-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PI7SAZ4cCC4WSGw0FIIwb2ekSsuQM/IFt17goHvfzj8Kgk4zuFagUurrH9BsgjbE 1dsbr0rku51lRNqym0pxSA== 0000950115-99-000888.txt : 19990615 0000950115-99-000888.hdr.sgml : 19990615 ACCESSION NUMBER: 0000950115-99-000888 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEREX BIOTECHNOLOGY CORP CENTRAL INDEX KEY: 0001059784 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 820490211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25169 FILM NUMBER: 99645422 BUSINESS ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO CANA STATE: A1 BUSINESS PHONE: 4163642551 MAIL ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO M5J STATE: A1 10-Q 1 QUARTERLY REPORT 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 ----------------------------------------------------- (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. GENEREX BIOTECHNOLOGY CORPORATION INDEX 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
Page 2 of 14 Item I. Consolidated financial statements GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS (UNAUDITED)
April 30, July 31, 1999 1998 --------- -------- 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 ============ ===========
The Notes to Consolidated Financial Statements are an integral part of these statements. Page 3 of 14 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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 ------------ ------------ ------------ ------------ ------------ 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 =========== =========== =========== ===========
The Notes to Consolidated Financial Statements are an integral part of these statements. Page 4 of 14 GENEREX BIOTECHNOLOGY CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative From November 2, For the Nine Months Ended 1995 (Date of April 30, Inception) to ------------------------------- April 30, 1999 1998 1999 ----------- ----------- ------------ 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 =========== =========== ============
The Notes to Consolidated Financial Statements are an integral part of these statements. Page 5 of 14 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 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 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
For the Nine Months Ended April 30, ------------------------- 1999 1998 -------- -------- 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 $ --
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 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 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 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 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 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 (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 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 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 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 EX-3.1 3 CERTIFICATE OF INCORPORATION 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. 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 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 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. 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. 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. 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 EX-27 4 FDS
5 9-MOS JUL-31-1998 APR-30-1999 $3,859,362 0 159,629 0 0 4,151,915 2,295,493 73,236 7,267,043 938,460 635,084 0 1 16,338,238 0 7,267,043 0 0 0 0 4,319,895 0 26,991 0 0 0 0 0 0 (4,346,886) (0.34) (0.34)
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