of Shares shall be entitled to
receive, prior to and in preference to any distribution to the holders
of the Corporation's Common Stock or any other class or series of
capital stock of the Corporation which is inferior to the rights of
holders of Shares in liquidation and dissolution and winding up an
amount equal to $.10 per Preferred Share then outstanding (the "Shares
Liquidation Preference").
c. After distribution of the Shares Liquidation Preference to
holders of Shares, the remaining assets, if any, of the Corporation
available for distribution to the shareholders of the Corporation
shall be distributed, pari passu, to the holders of all shares of
capital stock of the Corporation, without distinction as to class, as
their rights may appear.
3. Voting.
a. The holders of Preferred Shares are not entitled to vote,
except as specifically required by Delaware law or as expressly
provided below:
(i) If a Change of Control (as hereinafter defined) occurs,
thereafter, holders of Preferred Shares shall be entitled to
elect a number of directors of the Corporation equal to a
majority of the entire Board of Directors of the Corporation. Any
holder of Preferred Shares may call a meeting of holders of
Preferred Shares for the purpose of exercising these special
voting rights (the "Special Voting Rights") upon not less than
ten (10) days notice. Holders of the Preferred Shares may
exercise the Special Voting Rights by written consent in lieu of
a meeting pursuant to Section 228 of the Delaware General
Corporation Law. Upon exercise of the Special Voting Rights by
holders of the Preferred Shares, the Bylaws of the Corporation
shall be deemed amended to increase the size of the Board of
Directors to accommodate directors elected by the holders of the
Preferred Shares. After the Special Voting Rights have been
exercised, the Corporation shall give holders of Preferred Shares
the same
<PAGE>
notice that is required to be sent to holders of the
Corporation's Common Stock of any meeting at which directors of
the Corporation are to be elected. Once Special Voting Rights
have been exercised, they shall remain in force at all times
thereafter until the Preferred Shares have been redeemed by the
Corporation.
(ii) The affirmative vote of the holders of a majority of
the Preferred Shares then outstanding, voting separately as a
class, shall be required to approve any transaction that would
result in a Change of Control (a "Change of Control
Transaction"). The Corporation shall give each holder of
Preferred Shares at least twenty (20) days prior written notice
of any meeting of shareholders called for the purpose of voting
on a Change of Control Transaction. Holders of Preferred Shares
may approve any Change of Control Transaction by written consent
in lieu of a meeting pursuant to Section 228 of the Delaware
General Corporation Law.
b. "Change of Control" of the Corporation, as that term is used
herein, shall occur at any time that (a) the Current Management Group
shall cease to constitute at least sixty (60%) of all directors of the
Corporation, or (b) that any person becomes either the Chairman of the
Board of Directors or Chief Executive Officer of the Corporation
without the prior approval of a majority of the Current Management
Group, acting in their capacities as directors of the Corporation. The
term "Current Management Group" as used herein shall mean Anna H.
Gluskin, Rose C. Perri, E. Mark Perri, Pankaj Modi and/or any other
person (a) who is appointed a director of the Corporation by action of
the Board of Directors of the Corporation with the approval of a
majority of the Current Management Group then serving as directors of
the Corporation, in their capacities as directors, or (b) who is
nominated for election as a director of the Corporation by action of
the Board of Directors of the Corporation with the approval of a
majority of the Current Management Group then serving as directors of
the Corporation, in their capacities as directors.
c. On any matter as to which the holders of Preferred Shares
shall be entitled to vote as provided above, they shall be entitled to
one vote per share.
<PAGE>
4. Redemption.
a. The Corporation shall have the right, at any time after
December 31, 2000, upon written notice (a "Preferred Shares Redemption
Notice") to all holders of Preferred Shares at their respective
registered addresses stating that the Corporation is exercising its
right of redemption set forth herein and fixing a date for such
redemption (the "Preferred Shares Redemption Date") which shall be no
more than sixty (60) and no less than thirty (30) days following the
date of the Preferred Shares Redemption Notice, redeem Preferred
Shares at a price per Preferred Share (the "Preferred Share Redemption
Price") equal to ten ($.10) cents.
b. From and after the Preferred Shares Redemption Date, holders
of Preferred Shares shall cease to be shareholders of the Corporation
and the sole right of holders of Preferred Shares shall be to receive
the Preferred Shares Redemption Price as provided herein.
c. The Corporation shall pay the Preferred Shares Redemption
Price to each holder of record of Preferred Shares as of the Preferred
Shares Redemption Date, provided, however, that as a condition
precedent to the Corporation's payment of the Preferred Shares
Redemption Price to any holder, such holder shall deliver to the
Corporation the certificate representing the Preferred Shares to be
redeemed or, in lieu thereof, satisfactory evidence that such
certificate has been lost or destroyed, together with a bond or surety
satisfactory to the Corporation to protect it against loss should such
certificate subsequently be tendered for redemption.
d. If the Corporation at any time redeems fewer than all
Preferred Shares, it shall redeem the Preferred Shares pro-rata from
all holders thereof.
e. The Corporation shall have the right to redeem Preferred
Shares owned by any Holder thereof upon the same terms and conditions
set forth above upon the death of the holder.
5. Transferability. The Preferred Shares shall not be
transferrable by a holder thereof without the prior written consent of
the Corporation except pursuant to the laws of descent and
distribution.
6. Other. Except as expressly provided herein, Preferred Shares
shall have the same rights and privileges as shares of the
Corporation's Common Stock.
<PAGE>
FIFTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SIXTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and the Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
SEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law. Any repeal or modification of this Article shall not
adversely affect any right or protection of a director of the corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
EIGHTH: Section 203 of the General Corporation Law of Delaware, as amended,
shall not be applicable to this corporation.
<PAGE>
IN WITNESS WHEREOF, said Generex Biotechnology Corporation has caused this
Certificate to be signed by E. Mark Perri, Chairman of its board of Directors,
this 5th day of May, 1999.
GENEREX BIOTECHNOLOGY CORPORATION
By: s/ E. Mark Perri
-----------------------------
E. Mark Perri, Chairman
93329
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